Americans' low savings rate, in general & for retirement

Today on NBR (and apparently elsewhere in the press), there was coverage on fairly shocking, but unfortunately, not too surprising numbers re: retirement savings.

http://www.youtube.com/v/c51uLZQbz2k" onclick="window.open(this.href);return false; - you can skip ahead to the 1 minute mark

Some stats from the story:
36% of Americans have less then $1K saved
60% have less than $25K saved
44% have calculated their retirement needs

I've heard other similarly distressing stats before such as http://money.cnn.com/2012/05/10/retirement/saving-retire/index.htm?hpt=hp_t2" onclick="window.open(this.href);return false; mentioning "About 49% of Americans say they aren't contributing to any retirement plan" and "People ages 18 to 34 are the least likely to be saving, with 56% reporting that they are not currently contributing to a retirement plan like an IRA or a 401(k). "

http://money.cnn.com/2013/06/24/pf/emergency-savings/" onclick="window.open(this.href);return false; says

Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
...
Last week, online lender CashNetUSA said 22% of the 1,000 people it recently surveyed had less than $100 in savings to cover an emergency, while 46% had less than $800. After paying debts and taking care of housing, car and child care-related expenses, the respondents said there just isn't enough money left over for saving more.

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Seems some people are outliving their means and overspending...

cwerdna said:

Seems some people are outliving their means and overspending...

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That's true, but we should also consider that most of us aren't bringing in enough money to save, and some of us are just scraping by in order to put a roof over our heads and food in our bellies. The decrease in value of our savings year after year from inflation isn't helping encourage savings either. It's a battle every year fighting with my employer to at least give me a raise that matches the decline in my purchasing power.

kubel said:

It's a battle every year fighting with my employer to at least give me a raise that matches the decline in my purchasing power.

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Raise? What's that? I haven't had a raise in over 5 years...

kubel said:

cwerdna said:

Seems some people are outliving their means and overspending...

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That's true, but we should also consider that most of us aren't bringing in enough money to save, and some of us are just scraping by in order to put a roof over our heads and food in our bellies. The decrease in value of our savings year after year from inflation isn't helping encourage savings either ...snip.....

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... so ... you're pretty much torn between one of 3 choices ... leave your life savings (paper?!?) in the bank with near zero interest where THIS may happen:

http://www.nytimes.com/2013/04/01/business/global/calculating-impact-of-cypruss-bank-bailout.html?pagewanted=all&_r=0" onclick="window.open(this.href);return false;

or ... convert part/or all of your retirement to market wealth (where the top % of wealthy use trading algorithms to anticipate and trade ahead of stock price movements via speeds of computer connections, measured in milliseconds ... leaving you in the dust.

or ... take it out of the system to prevent it from instantly disintigrating if/ when that does happen. Who knows ... maybe that's why savings are low ... because the system presumes we're all just getting poor.
.

These are lame statistics. How about report people of retirement age 60+ instead of all Americans? Where do they get "retirement savings" ? Does that include the small business owner that can sell for a million + at 65 or 70 to retire ? Seen it many times but they had almost no savings.

Lies, damn lies, and statistics. Just scare mongering to get more money under management by the big bankers.
JMHO

When you are barely making ends meet, it is hard to save anything for retirement. Only when we hit our 30's did we finally have enough money that we could start putting something away without making huge sacrifices. My wife and I both have 401Ks and a few years ago I started putting away $100 per month in precious metals (Gold/Silver/Platinum) as a supplement. Also if the dollar collapses, the precious metals will still have value where my 401K probably won't.

adric22 said:

Also if the dollar collapses, the precious metals will still have value where my 401K probably won't.

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If the dollar collapses your 401k will be the least of your problems... :roll:

hill said:

... so ... you're pretty much torn between one of 3 choices ... leave your life savings (paper?!?) in the bank with near zero interest where THIS may happen:

http://www.nytimes.com/2013/04/01/business/global/calculating-impact-of-cypruss-bank-bailout.html?pagewanted=all&_r=0" onclick="window.open(this.href);return false;

or ... convert part/or all of your retirement to market wealth (where the top % of wealthy use trading algorithms to anticipate and trade ahead of stock price movements via speeds of computer connections, measured in milliseconds ... leaving you in the dust.

or ... take it out of the system to prevent it from instantly disintigrating if/ when that does happen. Who knows ... maybe that's why savings are low ... because the system presumes we're all just getting poor.

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Sounds to me like you should just put your money under your pillow...

