Americans saving 5.5% but it’s still not enough

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Americans have stepped up their savings game, but there’s still a lot of progress to be made.

Moving in the right direction, but more effort is needed

A new report from the Commerce Department says the average savings rate is now 5.5%. That is a massive improvement over where we have been in the last 20 years in the United States.

If you go back just 10 years ago, the average American spent more than he or she made. The deficit spending like we were the government started about 15 years ago. At that time, we were spending $1.01 for every dollar that came in. From there, things just got worse. On the eve of the Great Recession in 2007, the average person had debt of $1.36 for each dollar they earned.  

But every since everything fell apart 9 years ago, we have been steadily whittling down the debt. We’re not back to historical averages, which would be carrying 65 cents of debt for every dollar earned. But we are just about on par. So things aren’t perfect, but they’re moving in the right direction.

Some economists think there is a one in five chance of a recession later this year. (Of course, that means there’s an 80% chance we won’t have a recession!) Yet even if it does happen, we’ll be better poised for it as a nation. The reason is we as individuals have gotten our personal financial houses in order. As we have more in our paycheck, our spending rate is going up much slower than it has in the past. As we make more, we’ve been putting more aside. That’s a good thing.

That deserves a pat on the back! But here’s the guilt trip: A savings rate of 5.5% won’t cut it. You need to save a dime out of every dollar — 10% — if you’re really serious about saving for retirement.

Why you need to get started saving

According to a new Fidelity study, 55% of Americans  are at risk of not being able to afford essential living expenses in retirement, such as housing, health care and food.

Maybe that number includes you. Maybe you’re reading this and not saving for retirement at all because you can’t seem to afford it. But the thing about saving is, you’ve got to start small. Almost nobody can go from zero savings to the recommend 10% overnight. So here’s how to get started!

Read more: Over 40 with no retirement savings? Take these 6 steps

Do you believe that Social Security will be enough for you to live on in retirement? No way, not any day. So the only rational alternative is this: If you don’t save for retirement, you just keep working until you can’t anymore. A lot of people will make that choice.

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When you think about it, retirement is a very modern concept that has only existed in the world for really the last 140 years. It used to be all through human history that people just worked until they gave out. Boy, that doesn’t sound fun to me! I’d like to be able to just hang out when I don’t want to work anymore.

How to get started saving

Maybe people feel there’s no money to save with. If you feel you couldn’t possibly do a 401(k) because there’s no room for any savings, I want you to start by saving just one percent. Then, six months from now, bump your contribution up by just another one percent, and do it again in another six months. After five years of that, you’ll be saving 10% of your pay before any employer match!

But by doing it just one percent at time, you won’t notice the difference in your paycheck because it’s all little baby steps. You can open a Roth IRA at Charles Schwab for as little as $100 or for $1,000 through Vanguard. See my investment guide for more details.

Read more: Investing FAQs: How to start saving for retirement right now



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