Do We Save Enough?

DO WE SAVE ENOUGH?….Do Americans save enough? Considering that the national savings rate has been declining for decades and is now actually negative, the answer seems pretty likely to be “no.” Today, though, the New York Times reports that “a small band of economists” holds the contrarian view that Americans actually save too much. Shazam!

But what a peculiar article. If you read through it, it presents a grand total of three pieces of evidence for this view. Here they are:

  • A study of the generation born between 1931 and 1941 “revealed that at least 80 percent had accumulated more than enough wealth for retirement.”

    This is absurd. This cohort is one of the most singular generations in American history: they were born during the Depression, had famously high savings rates, came of age during the go-go 60s, often had generous pensions, and had a very high Social Security payout compared to the taxes they paid in. Of course most of them had enough wealth for retirement. This is like studying the NBA and reporting back that Americans are taller than you think.

  • Another study found that “88 percent of retirees age 51 and older had adequate wealth.”

    Again, this means nothing. Almost by definition, retirees between the age of 51 and 65 are those who have saved enough to retire comfortably. The ones who haven’t (the vast majority) aren’t retired yet and are automatically excluded from this study. As for the retirees over age 65, they’re part of an older generation that we already know had high savings rates. [UPDATE: See below for a correction.]

  • Laurence Kotlikoff, a Boston University economics professor, thinks people save too much.

    Why? The article doesn’t really say, except to tell us that Kotlikoff has invented his own retirement planning software that he’s trying to market. His selling point is that his software produces different results than the calculators used by most financial planning firms.

So: two meaningless studies and one guy who’s trying to sell a software package. What a ridiculous piece. It’s possible that Kotlikoff is right, and I certainly wouldn’t be surprised if the retirement industry overstates the savings most people need. Still, the broad evidence suggests that the current generation of American workers doesn’t save enough, and this article does nothing to suggest the broad evidence is wrong. Who let this through the copy desk?

UPDATE: The second study is here. It appears that the authors actually say not that 88% of retirees over age 51 have adequate wealth for retirement, but that 88% of all households with one member over age 51 have adequate wealth for eventual retirement. So my initial criticism doesn’t apply. Their definition of “adequate wealth” can be challenged, of course, but that’s a separate issue.