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Is a Near-Zero Percent Savings Rate EVER the Responsibility of People Themselves?

by Robert G. Yetman, Jr.

A recent piece at Boston.com reported on some analysis done by the Economic Policy Institute that reveals most U.S. citizens are woefully ill-prepared for retirement. The EPI found that the average American family has only $5,000 set aside in a nest-egg, and, further, that this poor savings rate cuts across all generations; the median number of dollars in retirement savings accumulated by heads of household between ages 55 and 61 is an ominously-low $17,000.

Those of us who write about money have long been aware of the lousy savings rates of Americans for years now, and so while this latest round of figures is disappointing, it certainly does not come as an earth-shattering surprise.

What I did find to be particularly striking, however, was Boston.com’s not-so-veiled commentary about the situation. Here is what the article, entitled, “Analysis of 401(k)s and IRAs shows American families are in dangerous financial territory,” says, in part:

“As The Boston Globe points out, there are many reasons American families aren’t saving for retirement, including stagnant wages and businesses neglecting to offer workers 401(k)s.

If you’re a young working person looking to avoid the fate of so many Americans, there are plenty of ways to start adequately preparing for retirement, even if your employer doesn’t offer a 401(k), or you live in an expensive city like Boston.

To begin, think about meeting with a financial planner, starting an emergency savings fund, and squirreling away at least 10 percent of your annual salary for retirement. Oh, and lay off the booze and coffee.

For families without savings accounts who are rapidly approaching retirement age, the Globe writes that Social Security provides ‘a vital lifeline’ that Democrats like Hillary Clinton and Bernie Sanders want to expand.”

One need not be an expert at reading between lines to discern Boston.com agenda, as well as its associated disingenuousness; right after the article identifies “stagnant wages” and “businesses neglecting to offer workers 401(k)s” as primary reasons for why so few have saved anything for retirement…in other words, it is the evil system that conspires to hold us all down…it readily admits in the paragraphs that follow that “there are plenty of ways to prepare for retirement,” and that even relatively minor lifestyle changes can give many folks the money they need to set aside each month in order to have a meaningful nest-egg at retirement.

The simple reality is that if you open an IRA as (relatively) late as age 40 in broad-based equity mutual funds, max it out each year…including to the higher limits granted those over 50…and, assuming an annual rate of return of just 6.5% per year (the historical, inflation-adjusted, annual return of the S&P 500 is about 7%), you’ll have about $550,000 by age 70; do you not love the immutable truth of mathematics? Even if you just do half of what you’re allowed each year in an IRA, beginning at 40 and assuming 6.5% per year, you’ll still have about $270,000 by age 70 – not an enormous sum, but not insignificant, either, and a damn sight more than zero.

Why, however, talk about the roles of personal initiative and accountability in all of this? That’s no fun, and it will make those who are disinterested in taking responsibility for their own retirement feel bad. Instead, let those who are inclined to remain financially irresponsible do just that, which, in turn, helps to grow the entitlement class that will ultimately guarantee the elections of pandering politicians, until there is no money left for THEM to steal from those who actually see fit to prepare…at which point it will all come crashing down; that’s a MUCH better plan.

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