Americans Don’t Save For Retirement

For Americans, saving for retirement seems to be one of life’s most cumbersome chores. Even high earners often live from paycheck to paycheck, finding little time for financial planning. Many wage earners have an opportunity to establish 401(k) plans or other savings plans at their place of employment, but even there we tend to procrastinate. Only if our employer has instituted an automatic enrollment 401(k) are we ensured of any savings at all.

Savings Comparisons

Nevertheless, most people, when they think about it, are curious as to how they compare with other Americans in the same age group with regard to how much money they have in the bank; what are Americans’ average savings by age? Your net worth is a simple calculation: assets less liabilities. According to CCN/Money, the average net worth of Americans, ranked by age, is as follows (March 2011 information):

younger than 25 $1,475
25-34 $8,525
35-44 $51,575
45-54 $98,350
55-64 $180,125
65 and older $232,000

Net Worth Based on Annual Income

CNN/Money also provides average net worth statistics based on annual income, as follows:

less than $25k $1,250
$25k-$49k $34,375
$50k-$74k $168,500
$75k-$124k $301,475
$125k-$149k $644,100
$150k and higher $1,122,900

What Happens to All That Money?

High earners tend to have healthy levels of savings, but the average annual income of Americans, as of 2010, is less than $50,000. Savings rates for Americans earning less than $50,000, and average savings rates for Americans of all ages, seem to be precariously low. Why do we save so little?

Various reasons are given. Many Americans increase their spending levels as their income goes up. This results in an ever-improving quality of life, and should our income fall off for unexpected reasons — getting laid off from a job, for instance — we try to maintain that quality of life by maintaining our high spending levels. As a result, there’s never enough extra cash to put aside for savings.

Americans are encouraged, through advertising and a tendency to “keep up with the Joneses,” to indulge in instant gratification. We reason that life is short, so why not enjoy it today; we are also status conscious, and the probability that the Joneses can’t afford their new adult toys any more than we can is of little concern.

The proliferation of easy credit during the latter decades of the twentieth century has enabled us to spend money we don’t have. As credit card debts mount, we then tend to ignore the obvious — that we’re getting in over our heads — and we quickly send off the minimum payment each month, continuing to use our plastic to the breaking point.

And younger Americans rarely think about retirement and the money they’ll need to live on at that time. It’s too far into the future, decades away — it’s incomprehensible! A 34-year-old should certainly have more than $10,000 in the bank, but, according to statistics, most don’t.

Granted, the stock market crash of 2007-2008 was a true reality jolt, and many Americans began saving more in the immediate aftermath. But, as the market recovered toward the end of the decade and into the 2010s, we’ve reverted to old habits.

The USA Savings Rate Compared to Other Countries

Comparing savings rates in the United States with those of other countries, we look even worse. On average, Americans save about 4 percent of their annual income (as of 2010). The Germans and Swiss save 12 percent and 14 percent, respectively. Turks save nearly 20 percent, Indians 34 percent, and the Chinese a staggering 38 percent of their income.

One reason for these high rates in China and other Asian countries is the lack of a social safety net, such as Social Security; Asians also rely on family for income as they reach old age. However, as the Chinese and others increase their usage of credit cards and come to find that they, too, require the trappings of modern life, their savings rates are likely to slip. Savings rates in Japan, for instance, have plummeted, from 15 percent in 1992 to 2.8 percent in 2010.

Just because your peers are saving so little does not mean that you should follow suit. Assess what your needs will be in retirement, work with a financial planner if necessary, and begin putting money away today.