Why We Need To Save More

by TK on May 4, 2021

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America is not traditionally known as a nation of savers.  Actually, we are pretty damn bad.  Americans save only 6% of their after-tax income.  And that’s up from just over 2% pre-recession.  This is compared to the 30% saving rate in China, 14% in Switzerland, and 13% in Germany.   Here is an infographic from Billshrink detailing  the saving habit of Americans.

How little we save is somewhat understandable considering that Americans had social security and pensions to depend on for retirement.  And until the latest recession, American prosperity was uninterrupted for the most part.  But times have changed, we all need to start saving—and start saving more.  Below are a few of the reasons why we need to save more.

1) Social Security Is Almost Gone

Traditionally people have relied on this as the crux of their retirement.  Our generation cannot do the same.  By the time generation-Y retires, there most likely won’t be any Social Security to draw on.  Unless something drastic changes the way Social Security is administered, there won’t be enough money to fund Social Security past the next few of decades.  Life expectancy has increased, whereas the age to draw Social Security has remained relatively the same.  As a result, the government needs to pay out more per person over a longer period of time.  Additionally, more people are retiring so the ratio of worker to retiree has changed adversely.  2) Pensions no longer exist: The days of pensions for a lifelong employees is also dwindling.  The good news is that traditional pension plans are replaced by 401ks.  But with 401ks, you must take an active approach and contribute some of your money in order to reap the benefits.

2) The economy is more dynamic

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Because of the recession, employers are getting leaner and shedding a lot of jobs that can now be automated via technology.  That is why you need to save so that you are able to cushion the blow while you find another job or learn another skill in the event that your job becomes obsolete because of technology.

3) Inflation

Because of so much money being circulated in the economy and such low interest rates the past several years, the chance of higher inflation is something that is a legitimate worry.  Inflation eats away at your earning and spending power by reducing how much each $1 is worth.  Consequently, everything is more expensive and your money buys you less.  Just as recently as 1980, inflation was at 13.5%.  Granted we might not see inflation rates like that for awhile (or ever again), it is not unusual to get an inflation rate above 4% or 5%.

4) Seeing The World

In the not-so distant future, we will see many people teleworking or freelancing (or both).  Advances in technology reduces our dependency on location-based employment.  Office jobs will soon be done at home.  With teleworking and freelancing, it gives us a fair amount geographic freedom.  We need to capitalize on that and travel.  To travel you will need money.  If you have a flexible job that lets you work from anywhere, why not travel and work at the same time?

5) Save For A House

Housing will be very affordable in the foreseeable future.  The Federal Reserve also publicly stated that they will keep interest rates unchanged for the next couple of years.  The combined power of affordable real estate and low interest rates will give you an incredible opportunity to buy a nice house at an extremely affordable price.  If you already have a house, the coming years will afford you a great oppurtunity to buy rental property that generates extra income.  But with stricter lending standards, you will need to put down more, and therefore save more.

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{ 1 comment… read it below or add one }

Rddtusr May 10, 2021 at 6:17 am

Copy/pasted from Jahlepenos on Reddit:
>Like the effort to spread the message, but the tax sections are flat out wrong with bad data. Kills credibility since the message flow streams from those numbers. The marginal tax rate on a $50,000 income is not the effective tax rate because of progressive taxation brackets at diff marginal levels, plus people get deductions off gross income. Also, trying to juxtapose the average tax return to offset part of this “25% effective tax rate” is wrong because they are unrelated concepts. Shows an extremely poor understanding of federal income taxation. . Details . 1) An single person with no kids gets to subtract a standard deduction of $5950 and personal exemption of $3800. So taxable income is up to $40,250 on $50,000 gross income. 2) The 25% marginal rate only kicks in starting at $35,351 of income. A person with a gross income of $50,000, taxable income of $40,250 has an effective federal income tax rate of 12.2% (or $6,092 on the $50k example). The math goes: 10% of the first $8,700 15% of the next $26,650 25% of the balance to get to $40,250 taxable income, or $4,900

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