Start Saving Your Pennies
As unpredictable as stocks, bonds and mutual funds have been in recent years, some financial experts are suggesting Americans do the unthinkable to prepare for retirement: Save more money.
The Wall Street Journal (January 14) crunched the numbers this way: Let’s say you can only count on a 4 percent investment return, instead of the 6 percent you might have gotten during the ’90s boom. If that’s the case, in order to save $100,000 over the next 20 years, Americans must tuck away $272 per month toward retirement, compared to $215 at a 6 percent return. That means Americans would need to up their monthly savings toward retirement by 27 percent.
Problem is, Americans rank among the lowest in the developed world when it comes to saving money. According to a Reuters report in December, some economists see this as one of America’s most serious economic weaknesses. The news followed a revised Commerce Department report last December that discovered the savings rate of Americans to be lower than what the government first thought. The study showed that in 2002 the average American saved 2.3 cents from every dollar made, after taxes—not 3.7 cents, as had been previously reported.
At this revised savings rate, to put $272 per month toward retirement, the “average” American would need an annual income of $141,912—after taxes.