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How much should you save for your retirement?

Americans do a poor job of saving money, and many don’t even know how much they should be setting aside.
Oklahoman Published: May 3, 2014

Hetty Green had a knack for saving. Despite being a millionaire many times over by the late 1800s, Green favored shabby black dresses and so hated to spend money that she allegedly refused to pay for medical treatment that would have prevented the amputation of her son’s leg.

The story behind that cork prosthesis and other tales of her legendary tight-fistedness led to her being named the “Witch of Wall Street” in her day, and the “world’s worst miser” in successive editions of the Guinness Book of World Records from the 1960s and 1970s.

Recently, though, history has been kinder to Green, focusing more on her successes. She was not just averse to spending money, but also good at accumulating it. She was a shrewd businesswoman who made millions through good investments. For example, buying U.S. government notes issued after the Civil War. Many investors wanted nothing to do with those so-called “greenbacks,” but betting on them proved a smart thing to do. She was known for keeping a cool head and even profiting during various financial panics. When she died in 1916, she left an estate valued at more than $1 billion in today’s dollars.

Hetty Green’s case is perhaps an extreme parable on the virtue of saving (and the vice of miserliness). But Americans’ fascination with such stories underscores how hard it is for most people to set money aside for the future.

Saving Americans

It’s not that Americans don’t want to save. In a Gallup poll taken in April 2014, Americans reported that they “enjoy” saving more than they do spending by a margin of 62 percent to 34 percent. That ratio of saving to spending sentiment is up a lot compared to just before the Great Recession.

But Americans are not saving nearly enough. In its annual Retirement Confidence Survey released in March, the Employee Benefit Research Institute reported that 60 percent of its respondents had household savings of less than $25,000. And Americans save less than they did a few decades ago — just 4.3 percent of their disposable personal income, according the U.S. Commerce Department’s numbers for February. That’s less than half the rate of savings Americans enjoyed in the 1960s through the 1980s.

There are no doubt macroeconomic reasons why savings are depressed. Many commentators cite lagging growth of personal income as the primary culprit for reduced savings. Data from the U.S. Bureau of Economic Analysis do appear to confirm a correlation between growth in personal income and the savings rate.

But economists and politicians disagree as to why the savings rate is so low. Some blame the Fed’s artificially low interest rates and increased government spending, which have encouraged consumption. Low rates don’t reward the saver — but they are good for the borrower.

Some emphasize that the government safety net has reduced the incentive to save. Social Security, in particular, which is not included as savings in government figures, has become for many an important, if not primary, source of income in retirement.

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