The percentage of people who are actively saving enough money to achieve this goal [of retirement] is so small as to be statistically irrelevant. The savings rate in the United States is close to zero. It has been falling for two years.
The average American family's income is about $40,000 a year. The average family therefore needs to have as a goal a retirement fund of $600,000 to $800,000. But the only asset they own that may possibly enable them to achieve this is their home….
The point is, making sure you have a swell retirement is up to you. Not to Uncle Sam, usually not to your employer, not to your kids. You have to max out your IRA's, your Keoghs, your 401K's and do it sensibly, and then some. And you have to start with that all important plan.
Today, the personal savings rate in the United States is 0.2%. The typical American family, which earns $40,000 a year, is putting away a whopping $80 a year. Some retirement.
How much should this family be saving? At least $4,000 a year. Like clockwork.
The Clock Is Ticking
It takes high income, good investment knowledge, and self-discipline to save enough money to provide for a comfortable retirement. It also takes the ability to stay ahead of price inflation. This is not easy.
The key to success is a person's willingness to act in terms of the ticking clock. It means facing reality young, and then acting in terms of this reality, month by month, no matter what.
The problem is, it takes only one disaster to eat up the program, such as sickness or lawsuit judgment. Insurance can offset some of this risk, but not all of it.
This is why most people in history have died poor. They did not leave much of a legacy to their heirs. They had little capital. Yet the West has known about this truth for over three millennia:
‘A good man leaveth an inheritance to his children's children: and the wealth of the sinner is laid up for the just’ (Proverbs 13:22).
The problem that most people face is that their appetites grow alongside the rate of growth. Their tastes change. Usually, these tastes become more costly.
Then, with plenty of warning but without preparation, couples find themselves retired. They must cut expenditures by 50% to 75% overnight. This kind of reduction in lifestyle comes at a high emotional price. Most people start spending their savings in order to delay the required transformation in their consumption habits. The less habitual their discipline of thrift, the less prepared they are for the day of reckoning. They fail to adjust fast enough. This is going to happen to tens of millions of retirees. They don't see it coming.
The Government Will Not Be There
Most American assume that the government will pay for their expenses. They have not checked with Social Security to see what they can expect as their monthly check. They don't want to know. If they knew, this would pressure them to make major adjustments now. They don't want to make adjustments now. The estimated $44 trillion unfunded liability of Social Security/Medicare is about four years of all productivity, including government. This unfunded liability remains unfunded, and so continues to compound. We cannot ‘grow our way out of it.’ It grows right along with economic growth. It is expected to be $51 trillion in 2008.
So, the average American trusts in an institution that can change the law at any time, and has, repeatedly. It's all a matter of voting blocs.
The lack of personal saving by Americans is a widespread phenomenon. It has not arrived overnight; it will not depart overnight. It represents a major shift in the direction of present-orientation. Americans are buying present goods with the money they could have invested in order to establish a legal claim on future goods (interest and dividends)….