As a young adult nowhere near retirement I pride myself in how much I have saved.

Firstly, I just assume Social Security won't be around when I retire - period. No money no nothing. If there is some, great, I have extra bonus spending money. Personally, I think SS needs to die, but that's just me.

Secondly I HATE having to rely on people for anything. I don't mind help and utilizing resources, but money is the worse and I will never rely or ask for help on money - including when I am old and decrepid. I know some people or cultures rely on the younger generation to help support them as they age - I want to be 100% monetary self sufficient. That is just my weird self.

As for saving for retirement, I might not be the most savy - pulling out of 401ks and doing hard core trading or investing in metals, etc. But I do invest straight into my retirement and do pretty decent on my allocations and diversify (I invest pretty agressive since I am young with no kids). I started with my first job. I worked for the state and made very little money. Yet I still invested something (sacrificing eating out and parties for ramen and being at home) and it paid off (a little money invested early is worth a bunch more than a lot of money invested later - its just math). But as I have gotten more raises and better jobs I contribute more - enough to sting a little bit, but not enough to have me scream. I refuse to lower my amount it - I would give up almost everything I have before changing that. As it stands, I will make more money retired (accounting for inflation) than I make now - and thats my goal, retiring will give me a raise

I do find it sad that many people don't save or live paycheck to paycheck (sometimes not always by choice though). But in my profession, its really people in general. I do a lot of long range planning for transportation and its SO HARD to convince people we need X road or X improvements 5, 10, or 20 years away and they always point and say "but traffic is fine now." Most people have a VERY DIFFICULT time thinking beyond the now. A perfect example is some type of energy efficent improvement, like a CFL bulb a few years ago. The most common complaint I heard from friends? Its too expensive. Despite it would save over time, they could only focus on the direct immediate cost even if the ROI was less than a year. So that saving metric really doesn't surprise me because I see it constantly at work when working with the public.

Pipcecil said:

Firstly, I just assume Social Security won't be around when I retire - period. No money no nothing. If there is some, great, I have extra bonus spending money. Personally, I think SS needs to die, but that's just me.

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Feel free to assume it won't be there if that helps you save... but don't forget to work to keep Social Security solvent and support our collective retirement package. If not for it the homeless problem would likely be 10x as bad as it is.

It is a collective insurance policy purchased with payroll deductions... not 'an entitlement' in the derisive way many enemies of it speak of it... rather a contract. We need to fight to keep and strengthen it. So that each of us in turn can collect. Before we declare it broke how about asking the taker 'red' states ( states that get more than they pay in taxes from the feds) to give back the money they took out of the US budget first. Oh... and before any cuts in payouts for retirees... how about cuts in the defense INDUSTRY. (not the vets)

our false preception of wealth, for those who may be clueless:

http://www.youtube.com/watch?feature=player_embedded&v=QPKKQnijnsM" onclick="window.open(this.href);return false;

So there you go - delayed gratification has very little to do with it ... it's all about the system being gamed to favor the top ten percent.
.

jsongster said:

not 'an entitlement' in the derisive way many enemies of it speak of it... rather a contract.

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That's just it, there is no contract. Benefits are bestowed at the political whim. But your point is well taken, the term "entitlement" is used derisively to refer to what many have been forced to pay into for many years and accept subpar returns.

Great post Pipcecil!

Delayed gratification is a very tough concept for most of us, but you are showing that it can be learned and applied! I wish I had started earlier saving like you are, but am doing pretty well now, and my Leaf being such an inexpensive way to drive is a part of that math... (never owned a new car before but the zero down, $220 per month lease is just the cheapest way to drive!)

My kids max out their Roth IRA's every year, as soon as they start earning an income during their summer jobs! Sounds like someone taught you well

Pipcecil said:

As a young adult nowhere near retirement I pride myself in how much I have saved..."

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I was also disappointed in that NBR report last night. They completely ignored two major reasons why retirement savings are a problem for so many.

First, many people are working at low-paying — often part-time — jobs and living paycheck to paycheck. It is no wonder they have few, if any, savings. The NBR report mentioned that those with incomes above $75K are doing much better with retirement savings. Wow, what a surprise. Those with incomes above that level are very well-off. The problem is that the vast majority of workers earn much, much less than that. Accumulating savings with a low income, especially for those raising families, is quite difficult.

