Saturday, July 27, 2013

Savings Crisis Leaving Americans Unprepared for Emergencies/Retirement

For many years, Americans have shown a consistent inability to put money into savings, be it for emergencies, retirement, or the larger, necessary purchases that may arise.

In fact, the savings rate has been declining for decades, notwithstanding a brief uptick during the Great Recession. Here's a look at where the savings rate stood at the start of each of the last six decades, according to the Commerce Department's Bureau of Economic Analysis:

1960: 7.2%
1970: 9.4%
1980: 9.8%
1990: 6.5%
2000: 2.9%
2010: 5.1%

In 2005, the savings rate actually turned negative for the first time since the Great Depression, and it stayed that way for about two years.

While the savings rate reached a high of 5.4% in 2008, as Americans were trying to pay down their debts during the initial phase of the financial crisis, it started declining again in 2011.

This will have horrible consequences for the millions of Americans who will be facing a retirement funded entirely by Social Security. Pensions are largely a thing of the past and 50 percent of Americans don't participate in a retirement savings plan at work.

As it stands, current retirees are already relying far too heavily on Social Security.

According to the Social Security Administration, 23 percent of married couples and 46 percent of single people receive 90 percent or more of their income from Social Security. Furthermore, 53 percent of married couples and 74 percent of unmarried people receive half of their income or more from the program.

The average monthly Social Security benefit for retirees is just $1,262. That amounts to just $15,144 annually. Obviously, that doesn't go far.

According to a report by AARP, three out of five families headed by a retiree over 65 had no retirement savings. And half of those 65 and older had annual individual incomes of less than $18,500.

The problem for millions of Americans is that they simply can't afford to save. Adjusted for inflation, wages have been stagnant since the 1970s.

As bad as the Great Recession was to household incomes, those incomes have continued falling during the alleged recovery. Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials.

The problem continues; Inflation-adjusted wages fell 0.4% in 2012, following a 0.5% decline in 2011.

So this gives a petty clear indication as to why Americans aren't saving for retirement or an emergency; they simply can't afford to.

Here's a look at the U.S. savings rate in recent years, according to the Organization for Economic Cooperation and Development (OECD).

2006: 2.6%
2007: 2.4%
2008: 5.4%
2009: 5.1%
2010: 5.3%
2011: 4.7%
2012: 4.3%
2013: 4.0%

However, the personal savings rate was just 3.20% in May. It had been as high as 6.4% in December.

The low savings rate creates the potential for crisis for millions of individuals and families.

Nearly three-quarters of Americans don’t have enough money saved to pay their bills for six months, according to survey results released in June by

Half of the survey respondents said they had less than three months’ worth of expenses saved up, and more than one-quarter have no reserves to draw on in case of emergency.

In addition to stagnant wages, persistent unemployment has made it difficult for Americans to put any money away.

Low- and middle-income Americans were hit harder by the recession and slow recovery than the wealthy. While the annual wages of the bottom 90 percent of workers declined between 2009 and 2011, the wages of the top one percent rose 8.2 percent during the same period, according to a January analysis by the Economic Policy Institute.

According to Bankrate, if Americans want to ensure they're protected in the event of a financial emergency, like a job loss or a medical issue, they should have enough money to cover about six months' worth of bills saved.

The U.S. retirement savings deficit is between $6.8 and $14.0 trillion, according to the National Institute on Retirement Security.

That is a staggering sum of money, or rather, a staggering deficit.

The average working household has virtually no retirement savings. When all households are included — not just households with retirement accounts — the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.

Previous generations were much better at saving. During World War II, Americans were encouraged to buy government bonds as a matter of patriotic duty to aid the war effort. Following the Great Depression, regulation of the banking/financial industry greatly diminished bank failures, encouraging more Americans to save.

Credit was also not nearly as available in earlier eras, which encouraged people to save for future needs, whether it was a car, or a house, or an education. But, beginning in the '80s, there was an explosion of cheap and easy credit. That allowed people to get by without saving.

But the larger issue is the fact that household incomes have been flat for decades, while inflation has driven the prices of everything higher.

I've been coving the savings crisis and its implications on the retirement security of Americans since 2005, and the story hasn't gotten any better.

I asked the question "Will You Have Enough to Retire?" in February, 2006, and later that year I asked, "Are You Retirement Ready?"

And in September, 2010, I noted that "Americans' Retirement Savings Look Bleak."

Sadly, nothing has changed in recent years. Millions of people have simply moved closer to, or into, retirement quite unprepared. This has huge implications for our country.

Seniors are among the most vulnerable people in our society. Many will have to rely on their adult children or other family members to help them get through their final years. That will place tremendous burdens on already struggling families.

Assisted living facilities are very expensive. Nursing homes are even more expensive. Home health care and aids are also beyond the reach of great numbers of our senior population.

None of this appropriate or acceptable for such a wealthy nation — one that sees itself as a first rate, world leader.

For millions of Americans, what were supposed to be their "golden years" will not be so golden after all. At the least, they won't be nearly as golden as those of their parents and grandparents.

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