Economics

Americans Aren't Saving Nearly Enough

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By the time today's 50-year-olds reach retirement age in the mid-2030s, Social Security is projected to be bumping up against insolvency. That will mean automatic 20 percent benefit cuts for everyone. Clearly, it's never been more important for Americans to stop trusting the government with their financial planning, and yet far too many of us still do.

Studies show that around 35 percent of Americans would run into financial trouble if they missed a single paycheck or were hit with an unexpected expense of $1,000. When it comes to saving up for the big things—like retirement—the data are far worse. A 2018 survey conducted by Northwestern Mutual, a financial services firm, found that one-third of Americans have less than $5,000 in private retirement savings, and the average amount tucked away is just $84,000, far less than the nearly $1 million the average retiree will need.

All told, the American personal savings rate, a measurement of how much the average household saves after all taxes and spending, has been below 10 percent for nearly the entire 21st century (though it has rebounded from a low of 2.2 percent in July 2005 to a recent high of 7.7 percent in December 2018, according to data from the Federal Reserve).

"Most Americans really ought to be saving more," economist Tyler Cowen wrote in January after a government shutdown exposed just how quickly some Americans can end up on the rocks. "It shouldn't be controversial to point this out."

Yet it is, at least a bit, because low interest rates continue to signal to consumers that they should borrow and spend, not put money away. If we are a country of grasshoppers, it's partly because the Fed is telling us not to behave like ants.

Saving money for a rainy day is both a personal and a social obligation, and the poor state of Americans' savings accounts manifests itself on both levels. It's most obvious when someone you know is facing the hardship of being unable to pay emergency medical bills or afford a crucial car repair. Setting up a GoFundMe page might fill the gap, but it won't put someone on the path to personal solvency.

More broadly, inadequate savings leave Americans more likely to turn to the government for help, which gives leverage to politicians who will want to pilfer others' savings and retirement accounts. If more people feel like they're teetering on the edge of financial instability, then there will be more demand for expanding the taxpayer-funded safety net—even if there is ample evidence that the government can't even fulfill many of the promises it has already made.

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  1. “Clearly, it’s never been more important for Americans to stop trusting the government with their financial planning, and yet far too many of us still do.”

    I never started trusting it with my financial planning. You understand that contributions are compulsory, right, Eric?

    1. You’re already saving over 15% of your income!

      FICA Medicare: 2.9% split between employer/employee.
      FICA SS: 12.4% on first $128,400 split between employer/employee.
      FUTA: 6% on first $7,000 paid by employer.

      1. Exactly, Rat on a train! Let us keep that loot. Only _then_ can Eric start lecturing us about saving more.

      2. Sorry but not a single cent of that was saved. 100% is spent as soon as the government takes it in. Most to current beneficiaries and when there was a surplus it went to the General Fund to be spent as required by law. Look up the original Charter of SS at ssa.gov
        You have nothing but in IOU from future generations run by a government deeply in debt.
        Even at that the promised rate of return on SS is 2.1% for those born after 1960 that live to the average age. The trustees show it is 23% short of funding needed to pay that meager rate of return.

        1. “You have nothing but in IOU from future generations”

          And government guns to back it up.

        2. Yes, all federal “savings” are just an IOU against the general fund, which spends it all every year.

          OTOH, think about what real savings by the federal government would mean: a Federal agency to invest the money. This would have bureaucrats with no skin in the game picking investments. It would not only lose money due to inompetence, but come under massive political pressure – to avoid politically incorrect investments (e.g., Israel), to invest in politically desired but losing propositions such as Solyndra, and most of all, for the investments to be pork for Congressmen and other VIP’s. It would become more corrupt than the Spoils System of awarding federal jobs under Andrew Jackson.

  2. Why save? Elizabeth Warren will just tax it away.

    1. It’s not just Warren you have to worry about, it’s all of them. I have to admit, I am shocked that the government hasn’t yet started looting taxing imposing a small, one-time only adjustment fee on IRAs and 401Ks on the grounds that these rich fat cats who keep piles of loot in their Scrooge McDuck swimming vaults don’t pay one penny of taxes on that money, but it’s got to be coming. There’s no way in hell they can resist the temptation of that much money just lying around doing nothing when the government has so many pressing needs for it.

      1. Jerry….start doing Roth conversions now.

        1. Really think they won’t go back on the promise of not taxing Roth distributions?

    2. Its why some of us have “savings” in the form of a bunch of Arms.

      While government agents are holding Boehm upside down and shaking out his pockets, some of us won’t have any of those $100,000,000 coins for taxmen to take.

  3. Americans are facing the financial problems if they have missed their salary on time, and when they want to saving up for big things they cant do it. Any kind of issues you find then just visit office setup our website.

  4. “less than $5,000 in private retirement savings, and the average amount tucked away is just $84,000”

    Those stats are meaningless without age references. How much does the avg 55 yo or 62 yo have?

    1. ^ This. I had a negative net worth until I was in my early 30s.

