Most Americans Are Not Saving Enough for Retirement

Until recently, the overall savings rate has been falling for more than 20 years. The truth is, even if they don’t know it, most people simply aren’t saving enough for retirement.

In Q3 2005, the personal savings rate reached an all-time low of 2.3%, but since then has increased to 7.1% in Q2 of 2009. Currently, the rate is at 4.3% as of Q4 2013. The financial crisis has probably made many people realize how fragile their savings were, hence the sharp upturn in the graph in 2008 and 2009.

While there is controversy surrounding the calculation and accuracy of the published personal savings rate, the long-term trend has been clearly downward, in an era when even more responsibility for retirement savings has been shifted from corporations to individuals. This is a disturbing combination, because it suggests that many people have not saved adequately for their retirement.

The long-term lack of savings is partly a cultural phenomenon. Baby boomers have a stronger sense of optimism than the World War II generation, and have not placed the same priority on saving. Worse yet, they have virtually unlimited access to credit and a habit of spending beyond their means, regardless of how much money they make. This trend continues in subsequent generations.

The bottom line is that people should be saving more, considering the declining availability in pensions provided by employers and the level of confidence in receiving Social Security benefits. The good news is that people have started to realize this recently.