Second, many workers from previous generations had pension plans provided by their employers. Those have been replaced, for the most part, by 401(k)s and IRAs which require considerable effort and expertise by the worker to use and manage well. And decades of experience now show that the majority are quite bad at it (witness the folks who sold stock funds in a panic during the last bear market and missed out on the tremendous bull market that followed). Since spending a career with one employer is becoming increasingly rare, company pension plans are no longer practical. But the 401(k) and its kin have been notable failures for many, perhaps most. The national pension system, Social Security, was intended to be a supplement to retirement savings but it is the sole source of income for many retirees. Without Social Security (and Medicare) poverty among the elderly would be vastly higher. So, I have nothing but contempt for those who would eliminate SS (or "privatize" it, which is the same thing) and who sneer at those of lesser means.

I was one of the lucky ones: a fairly sophisticated investor with a heavy-duty economics background, and with a very thrifty lifestyle. I was willing and able to live well below my modest means, save like crazy, and retire at age 45 by continuing to be thrifty. And I would be able to get by comfortably on Social Security alone, unlike many. But I didn't have a family to support so I have considerable sympathy for those who do.

I realize that NBR is intended for investor-types like me. But they really dropped the ball with that shallow report.

martyv said:

Great post Pipcecil!

Delayed gratification is a very tough concept for most of us, but you are showing that it can be learned and applied! ."

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Look at all the Leaf owners who want to gratify themselfs with at Tesla and do not.

Joke aside, in "delayed gratification" the "delay" part is clear the "gratification" part needs to be defined. Sometimes I failed to understand why I have to work without "gratification" for almost 50 years to be able to enjoy 10-20 year of "gratification". It makes more sense to have almost 50 years of "gratification" while working, and only endure 10-20 years of no "gratification"

yea, I can see the the thought of enjoy it now (for 40 years) rather than for only 20. But for me, when I am old, barely move and don't have to worry about work, I SO don't want to have to scrape or curtail my living then, that would just suck. I think for myself (my opinion) - as I am in the normal workforce I can adjust things easier than when I am retired. You are almost at the mercy of what you saved when you retire versus changing jobs or fighting to get a raise when you are younger and working. Beyond that I know health insurance and health cost will be astronomical. I am not in the best of health (have a severe sleeping disorder I have had since I was 2), and my wife was diagnosed with a usually geriatric chronic illness at 28, so treatments will only get more expenisve as she gets older. I have no illusions it will be cheap, so I expect most of my retirement income will be medical alone.

As for SS - I am conficted but still stand by my desire to have it phased out. For the previous generation - those people grew up knowing that SS would be there for them as supplemental and even budgeted their retirements with SS in place and it needs to remain that way. My generation needs to start from scratch, we need to realized it WILL NOT be around and learn to save for ourselves. SS was always just a stop-gap measure. It was for a changing generation that would need some type of monetary assistance when they retired because of various social reasons (it was never needed before). Today I don't see why my you generation cannot save themselves. They make the choice and KNOW they will need money after working. I have no sympanthy for those who choose to spend all of their money now and expect it to be handed to them when they retire. In essence, the goverment has decided (applying to my generation only - nothing before) that we are too dumb to save for ourselves so daddy has to save for us. Screw that. We are all intellegent and realize we can choose to save and choose not to save. I choose to save and therefore live below my means to do it, my friends that don't are living at the edge of their means (poor money management) so why should they be swaddled and taken care of because they are poor money managers?

I liken it to some of my friends who are in small start-ups or own businesses. Instead of being smart and saying - "oh I know I will have taxes at the end of the year, I need to put away some amount to help cover it" They spend all of their money and come tax time they freak out, owe lots of money to try to find, have to borrow or find some way to cover the cost, etc. etc. They will even try and negotiate lower taxes. Why should they get a break because they failed to save for this time? I pay all my taxes so I am "penalized" for it by...paying it all. Because they are bad at money they usually get breaks of "oh you only need to pay x% because we feel sorry for you for being dumb with your money and partying too much and buy boats." That frustrates me to no end. These are my collegues that will lean on SS until the end - personally they shouldn't get a dime. They made their choice and we shouldn't coddle them to outspend themselves.

Unfortunately SS will become extremely unsolvent. It worked a long time ago because we had tons of young workers and only few retires, a perfect large based pyramid. Unfortunately as our life expetancey has gotten longer and we have less children per family there is no pyramid anymore only a fat pear and it may eventually become a reverse pyramid. They system will break down because of that. It will not longer be able to be supported by the youngest generation, but will require money from other places. It will need to be restructured at the very least in the near future. My idea - stop giving money to SS and phase it out. Give back my generation their money that is going to SS. We can choose to do what we want with it - save it spend it, thats our choice, we don't need a daddy gov to save it for us. Take the remainder of the people and give them their normal SS using funds from the general funds - eventually it will need less and less and finally SS will be gone.