    2. I was thinking the same thing. For about 3 years after college I had $400 in my savings account. Sure, I bought a few things I shouldn’t have, but I was in no way a crazy spender. I didn’t do anything too irresponsible with credit cards either. I was just young with very little savings until I was able to grow my skill set, prove my worth and increase in income so I could save more. It always starts small and then ramps up very quickly too. At first saving feels like a slow never ending slog, but eventually it starts to balloon if its invested properly.

  5. Keep in mind that only older folks need to save for retirement. If you’re not planning on retiring in the next 11 years, 3 months, there’s no point in saving for something you’re not going to be alive to see.

    1. Plus in 2024 when AOC becomes President, everything will be free so you’re last few years alive will be expense free!

      1. Black-market toilet paper ain’t free.

    2. +10

  6. I can’t believe some of the crap I am reading here.

    Yes, SSA benefits are going to take some kind of haircut, after 2030. Those of us in Gen X and later are basically fucked, on that front. It is what it is. We can cry about it, but what is done is done. Then again, SSA was designed to keep the elderly out of poverty – not completely finance a lifestyle.

    Start saving early – in your 20’s. Start with 6% in your 401K (or IRA) and increase by 1% a year until you hit 20%; then start a Roth IRA. Always, always, always get the match. Invest in low cost index funds. Live below your means. Create a written Investment Policy Statement (IPS). Have an emergency fund.

    Do these things, and your retirement will be carefree.

    1. Agreed. Very sound advice. I have a financial planner and we plan for $0 in annual SS payments when I am retired.

    2. Much like the fix being in for last night’s Houston-Detroit baseball game, investing in the stock market is fixed by the global elites to devalue every so often in the form of a crash. Elites pull money out, schlubs buy the dip, and a week later there’s a 15% loss. Lather, rinse, repeat.

    3. I’d love to do that. But the government takes 40% of my earnings, so its its impossible.

  7. If we all started saving, the economy would be “fucked”. 70% of all spending comes from the consumer, and spending is predicated on people tapping themselves out and spending every last cent we have. I remember when GWB gave that “tax refund” and they asked what they hoped Americans would do with that money, and they said the hoped everyone would go to Walmart and buy a new flatscreen TV. Drop SS into private accounts, and slash the benefits of the existing retirees – fuck those people.

    1. This makes no sense at all. Every dollar “saved” is, eventually, “spent.” Every. Single. One.

      And, in the meantime, every dollar I have “saved” goes to finance everything from personal loans to mortgages to business start-ups. “Saved money” is a vital part of a healthy economy.

      1. Yeah, it’s more appropriate to think of “savings” as “investments.”

        1. Unless the money is going into the mattress. Or gold coins (though I suppose those are bought from someone).

          1. Yeah. But, actually, if a ton of money is stored in mattresses, that reduces the amount of cash in the system, which would reduce the inflation rate. So, even “dead” saved cash has some positive influence on the economy.

  8. “That will mean automatic 20 percent benefit cuts for everyone.”

    Boehm, why the fuck do you insist on just pulling shit out of your ass.

    1. If there’s going to be a 20% cut, it won’t be in the nominal $$$ shown on your SS deposit. It will be invisible: eaten up by hidden inflation. Name me one congresscritter who would survive the 2020 election if “xe” called for a 20% cut in S.S. benefits?

    2. Where else do you expect him pull shit out of?

  9. “because low interest rates continue to signal to consumers that they should borrow and spend, not put money away.”

    No shit. When I was 20, a gallon of gas cost 30 cents. Suppose, instead of using that gallon back then, I wanted to save it for use when I retired. 30 cents at 4% interest for 40 years = $1.44. But gas is over twice that now, so I’ve effectively lost half my money.

    It’s no wonder people don’t save.

  10. Well, at 6% you would have $3.29, which is about 80 cents more per gallon than I paid yesterday. And 6% is well short of what you would have earned had the 40 year younger you invested a moderate portion of that 30 cents in the stock market. I know any number of people who saved for 40 years who have more in assets today in retirement than the wages they earned in their entire lifetime.

    1. I was talking about saving, not investing. If the 40 year younger you had invested in Enron stock, how much would you have today?

      1. I’m pretty sure at least one of my mutual funds had money in Enron. But they also had MickyD, H&R, Apple, etc. Just buy S&P Index to spread risk around.

        1. What are these “mutual funds” of which you speak?

  11. I was recently talking to one of my lefty friends about life goals, kids, family, etc. He’s getting married, and I asked him “you all gonna have kids?” He replied “No, I don’t think so.”

    We talked a bit about the environment and energy policy, and he brought up the topic of kids again, saying “another reason I don’t want kids is because I feel like there’s enough of us, enough humans, we don’t need more, so why should I contribute to the population growth.”

    There was a pause in the conversation, then I said “sounds like social security is going to be in trouble in the future.”

