What Personal Savings?

Personal savings rates are at an all-time low: during the 1970s, the national savings rate averaged 7.7%; by 1990 that rate had dropped to 3.9%; as of 2004 the rate stood at 1%; and some commentators have recently estimated that real savings — savings adjusted for debt considerations — may actually be hovering just below 0%.

The Sad Calculus

Let's assume that you're like the average 45 year-old, with $68,000 in their retirement account after 15 years of saving. And let's say that you see the writing on the wall, and double your contributions for the next 15 years. Even with a healthy 8% average return and an inflation rate of 3%, your account would only produce an income of $10,000 a year — about $850 a month. Could you live on $850 a month?

So why is our savings rate so low? Besides our appetite for living-large, one of the biggest contributing factors is an unhealthy (and naive) belief that Uncle Sam will always be there to bail us out.