Author Topic: American workers are saving less than five percent -very sad to see  (Read 4008 times)

Blindsquirrel

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http://www.limra.com/newscenter/NewsArchive/ArchiveDetails.aspx?prid=269&WT.qs_osrc=fxb-152737310

WINDSOR, Conn., Oct. 31, 2012 — A new LIMRA study reveals that two-thirds of middle-income ($40,000-$99,999) American workers are saving less than five percent of their annual income for retirement - with nearly a quarter saving nothing at all. (see chart)

"These results, while not surprising, are very troubling," said Matthew Drinkwater, associate managing director, LIMRA's retirement research. "Less than 30 percent of American workers have a traditional defined benefit retirement plan that could help them pay for their expenses in retirement, so the responsibility for providing the financial resources for retirement lies squarely on the individual. Many Americans will live at least 20 years in retirement, and will need significant savings to ensure their financial security."

Overall, four in five American workers are saving less than 10 percent of their income for retirement. Most disturbing, the largest age group that reported not saving for retirement was those ages 55 and over (26 percent) — often considered within 10-15 years of retirement. One in four workers ages 18-34 reported not saving at all for retirement. While more workers age 35-54 report saving some percentage of their income for retirement, almost one in five are not saving for retirement at all.

"Optimally, all people should be saving systematically throughout their careers to ensure they can amass the funds necessary to live the lifestyle they wish in retirement," noted Drinkwater. "Many Americans' plans include delaying retirement or not to retire at all, but our research has found that more than half of current retirees retired before they planned — often involuntarily. It is important that Americans take the steps to prepare for every contingency while they are drawing an income."
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noob515

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Re: American workers are saving less than five percent -very sad to see
« Reply #1 on: November 26, 2012, 01:25:42 pm »
As much as I'd like to be shocked by those statistics, I'm not really.  The guy in the cubicle next to mine is 36 years old and contributes nothing to his TSP, not even enough to get the employer match. 

And here I was, feeling bad for having to decrease my TSP contributions after my husband was downsized and took a much lower paying job.  (and by "decrease", I mean down to 12%).

Khao

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Re: American workers are saving less than five percent -very sad to see
« Reply #2 on: November 26, 2012, 02:52:49 pm »
This doesn't surprise me at all. Up until I found out about MrMoneyMustache I had no idea how to do basic personal finances. It was "put everything on credit card, when the bill comes, you try to pay in full. If you can't pay in full, pay the max and then maybe next month you'll be able to pay it in full"

Do I have to tell you that this led me to maxing out my 5k credit card limit in a year? The problem is education. There is absolutely no fucking education given about personal finances and it's really sad. I finished college after living with under 10k/year with part-time job and an apartment  and groceries to pay without my parents' help. I only had 8k of student debt and nothing else, but as soon as I got my nice job with the nice pay then BAM fucking debt punched me in the face. It's simple : I thought I had infinite amount of money since I was used to living on nearly nothing, and ended up with debt because I had no idea what to do. Also being young you don't even think about saving for retirement or other things. It's like "WAAAAT that's in like three decades or more! Why should I bother with that?"

All of this could be fixed with a good mandatory class on personal finances in high school or college.

P.S. I'm not sure if college here in Québec is the same as college in the U.S., but here you can become a technician with college, no need to go to university so a good job after only 3 years in college is possible without getting too much student debt.

Forcus

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Re: American workers are saving less than five percent -very sad to see
« Reply #3 on: November 28, 2012, 08:40:57 am »
I definitely agree with "education is lacking" but would quibble a bit on that it would fix everything.

In my mind there is a definite lack of honesty in how we (meaning U.S.? Canada? Worldwide?) discuss finances. I frequently used to compare myself financially with others through possessions and the appearance those folks portrayed. The recession turned that on its ear. The biggest lesson I learned is just because someone has a new house in a fancy subdivision and drives new cars and has great clothes, and is a competent business leader, doesn't mean they aren't leveraged to the hilt. It has been interesting watching my wife change from "old fanciness" to "new fanciness". Old fanciness was expensive cars and clothes, and wishing to move to a much more expensive house. New fanciness is saving money for the things that matter, and not worrying what other people think or how they view us. The sad part is I don't think most people ever have that revelation, and it's not widely discussed (Dave Ramseys of the world excluded) except in covert forums like this one.

