ARROYO GRANDE, Calif. – OK, let's stop the charade and admit the truth. Why does America have a zero savings rate? Because America has no savings policy. Period. For more than a decade, Washington, Wall Street and Corporate America have favored a national spending policy at the expense of a national savings policy.
So when these policymakers tell us to "save more," they're happy-face hypocrites hiding their real goals. They really want you to spend, not save!
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In pure economic terms, the choice is simple. You can't save and spend too. And especially since the 2000-02 recession, our policymakers have consistently voted in favor of spending, not saving. So read my lips: America's savings policy is a fake, bogus, phony, fraudulent, bankrupt and, oh yes, non-existent. Why? Because our policymakers don't want you to save, they want you to spend, spend no matter how deep you go into debt. Ignore their rhetoric, watch their actions.
No wonder the new Securities Industry Association report on retirement savings stands out like a sore thumb: From the 1950s through the 1980s, Americans were saving over 10 percent annually. Since then, our spirit of thrift spiraled into a negative savings rate.
Today "nearly half of all American households are not saving at all and only about one-third of all U.S. families are saving enough to maintain their standards of living in retirement." And don't tell me that 401(k)s, home equity and stock appreciation aren't included. You're in denial and rationalizing.
But this is not news. We've heard this a million times. You've heard it. So have all your senators and representatives, the president, Wall Street and Corporate America. But the problem is so enormous, we're paralyzed. So nobody's doing anything! Not individuals. Not the government. We're passing our failures on to future generations, as we slip deeper into a bottomless tar pit of debt and deficits.
Reading the same old disaster warnings, over and over makes me mad as hell. Too much money has been wasted on all this repetitive rubbish. In addition to the SIA and a recent Fidelity study, there are eight earlier ones, all with the same tired message. We'll review them, one last time, then explore what it'll take to force a policy change and how you can prep for the worst-case-scenario:
Fidelity Retirement Index
In a recent update Fidelity says the average boomer is on pace to replace only 57 percent of the income needed in retirement. That means a couple making $50,000 must survive on less that $30,000.
Employee Benefit Research Institute
Over half of American workers ages 45 to 54 have less than $50,000 saved. In an earlier study, only 35 percent were saving enough to retire comfortably. The rest ranged from saving nothing, to not trusting the market, to outright admitting they're grossly unprepared.
Putnam Funds
The company's "Portrait of Recently Retired: Bad News" says retirees were a "money-worried, cash-strapped group, dependent on Social Security." Scary stuff: I recall the conclusion of an earlier study that half of all retirees over 65 would be living in poverty but for their Social Security check.
Guardian Life
"Retirement Paralysis." Things are so bad that 80 percent are like deer in the headlights: "Baby boomers are in a state of financial paralysis. They don't know how much to save and don't understand some basic principles such as compound interest and adequate returns, so they are doing nothing!" Imagine 60 million paralyzed boomers!
Nationwide Financial
"Unrealistic Dreamers." They say 80 percent of Americans "are not losing sleep over their finances and 59% believe they have a plan and are saving enough for retirement." Unfortunately, "there appears to be a contradiction in what people say and what they actually do" if you look at the dismal savings rate. Worse yet, 401(k) participation is declining: Less than half our workers are covered, of those eligible, 25 percent don't participate, fewer that 10 percent contribute the maximum and many cash out when they change jobs.
Prudential Financial
"Clueless About Retirement." In their Workplace Report on Retirement Planning, "83% of the near-retirees (which included the oldest cohort of baby boomers) believe the it is 'very important' to generate an income that provides a comfortable retirement lifestyle. But barely 20% say they are well informed on how to do so." Translation: Boomers are clueless.
Allstate Insurance
"Retirement Reality Check." Survey asked Americans to identify with popular television shows a couple years ago. Only 14 percent said they were like Joe Millionaire, "financially secure with no worries about retirement." A mere 13 percent identified with The Apprentice, and 6 percent with Extreme Makeover. A whopping 57 percent identified with "Survivor They have more hope than cash.
Merrill Lynch
"Just a Third Are Comfortable." This study is on par with the others. Only one-third of those surveyed were confident they were on track to a "comfortable" retirement. Not so for the other two-thirds.
Dalbar Research
"Quantitative Analysis of Investor Behavior." These guys have surveyed actual performance of mutual fund investors for two decades: The average investor makes less than inflation, thanks to fees, expenses, trading costs and taxes, but doesn't know it or refuses to face the truth about how bad it is. Investors tend to focus on the deceptively optimistic "fund performance" statistics in the news.
There are three major lessons here.
One: Stop wasting your time and money on useless repetitive studies. Stop droning on with the same tired mantra: We know America is a debt-ridden, consumption-addicted nation with a bankrupt public policy on savings, run by myopic politicians whose main goal is re-election and kowtowing to special-interest money. Neither party has the will or the guts to stand up and get into action. That's reality folks!
Two: Only one thing will reverse America's failed savings policy: a catastrophe! Past prosperity has lulled us to sleep. But that's coming to an end. The Brookings Institution warns that if we do nothing for the next 10 years, problems will get so bad that balancing the budget would require a 40 percent plus cut in benefits and spending, or offsetting tax increases. They also acknowledge that politically nothing will be done until a crisis explodes.
Three: What can you do? No news here. Ten studies and things keep getting worse. Yes, 33 percent listen and invest regularly. But the other 67 percent are oblivious, addicted to short-term consumption and immediate gratification. Solution? Save 10 percent or more.
Once again, here's the crux of the problem: America has no savings policy because Washington, Wall Street and Corporate America don't want a saving policy! Because savings competes with their No. 1 priority, which is short-term spending, consumption, expansion, production and growth. They secretly hate savings. A savings policy would kill their spending programs. You can't have both. So America's 295 million citizens are doing exactly what our policymakers really want us to do; not save, but spend, spend, spend!
And for now all we can do is pray and wait till America's fantasy explodes in our faces.
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Copyright (c) 2006 MarketWatch, Inc.
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