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Are Americans Saving Enough?

rainy day fundIf there was one bright side to the Great Recession, it was that Americans started saving more of their money than they had in a long time. But now that the economy is showing reluctant signs of getting stronger, we’re back to less savings.

As of the end of November 2012, Americans were saving just 3.6% of their disposable income (Source: The St Louis Federal Reserve, 2013). As low as that may be, it’s better than the first 10 years of the 21st century, when we put away an average of just 3.3% of our disposable income. We actually hit a low of just 0.9% in October 2001, and by the middle of the decade, observers declared that America was experiencing a “savings crisis.”

In response to the stock and real estate market meltdowns, which began in 2006 and 2007 respectively, Americans started borrowing less and saving more. The savings rate peaked at 8.3% in May 2008, but has been making a jagged line lower since then.

The pattern was in line with a trend toward lower savings rates for at least the last 40 years. In the 1970s, we saved an average of 10.3%. In the 1980s, that fell to 8.6%, and in the 1990, the rate dropped to 6.1%.

What’s at Stake: Retirement

If it didn’t matter how much we saved, these would simply be numbers of interest to economists. But in fact, many argue that the long-term strength of the American economy depends on how much we all save ― so we have funds available for investment in future growth. On a personal level, what matters is how many of us are well prepared for retirement. And on that score, the numbers are both scary and sad.

First, the scary part:

  • Forty-six percent of all Americans die with less than $10,000 ― “virtually no financial assets” ― according to a recent study by economists at Harvard, Dartmouth, and MIT (Source: Huffington Post, August 6, 2012)
  • The Life Insurance Marketing and Research Association reported in November 2012 that nearly half of all Americans aren’t contributing to a retirement plan.
  • Fidelity Investments, the nation’s largest administrator of retirement funds, said that the average amount in its customers’ retirement accounts was just $72,000.
  • A Congressional study released this summer said that there’s a $6.6 trillion gap between how much Americans should have on hand for a comfortable retirement and how much they actually have.


Now the sad part: A survey released this year by the Pew Charitable Trust found that two-thirds of us believe we are saving enough for retirement.

How Much Is Enough?

Fidelity Investments offers these guidelines for judging whether you’re well on your way to a comfortable retirement: “A 40-year-old… should have around two times his or her annual salary; a 45-year-old should have three times his or her salary in savings; a 50-year-old, four time; and so on, with the goal of having at least eight times your annual salary (ideally more) socked away by the time you retire. That final target suggests that someone making $80,000 a year should have $640,000 saved for retirement, supplemented by other sources like Social Security. That yields enough cash to live on about 85% of their former salary.”

But advisors at T. Rowe Price argue that when you’re ready to retire, you should have 12.5 times your last year’s income saved. For someone making $100,000 a year, that comes to $1.25 million. Invested at an average annual rate of return of 7% and a withdrawal rate of 4% a year, that would produce income of about $50,000 a year for life, adjusted for inflation. With about $25,000 a year coming from Social Security, that would meet the goal of living on 70% to 80% of your income in retirement.

Are You Saving Enough?

General rules of thumb are fine, but every individual’s situation is different. Thus, everyone needs an individualized retirement savings plan. Studies show that those who have an investment plan that’s updated every few years are the most likely to meet their retirement goals. If you have to create a plan or haven’t updated yours recently, please call.

Copyright © Integrated Concepts 2013. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

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