My parents NEVER discussed finances with us. I wish they had, as I know now that retirement doesn't have to mean working 40 years, and that possessions are ultimately a fruitless way of finding happiness. At least I discovered it earlier than many (age 30).

gdborton

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Re: American workers are saving less than five percent -very sad to see
« Reply #4 on: December 13, 2012, 10:07:44 am »
Quote
In my mind there is a definite lack of honesty in how we (meaning U.S.? Canada? Worldwide?) discuss finances.

I think one of the major problems is that discussing finances with anyone other than immediate family and close friends is taboo.  If people were more transparent about their incomes (asking what someone makes is about the same as asking a woman her weight), people would more readily know what works and what leads to working for rent at 68.
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Meadow Lark

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Re: American workers are saving less than five percent -very sad to see
« Reply #5 on: December 30, 2012, 09:11:40 pm »
I don't think a class would make everyone  mustachian anymore than a nutrition class makes everyone lose weight.  Besides, in the US at least, you know that class would  sponsored and written by Citibank and Chase.
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velocistar237

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Re: American workers are saving less than five percent -very sad to see
« Reply #6 on: December 31, 2012, 07:24:16 am »
A class might not help, but a field-trip might. Average over-leveraged earners don't interact with the poor, especially the elderly poor. If you take a middle-class teenager to a retirement hotel for some community service, then tell them, "Some of these people grew up middle class but didn't save enough money for tough times and retirement," it might have a significant effect.

When the current boomers hit retirement, a lot of people won't need a field-trip to make this connection.

amyable

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Re: American workers are saving less than five percent -very sad to see
« Reply #7 on: December 31, 2012, 10:33:43 am »
One major problem I see in current American public education (as a current middle school, former high school educator) is the idea of a four-year college degree as a panacea.  The "4-year college for everyone" movement is short-sighted.  Many students would be much better served by a two year associates degree or other trade education.

Students believe they will make a lot of money if they graduate from a four-year college, but they have no realistic career goals.  School counselors focus much more on college readiness (SATs, ACTs, etc.) than how students can realistically support themselves after high school or college.

c

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Re: American workers are saving less than five percent -very sad to see
« Reply #8 on: December 31, 2012, 10:58:44 am »
I agree that if people were more open about income it would be easier. Even when people said "oh I'm in debt", I just assumed they meant a small cc balance.

For most of my life I looked around me to see how to do things, it's only very recently I've found alternative ways to go about life, like saving more than I spend, not eating processed foods etc.

I think people in groups like MMM are far to quick to judge and criticize other people for making mistakes or simply just not knowing any better, which is a shame because it slows the spread of information.

I used to think I was doing great because I put a few dollars in my 401k and paid off all my cc debt at the end of the year with my bonus, and sadly, compared to a lot of people, what was actually doing great.
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WageSlave

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Re: American workers are saving less than five percent -very sad to see
« Reply #9 on: December 31, 2012, 03:48:56 pm »
What do you think will happen, from a macro perspective, when all these folks who have not saved/minimally saved reach (traditional) retirement age?

Of course no one knows until it happens, but it might be interesting to do a thought experiment... or just speculate!  :)

From a micro-level, obviously some people will just postpone retirement, and keep working as long as they can; some will probably just unhappily accept a lower standard of living supplied by social security; some will probably look to friends and family to help out; some will probably forced into retirement/fired/laid off, and have to work lower-paying jobs...

But what the broader effects of this will be, I dunno.  The cynic in me is afraid that all these people will expect their government to bail them out.  If they're not working, and presumably no longer raising kids, they'll have a lot of time on their hands.  I suspect the voter turnout in such a demographic is quite high.  They could vote into power officials who will be happy to tax prudent savers (wealth tax anyone?) to pay for the non-savers.

I sometimes think about labor in terms of supply and demand, and wonder, what if the supply of labor greatly outpaces the demand for it?  And I don't mean in typical business cycle fashion, but in an absolute sense: what happens when we can provide most of human necessities (and even luxuries) with minimal labor (robots, 3D printers, etc)?  Furthermore, if people have traditionally been leaving the workforce at around age 65, and now those people may be staying for another decade or two, then the supply of labor will go up... at the same time the demand is lowered due to technological innovation.  But we can't all be innovators---a lot of people simply aren't wired that way.

