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REWahoo · 03-08-2006, 11:23 AM

One more in what seems an endless stream of stories about the lack of retirement savings...

Do Americans plan for the long haul?
Empty bank accounts, high spending suggest no

By Manav Tanneeru CNN
Tuesday, February 21, 2006

(CNN) -- The national savings rate for Americans is at its lowest point since the Great Depression, yet 78 million Americans will retire in the next 20 years.

These statistics cast doubt on the ability of Americans to plan for the long term and whether Americans consider long-term planning important, experts say.

http://www.cnn.com/2006/US/02/15/pla...iew/index.html

Thought this quote about the public's attitude toward financial planners was interesting:

George Kinder and Susan Galvan -- founders of the Kinder Institute of Life Planning, a California-based firm that trains financial planners -- believe the decline in savings, and by extension, a lack of long-term planning in American society, is symptomatic of a broader insecurity.

"You have to look at what the source of the problem is," Kinder said. "Why save if there is nothing to save for? What is it that people should be saving for? Traditionally, we've been saving for retirement and that sort of thing, but those are just buzzwords, they don't mean much to people.

"As a consequence, many Americans are skeptical that they are being sold something by financial advisers."

The article even mentions "early" retirement... :

"A lot of us are approaching retirement and a lot of us are approaching it with much too little saved up," Wyss said. "They're either going to depend on Social Security, which is hardly a good bet given the state of the federal government's finances, or they're going to be taking early retirement at the age of 75."

justin · 03-08-2006, 01:09 PM

More good news, huh?

starry night · 03-08-2006, 01:23 PM

"You have to look at what the source of the problem is," Kinder said. "Why save if there is nothing to save for? What is it that people should be saving for? Traditionally, we've been saving for retirement and that sort of thing, but those are just buzzwords, they don't mean much to people.

"As a consequence, many Americans are skeptical that they are being sold something by financial advisers."

Hogwash.....It's people's addiction to instant gratification, saying "Gee, this feels like deprivation if I can't have what I want RIGHT NOW. I'll worry about my retirement savings later when things really start going right for me. Yeah, that day will surely come if I just wait for it."

Remember, it's not how much you MAKE that determines your wealth....it's how much you DON'T SPEND!!

Rustic23 · 03-08-2006, 01:30 PM

What makes up the 'Savings Rate'? I went to the following article to see if I could understand it:

http://www.frbsf.org/publications/ec...el2002-09.html

I can't! Are 401K's in the rate? It seems like appreciation on real estate is not. I distrust those that pound statistics, when I don't know how the stats are put together. So for those finance types, again, What makes up the savings rate?

Marshac · 03-08-2006, 01:41 PM

Quote:

Originally Posted by Rustic23

What makes up the 'Savings Rate'?
...
It seems like appreciation on real estate is not.

And why should it be

Those gains are only real when you sell- not until then.

Texas Proud · 03-08-2006, 02:51 PM

Rustic,

A quick read seems to make it a bit clear to me... savings rate (and I am being very general here) is what is left of your INCOME after expenses. The increase in any asset is not considered INCOME. It is a capital appreciation. Yes, you are richer for it, but you did not save anything.

For an example. You have income of $1,000. You also have an asset that increased in value $500. You spent $950 of your $1000... you saved $50. Your saving rate is 5%. BUT, your wealth increased by $550 in the month!!!

Why would you not include the $500? Because you did not save it... it was a growth in capital and as such not income.

Marshac,

I have had problems with your thinking for a long time... I think it is bad thinking. The gains are REAL when they occur. You just have not monitized them until you sell. If the value falls, you are losing!!! Just because you do not want to recognize it is your decision, but try going to a bank and borrowing money on your asset saying I have not lost anything because I have not sold it yet and they will look at you funny. I am not saying to sell it to the bank, but use it as collateral.

Marshac · 03-08-2006, 02:55 PM

Quote:

Originally Posted by Texas Proud

Marshac,

I have had problems with your thinking for a long time... I think it is bad thinking.

Bad because you disagree?

Quote:

The gains are REAL when they occur.* You just have not monitized them until you sell.* If the value falls, you are losing!!!*

We're talking about savings rates here, not net worth. If you're calculating net worth, then sure, count all the assets. I know I would. If you're talking about savings, as you said, it's all about the cash flow.

cute fuzzy bunny · 03-08-2006, 02:59 PM

Marshac and I have the same bad thinking i'm afraid.

In areas where we dont share the bad thinking, I note that its a difference of opinion rather than 'bad'.

Rustic23 · 03-08-2006, 03:52 PM

When I worked in CA, I had several people that worked for me that concidered the equity in the home savings, because, they had every intention of selling it and living off the proceeds. They considered their house payment 'savings'. The question would seem to be is the 'Savings Rate' that is used valid over time if it does not count appreciation in Real Estate, Stocks and such if more people are putting their money there rather than in a bank? If a man has 1M in the bank and the other has 1M in the market, both retire at 50, discounting risk, are they not the same? Did the investment in stocks count toward the savings rate when they were purchased? How about when sold or rolled?

Really, I am not sure I care. Just idle curiosity.

Texas Proud · 03-08-2006, 04:24 PM

Quote:

Originally Posted by Cute n' Fuzzy Bunny

Marshac and I have the same bad thinking i'm afraid.

In areas where we dont share the bad thinking, I note that its a difference of opinion rather than 'bad'.

