Personal Finance: How to boost your savings rate
"Abysmally low." That's how Keith Millner, senior vice president for the In-Retirement business segment of Nationwide Financial Services, describes the current savings rate. And he's right. Americans socked away only 0.6 percent of disposable income in May, according to recent data from the Bureau of Economic Analysis. "It's definitely not enough for a comfortable retirement," adds Millner.
To be sure, the government's personal savings measure has its flaws. It merely assesses savings against spending and doesn't take into account income from investments or rising wealth from home price appreciation, among other things. Such variables are major factors in most people's fiscal and retirement circumstances. Also, a low interest-rate environment coupled with a red-hot real-estate market may be depressing savings. So the rate will probably adjust upward as interest rates rise and the housing market cools.
But the fact that the savings rate is below 1 percent (it averaged 7.1 percent between 1980 and 1999) and has been plunging for decades is still a good indication that most people aren't putting aside enough for retirement, which with longer life expectancies can now last a third of a person's life or more. "If you're only saving 1 percent, you'll run out of money long before you run out of life," says Millner.
So, if nothing else, the latest BEA data on savings should serve as a "retirement wake-up call," says Millner, who offers these tips to boost your own personal savings rate:
- Don't rely solely on Social Security. Social Security benefits represent 39 percent of the income of today's elderly, yet they're the only source of income for 22 percent. If that will be the case for you, be prepared to accept a significantly lower standard of living.
- Enroll in your company's 401(k) plan if you haven't already done so, and definitely take advantage of any company matching funds. "It's free money." Some 30 percent of eligible employees don't participate in 401(k) plans.
- Get a financial planner. There's one for every budget, from a $500 one-time consultation on up. Find a certified financial planner at the CFP Board of Standards website: www.cfp.net
- Rebalance your investment portfolio at least twice a year based on changing market conditions.
And last, says Millner, "spend less than you make. It's that simple."
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