Americans Saving Too Much for Retirement

It seems that, contrary to the conventional wisdom, most Americans are saving too much for retirement when they would be far better off investing more in education and home improvement. This is the result of numerous studies by prominent economists, including one that “found 88 percent of retirees age 51 and older had adequate wealth.”

Obviously, this finding is meeting with strong resistance from the financial planning industry, which relies on commissions from managing other people’s money.

The argument between the sides is similar to the classic debate between the hardworking ants and lazy grasshoppers of Aesop’s fable. The financial planning industry says saving, even too much, provides a safety net and peace of mind, and possibly a gift to heirs at the end.

The economists answer that people would get more out of their money by using it when they are younger. “There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.”

Mr. Scholz said he and his co-authors of a study, “Are Americans Saving ‘Optimally’ for Retirement?” found oversaving across all economic and education levels and most ethnic or racial groups as well. (It found that Hispanics tended to save less.) Those who were not saving enough were usually missing their target by only a small amount.

The dangers of over-correcting are substantial, too, of course, and people don’t know how long they will live. Then again, as Kotlikoff notes, there are significant consequences to living for tomorrow, too.

UPDATE: Kevin Drum read the piece with a more skeptical eye and notes that, “If you read through it, it presents a grand total of three pieces of evidence for this view.” And that evidence is thin.

A fair point and the type of thing I often catch. Because reporters write in anecdotes rather than data, I generally presume that these types of reports reflect an emerging consensus and the examples are given for flavor. I agree, though, that if this is all there is to the argument, there’s much less than meets the eye.

FILED UNDER: Economics and Business, ,
James Joyner
About James Joyner
James Joyner is Professor of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. Rick DeMent says:

    On an only thinly related note, I am starting to come to the opinion that “education” as a solution to the problem of unemployment or as a antidote to getting out of poverty is a bit of a canard. Right now it seems to me the only value of education is as a signaling mechanism for Human resources to accesept or deny an application for employment.

    We have gotten to the point where there are so many people with a bachelors degree that it has become the new high school diploma and kids are now pretty convinced that what they need to put themselves ahead of the pack is a masters.

    Job that used to require only a high school education have made the transformation from requiring an associates degree to now requiring a bachelors degree. Firms that were started and run by collage dropouts will not even consider an prospective employee unless they have not only a bachelors degree, but a degree in the precise field of that position.

    When I mention this to people though they tend to defend the idea without understanding the continuances of all the time, energy, and $$$, it takes to acquire advanced degrees that are, for the most part, unnecessary for the job. Four years of training in a liberal education when, at the most six months of on the job training is required. And the six months of on the job training will still be required even if the applicants has a masters or no degree at all.

  2. vilmar says:

    This story is an absolute load of rubbish.

    Funny how they never really quantified what “adequate wealth” really is.

    And the examples cited: both from California where someone can take their outrageously priced homes, sell them and with that money move where they can buy the same sized house for 1/4 the price and tuck several hundred thousand into their portfolios. Most Americans can not rely on that.

    This article is nothing more than shilling done by the NY Times to further the agenda of someone trying to sell their product. Anyone trusting this guy with their financial futures is sure to be in the throes of financial hardships when they get older.

    Given the fact that most people (strike that) NO ONE can predict the future of the market, anyone going into retirement SHOULD have enough assets to throw out enough cash to support them whether that be a military pension, company pension, cash, bonds, stock, real estate, etc. and STILL allow them to take substantial hits on their portfolios. One need only go back to early 2000 to see what the market did…and how long it took to recover. Or what a real estate bust can do.

    Take a walk around your neighborhood and ask your neighbors over 60 years old how much money they have saved. You’d be surprised to hear many of them have less than $100,000. ADEQUATE?!?!?!

    The real key, though, was when this gasbag said people should continue to save if they “didn’t mind leaving money to their heirs.”

    So how exactly does he plan for someone managing their financial futures so accurately that they will die when they run out of money in order to leave nothing to heirs or at least have a cushion to fall back on in case they live longer than most?

    And exactly how will people save when the “savings rate” is already a negative?

    Typical pabulum from the NY Times. Don’t believe a word of it.

  3. Eneils Bailey says:

    “Don’t believe a word of it.”
    I am with you on that. After all, this is the NYT, no stranger to making up stories for the purposes of pushing a political agenda.
    I always heard from the MSM that retirees were eating dog food and trying to decide between medicine and some other needed products. This could simply be their way of drawing attention to the great wealth a number of retired people possess. Then it would be much easier to push an agenda of saying we should only go after the wealthiest of that 88 percent. Although I agree we should be “means testing” retirees of great wealth for social programs, I do not see doing this to 88 percent of them. This will fortify the argument for the death tax, increasing taxes on the wealthy, and maybe instituting new taxes on accumulated wealth.

  4. But, but, American’s don’t save enough. We’ve been told that over and over and over again. How is this possible?

  5. Bithead says:

    I wonder if there isn’t some connection between this story popping up and the recent change of parties in power in Washington. this would particularly rang true given the tendency of the party currently in power to taxing and spending.

  6. Both sides seem to be ignore a big problem with the idea of saving for retirement in and of itself. What people are basically doing is setting aside some of the money they get from being productive for use later. They are not, however, saving the results of that productivity, which are being consumed immediately (e.g. if a Ford assembly line worker, puts aside part of his wages in the union pensions fund, that doesn’t mean someone is stockpiling a portion of the cars he builds somewhere). His hope is that by giving up some of his claim on current productivity in exchange for a claim on future productivity. This hope is fine as long as the inactive portion of society remain relatively constant.

    The problem occurs when, as is going to happen soon with the baby boom, the portion of society attempting to live off of their savings increases dramatically. There is going to be a huge drop in productivity coupled with a huge increase in the dollars seeking to claim the results of that production.

    Which leads to massive inflation. Now I’m not enough of an economist to categorize the new equilbrium, but I suspect that what will happen is that workers wages will increase along with inflation while the savings will not, until the portion of the economy consumed by the retirees is close to what it was before.

    So the big issue isn’t how much or little you save in absolute terms, it’s how much or how little you save relative to everyone else retiring around the same time as you.

  7. madmatt says:

    It is a lot easier to blow a lot of cash when you are 70 than it is to make a lot of money.