OK, I will go with different thinking even though I think it is incorrect. You ask why (or maybe not)... I gave this example in another thread, but might as well again.

My take on your thinking.... I buy a stock for $10,000. It is now worth $50,000. I do not have any 'real' gains because I have not sold the stock. What do you have? Do you tell the bank when they want to see your net worth that you only have $10,000 of stock? You have a real gain as you can put it on your balance sheet at the higher price. But it is not a 'recognized' gain for tax purposes.

My example... you have your $50,000 Lexus... You get hit by a dump truck... the car is a total loss. It is a loss is it not? But using your logic it is not a loss as you have not yet sold your Lexus that you can not drive... I can keep saying it is a $50,000 Lexus as long as I do not sell? No, you have a 'real' loss.

But, I have had others who will always keep with thier 'it is not real unless you sell' thinking. So, if you are in that boat it does not bother me at all.

Texas Proud · 03-08-2006, 04:27 PM

Quote:

Originally Posted by Marshac

And why should it be*

* Those gains are only real when you sell- not until then.

Marshac.. this is the quote I was referring. Since the gain is not in the saving rate even when you sell it does not matter either way for this discussion.

MasterBlaster · 03-08-2006, 04:28 PM

Haven't we been through this recently. http://early-retirement.org/forums/i...p?topic=5787.0

The official savings rate only counts money that people keep in banks (passbook savings, CDs etc).

Since these investment vehicles are losers in after tax, after inflation purchasing power it's no wonder that people have avoided them in droves.

My personal definition of savings is money that I invest and the gains from it. I know that's different from the official statistic.

I think most people think as I do. The official statistic is useful for bankers and makes a good headline but really isn't meaningful when thinking about how prepared Americans are for retirement.

laurence · 03-08-2006, 04:48 PM

I think the whole retirement crisis is overblown. Sure there is a population bump with the baby boomers, and Americans are no good at saving, but it's not like acid rain fell in '46 that caused people to be irresponsible with money and everyone before then prudently planned for retirement. Plenty of individual cases around me of what will happen.

Take my neighbors, his Dad never saved, never planned, is 70 years old, had to move in with them, and does as much work as he can handle (he was/is in construction) to help with the bills.

Those who can't move in with family, will move into a single wide trailer in a retirement community somewhere cheap in flyover country, or cubbyhole apartments in mediocre neighborhoods of their city. Some will end up in flop houses, or at homeless shelters.

Same with healthcare, co-pays and premiums will continue to rise until demand cries uncle, and then things like prescriptions for non-generic drugs will become prohibitively expensive. Innovation in biotech and pharma will suffer and slow.

I see an end game of many individual tragedies, and an overall picture of sucky mediocrity, winners and losers, but enough winners to keep the status quo. But I don't see an earth shattering, sea-change, proletariat revolution coming out of this.

....hmm, come to think of it, I feel like I'm describing Mexico, maybe this will really suck. But by the time we realize, it will be too late.

Marshac · 03-08-2006, 04:53 PM

Texas, what crawled up your skirt man? Mellow out.

Anyways, to answer your questions, of course I would go by what the present value of my stocks are, not what I bought them for. To do otherwise would be just plain dumb. Why you keep claiming that in "my way of thinking" I would only count them as being worth $10k is beyond me. When I calculate my worth, it's all of my assets - liabilities. I also calculate gains/losses just as anyone else would do... I don't have some magical "marshac formula" to do so.

If I ever did own a $50k car, and I totaled it, I would deposit my insurance check, less the deductible... seriously though, I would write off the asset. It's not a mystery, and I don't have some secret formula. For my income, and my business income, I generally operate under accrual-based accounting- not cash.

Quote:

So, if you are in that boat it does not bother me at all.

Obviously it does.

Marshac · 03-08-2006, 04:56 PM

Quote:

Originally Posted by Texas Proud

Marshac.. this is the quote I was referring.* Since the gain is not in the saving rate even when you sell it does not matter either way for this discussion.

I was simply asking why one would think that unrealized capital gains would be considered as savings. Assets go up, and assets can go down.... savings is cash. Tapping home equity "savings" with a HELOC is simply taking on more debt- it's not saving anything. Ask someone in Japan who bought a house in the late 80s how much money they saved via their house...

Rustic23 · 03-08-2006, 06:26 PM

While I am not sure, but if my memory serves me right, and sometimes it doesn't, IRA started sometime around 1980. The graph above would indicate the savings rate has gone down ever since. If as has been said, the savings rate measures what is in the banks, this is a totaly worthless stat for what it is being used for. Which is to flame the fans of early retirement.

Marshac · 03-08-2006, 06:41 PM

If people aren't putting money into the bank, and have a negative savings rate, then were is the spending money coming from? People cashing out 401ks? Draining existing savings accounts? Mortgage equity withdrawals? Credit card debt? Any way you slice it, it's not a picture of health IMO.

Incidentally, I have a coworker who was telling me the other day that they take 401k loans all the time... it's just another piggy bank to them.

Rustic23 · 03-08-2006, 06:49 PM

Marshac,
You might have missed my point. The savings rate, since about 1980, has been trotted out by whichever party not in power to show the woes that is going to befall us. If there has been a fundamental difference in the way Americans save and this is not captured, then once more the Statistics are not lying but the Statisticians are! Anecdotal evidence about one at work means little. Folks I work with say there is a geaser down the hall that saves every penny he gets his hands on! That certainly does not mean all the other old geasers around here are savings. Most will still be here next month after I leave.