Читать книгу Digital Wealth - Moore Simon - Страница 7

As many an NFL star can attest, it can be easy to have wealth in the short term but not keep it for the long term by spending beyond your long-term means. This problem plays out across U.S. society. The allure of advertising and broad availability of debt don’t help. It can lead to a bias toward spending, rather than saving, to try and keep up with the neighbors. This often comes at the expense of long-term security.

Unfortunately, the numbers for savings rates in the United States are poor relative to both history and other countries. As you can see from Figure 1.1, up until the 1980s, the U.S. savings rate was comfortably around 10 percent. Since the 1980s, the savings rate has fallen and now trends around 5 percent. Recessions generally cause the savings rate to spike, but the long-term trend in the United States is clear. The savings rate has basically halved.

Figure 1.1 US Personal Savings Rate

Source: US. Bureau of Economic Analysis

This rate is lower than all but a handful of developed countries. Of course, adjustments need to be made for demographics and the degree of “safety net” that a government offers to replace the need for saving for emergencies such as unemployment or healthcare costs. However, even after considering both factors, it seems clear that the U.S. savings rate is insufficient for many to achieve a comfortable retirement.

Social Security presents an additional risk. In the United States, the amount Social Security expects to pay out exceeds the amount coming in. As the report of the Trustees of Medicare and Social Security report:

Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers.2

The numbers of Social Security don’t add up due to demographic trends. America has a rate of immigration that keeps its population, on average, younger than in many developed countries because immigrants tend to be younger than the average population. Despite this, the average age of the U.S. population is approximately 37,3 and there will be increasingly more people in retirement than are working. That’s a problem because the system is generally expected to balance what gets paid in (contributions from workers) with what gets paid out (payments to retirees). As retirees become a larger proportion of the population the balance breaks down. The Social Security problem is something that can be addressed with political will. However, doing so will likely mean a higher retirement age and potentially lower payments. As a result, reliance on individual savings is likely to increase.

Many people are ill prepared for retirement. Northwestern Mutual runs an annual study on the topic and finds that 42 percent of U.S. adults have not spoken to anyone about retirement, and that people are generally more comfortable talking about death or sex than retirement topics.4 Often, those who have limited confidence in their retirement also describe themselves as having “debt problems,” according to Employee Benefit Research Institute (ERBI) research.5