Pipcecil said:

Unfortunately SS will become extremely unsolvent. It worked a long time ago because we had tons of young workers and only few retires, a perfect large based pyramid. Unfortunately as our life expetancey has gotten longer and we have less children per family there is no pyramid anymore only a fat pear and it may eventually become a reverse pyramid. They system will break down because of that. It will not longer be able to be supported by the youngest generation, but will require money from other places. It will need to be restructured at the very least in the near future. My idea - stop giving money to SS and phase it out. Give back my generation their money that is going to SS. We can choose to do what we want with it - save it spend it, thats our choice, we don't need a daddy gov to save it for us. Take the remainder of the people and give them their normal SS using funds from the general funds - eventually it will need less and less and finally SS will be gone.

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Ever think that ANY method of paying for retirement is going to work less well as life expectancy increases?

10 young to 1 retired: with the family paying, as was done in some traditional societies, there are many young and few old, so the old are not a great burden.
1 young to 1 retired: one for me, one for granny...50%

10 young to 1 retired: With savings, about 10% of income needs to be dedicated to retirement.
1 young to 1 retired: about 50% of income needs to be saved.

10 young to 1 retired: With taxes, about a 10% tax rate is needed.
1 young to 1 retired: about a 50% tax rate is needed.

While some nominal methods are going to be harder analyze than others, focus on real flow of goods and services. With a ratio of 1 young to 1 retired, a large fraction of goods and services need to go to the retired people from the young people.

Suppose we transition between a tax based retirement and a savings based retirement:

10 young to 1 retired: Young people need to pay 10% of income to taxes, and need to save 10% of income to fund their own retirement
1 young to 1 retired: 50% of income to taxes, the other 50% to savings.

Stanton said:

kubel said:

It's a battle every year fighting with my employer to at least give me a raise that matches the decline in my purchasing power.

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Raise? What's that? I haven't had a raise in over 5 years...

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sad +1

Most of the people I work with make between $30,000 and $40,000 per year. Most of them are in their 30's and 40's. And most of them still live paycheck to paycheck with no savings. They also tend to live in rent-houses or apartments. They have no credit. Many are divorced. I have been curious as to how they are going to survive when they reach retirement age.

But then there are people at the other extreme. Those who live in almost poverty because they save nearly everything they make. This makes no sense to me either as there is no guarantee I'll live long enough to enjoy the savings. But I like the comment somebody else made about why delay all of your gratification for the last 10-20 years of your life?

I try to take a more balanced approach. We actually live somewhat frugally. We could probably afford a larger house and cable TV, etc... But we don't. In fact, about the only indulgence we have is our cars (Volt + Leaf) and even those are minor considering our lease payments and the money saved on fuel.

Fairfax County, Va., and McDowell County, W.Va., are separated by 350 miles, about a half-day’s drive. Traveling west from Fairfax County, the gated communities and bland architecture of military contractors give way to exurbs, then to farmland and eventually to McDowell’s coal mines and the forested slopes of the Appalachians. Perhaps the greatest distance between the two counties is this: Fairfax is a place of the haves, and McDowell of the have-nots. Just outside of Washington, fat government contracts and a growing technology sector buoy the median household income in Fairfax County up to $107,000, one of the highest in the nation. McDowell, with the decline of coal, has little in the way of industry. Unemployment is high. Drug abuse is rampant. Median household income is about one-fifth that of Fairfax.

One of the starkest consequences of that divide is seen in the life expectancies of the people there. Residents of Fairfax County are among the longest-lived in the country: Men have an average life expectancy of 82 years and women, 85, about the same as in Sweden. In McDowell, the averages are 64 and 73, about the same as in Iraq.
http://www.nytimes.com/2014/03/16/business/income-gap-meet-the-longevity-gap.html?hp" onclick="window.open(this.href);return false;

we should not be raising the social security age because well-to-do lawyers and bankers are living longer.
social security is fully-funded through 2035 and will pay 75% of benefits with NO changes.
those who designed it and the fix in 1986 knew all about the changing demographics of more retirees and fewer workers.
eliminate the cap and tax all wages for SS. Tax capital gains as wages for those with AGIs above 250k for a family.
increase taxes at death on all estates above $10 million.