One of the things that makes me think about this is that, just from casual observation, so much of our economy seems to be driven by convenience and luxury... I think a loose paraphrasing of the MMM/ERE philosophy is that you can live on very little expense (and therefore retire quite early) if you deliberately choose a middle-class life from a generation or two prior.  I tend to think about 50s-era suburban USA: sure we have more luxury and convenience today than we did 60 years ago, but are we really happier?  And more importantly, a middle (or possibly upper-middle) class standard of living from two generations ago, is (1) still a great standard of living relative to the rest of the world and humankind's total history, and (2) can be effectively achieved at a today's poverty-level income.  And if this trend continues, then it seems reasonable that in another generation, you could live quite comfortably (by worldwide and/or 1950s standards) at below poverty income.  And perhaps in two more generations, you can life that life virtually free.

If you can achieve a reasonable (yet basic) standard of living for virtually nothing, it means there is little or no profit for the people/institutions supplying your needs.  And where there is little profit, there is minimal demand for labor.

I made a similar comment to this one on another blog, to which some replied with a reference to Marshall Brain's Manna mini-novel.  It's a quick read and an interesting story, and certainly coincides with some of the ideas I threw out above.


Blindsquirrel

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Re: American workers are saving less than five percent -very sad to see
« Reply #10 on: January 01, 2013, 03:55:08 pm »
  Well, on a macro level, the baby boomers will crush Medicare/Medicade in the USA unless something is done. The demands for services by this long lived but generally broke generation in the USA will lead to increased taxes. There are a number of wealth taxes in the USA already, many states tax personal property, all locations have a property tax that ranges from moderate-see MMM taxes to the brutal- see USA in the North East, Ohio, Illinois, etc. These wealth taxes are killers to those with little other than Social Security for income as they have generally increased at much greater than the rate of inflation. I agree with the cynic in you, I would not call it cynicism as it sounds pretty realistic to me. (Consider also the incredible unfunded liabilities of state, city, county pension funds in the USA).  I see the classic tale of the grasshopper and the ant unfolding very slowly in the USA.
 
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grantmeaname

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Re: American workers are saving less than five percent -very sad to see
« Reply #11 on: January 07, 2013, 03:25:44 pm »
Ohio doesn't have even remotely brutal property taxes. Try New Jersey.

mlipps

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Re: American workers are saving less than five percent -very sad to see
« Reply #12 on: January 07, 2013, 03:55:44 pm »
Ohio doesn't have even remotely brutal property taxes. Try New Jersey.

Not to get onto to much of a tangent here, but I think certain places do due to the large onus of school funding being on the individual districts. Examples being Indian Hills in Cincy & Shaker Heights in Cleveland. Or at least, that's what they tell us every time they try to levy an increase in SE Ohio.

Hamster

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Re: American workers are saving less than five percent -very sad to see
« Reply #13 on: January 08, 2013, 11:38:12 pm »
I sometimes think about labor in terms of supply and demand, and wonder, what if the supply of labor greatly outpaces the demand for it?  And I don't mean in typical business cycle fashion, but in an absolute sense: what happens when we can provide most of human necessities (and even luxuries) with minimal labor (robots, 3D printers, etc)?... 

One of the things that makes me think about this is that, just from casual observation, so much of our economy seems to be driven by convenience and luxury...

If you can achieve a reasonable (yet basic) standard of living for virtually nothing, it means there is little or no profit for the people/institutions supplying your needs.  And where there is little profit, there is minimal demand for labor.

The irony is that part of the promise of greater productivity is that we should be able to maintain current output (and hence standards of living) with less labor input. In theory we could all work less and enjoy the same output as we received from much higher labor input when we didn't have such productive technology. The flaw is that the rewards of increased output typically don't go to labor, but to the owners of the means of production (I hope I'm not starting to sound like Marx...). If you are paid based on production, rather than time, however, then you do see the benefit.

Jeremy Rifkin's book "The End of Work" looked at this issue of decline of labor due to increasing productivity. One idea from the book (If I remember it correctly) is that we could maintain full employment in times of greater productivity, simply by redefining full-time--have everyone work less (20 hour work week?), and dedicate more time to uncompensated work that has meaning. Unfortunately, I don't see that being possible unless we created a completely different social contract where there was a requirement that increased production was shared (employee ownership of corporations, high taxation/social welfare, etc). I don't think societally we're at that point.

In some ways mustachianism is based on the same premise--with the amazing productivity and wealth we have in the world, there is no reason to spend your whole life working and pursuing money. Once you have enough money/stuff, stop wasting time chasing down more, and be content with enough.