    We got a good chuckle out of that, but I was serious, how does he expect taxpayers to fund a safety net while encouraging people to have less kids? These schemes rely on ratios. Why are people still retiring in their 60s? We don’t have the tax base to do social security for everyone for 20+ years of retirement. Want to retire in your mid-60s? Save your own damn money, that shit isn’t my fault. The Fed may be discouraging saving, but it hasn’t stopped me. Bank interest rates are not the only way to make your money work for you.

  12. I am sick of these fear-mongering surveys from financial services companies. The statement that “one-third of Americans have less than $5,000 in private retirement savings, and the average amount tucked away is just $84,000” sounds awful until you put it in context.

    The big context they don’t mention is that most of their survey recipients are nowhere close to retirement yet. Some of them are just starting their careers. Of course they don’t have a million dollars saved yet. They don’t need it.

    Start from their assumption that you need to have a million dollars by the time you retire at age 65. Assuming a conservative 5% annual growth (actual 8% in the stock market offset by 3% inflation), that means you need about a half-million in the bank at age 50 and $250,000 at age 35. Since the average survey recipient is NOT already 65, you would expect their results to be well below the $1M target.

    But even that calculation is way too conservative because it assumes that you’re not going to add anything to your savings between age 35 and 65. If your career progression is anything close to normal, later in your career are going to be your best earning years – the years when you can put the most away. Depending on how much you can put away in your later years, you don’t necessarily need to even start saving until you’re in your mid-thirties.

    Obviously, the more you save and the earlier you start, the better protected you will be from random events. But the fear-mongering that “Americans don’t save enough” is contradicted by the fact that we’ve been told that for decades yet there remains a notable lack of people starving in the streets.

    1. Eh…

      The journalists don’t do the research justice. Here’s one such survey. They do break it down by age, and even then folks just aren’t prepared.

      1. I blame the Boy Scouts for not sticking to their guns.

      2. Of course they aren’t, the idea that you can retire and not work for 20-30 years is stupid. Retirement was never supposed to last that long. It’s absolutely ludicrous and irresponsible that we expect people to be ready to support themselves that long without working. It’s much more realistic to push the average retirement age back.

        1. Push the retirement age up*

      3. Hi, Escher. Thanks for the link. I will concede that the Transamerica survey does a much better job of divvying up their analysis by age. I remain unconvinced by their conclusions, however. According to their analysis, the median savings of respondents 60 and older was $172,000 – well below the $1M target. Yet we do not see four-fifths of our elders destitute and on the street. Clearly, something is wrong with their analysis. Either the $1M target is higher than is really necessary or the self-reporting of savings is too low. Personally, I suspect both.

        1. I had no where near a million dollars when I retired.
          I paid cash for a smaller home, trading a lower pension balance for being debt free, and am doing well on half of what I earned as an employee.
          I have no idea how that works, because three months of spreadsheet analysis said I couldn’t possible afford to retire. But I retired anyway; the alternative was to remain in a corporate culture much like the current democratic party.
          So now I can laugh all day long at Reason articles and comments, read all the history books my dad bought but did not retire in time to read, watch a lot of politics-free movies on TCM, and look at the lake for hours on end while sipping coffee.
          It ain’t a bad life, grasshopper.

          1. You’ve got the right idea man. No debt + low expenses = stress reduced, happy life. I work for myself and enjoy it, so may work longer than average…but don’t have to

  13. Clearly, it’s never been more important for Americans to stop trusting the government with their financial planning, and yet far too many of us still do.

    None of us do. But if we squirreld *more* money away on top of what the government is taking then we’d be leaving even meaner and cramped lives than we already are.

    Total tax rates are close to 50% when you figure in state and federal income taxes, sales taxes, and property taxes.

  14. I’ll bet most 35-year olds have dumped $250k and most 50-year olds have dumped $500k into Social Security.

    But; The Bill Clinton administration stole all those savings… Social Security – just another excuse/way politicians steal your savings by force and then use it to pester you out of a job completely by passing EPA legislation making it impossible to own equipment that actually works.

  15. He’s talking about me.

    And when I retire I am going to vote to tax the duck out of you assholes.

  16. You have to have money to save money. When you get paid close to nothing it is impossible to save. Let me guess: the author has money and chooses to look down on those who have less.

    1. “When you get paid close to nothing” — Nobody’s problem but yours and the dictative people who insist upon legislative standards.

      Want rent for $100/month – repeal building codes – repeal the monopolize “federal” land hoarding. Want a 25% pay increase? Repeal medical/S.S./tax codes. Want to become a high paid doctor without 6-years of political garbage/brainwashing and a $500k student loan to go with it? Abolish the B.O.E.

      After which you can start your own “education” facility and teach others how to do what you know or learn what others know for 2% of the price from people who really know what they’re doing else they go bankrupt due to no-one wants to pay them to run their flapy-jaw for useless and faulty information.

  17. […] rise of authoritarian populism,” threats to a free internet and worries that “Americans aren’t saving nearly enough.” But Reason is the rare publication that also points out good […]

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