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Saving for Retirement article

September 22nd, 2007 at 12:17 pm

Found this in a book I was proofing at work. Thought it was interesting.

A number of factors in the years from Nixon’s resignation to 2005 have made it harder for most Americans to maintain their living standards throughout their working lives and during retirement.
After strong, steady yearly income growth stopped, the broad American middle class faced serious tradeoffs. If people choose to incur more and more debt to live in their accustomed style during their working lives, saving for an adequate retirement becomes increasingly difficult. But setting aside sufficient savings for an adequate retirement puts the current living standards in jeopardy.
At one point an adequate overall retirement program seemed likely, but the outlook today is grim. The combination of limited income growth, a precipitously declining rate of savings, and an
increasingly inadequate pension system has put much of the middle class in great jeopardy of failing to maintain their working years’ standard of living at retirement.

Jump forward to the 21st century and the picture has changed radically. Personal saving is on the endangered species list. The experts were wrong—the growth of private pension systems stalled and pension plans became less generous. Only Social Security thrived. It had become a political favorite later in the Golden Years and greatly expanded to become the strongest of the three components. But Social Security growth alone will not
take up the slack.

Saving. Many Americans lacking steady income gains are on a borrowing treadmill. Washington Post staff writers Jeffrey Birnbaum and Chris Cillizza observed in a September 2006 article: “According to a study by the Federal Reserve Board, the ratio of financial obligations—primarily mortgages and consumer debt—to disposable personal income rose to a modern record of 18.7 percent earlier this year. The amount of
mortgage debt alone has more than doubled since 2000, to nearly $9 trillion.”

Historically, Americans have not been among the biggest savers compared to people in other rich industrial nations. But what is happening now is unprecedented. The rate of saving to
disposable personal income that ranged from 8 to 11 percent from the Second World War through the 1980s now has
dropped below zero. Associated Press reporter Eileen Alt Powell wrote in mid-2007: “The nation’s savings rate has been negative since the second quarter of 2005.” This is hardly a good sign in the struggle to retain families’ standards of living at retirement.

Although it is not unusual for people to go into debt early in their earning careers, today the saving rate for those under 35 has dropped to 216 percent. Mark Zandi, chief economist at Moody’s
Economy.com, noted that “The post-boomer generation feels very cavalier about saving. They’ve been very aggressively dis-saving and have borrowed significantly.”


1 Responses to “Saving for Retirement article”

  1. Amber Says:
    1190604218

    Great post

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