Join AARP in Celebration of Asian American and Pacific Islander Heritage Month. Nominate Someone for the AAPI Hero Award

 

A New Perspective on "Saving" for Retirement

The personal saving rate alone tells us little about the adequacy of workers’ preparation for retirement. Changes in household net worth better reflect the adequacy of retirement saving. The saving rate and changes in household net worth have generally moved in opposite directions over the past two decades. The biggest single reason for the difference in these trends is that our official measures of saving exclude capital gains, which in most years far exceed in magnitude the measured annual saving that occurs. From a policy relevance standpoint, a measure such as change in net worth is more useful than the saving rate because it provides a more accurate picture of changes in retirement wealth. This does not mean that personal saving is unimportant for building personal wealth. Personal saving remains the foundation of the acquisition of personal wealth, on which asset appreciation can build. The report concludes that it is time to consider new policies to increase saving, including an enhanced Saver’s Credit, an auto-IRA, and some type of consumption tax, such as a value-added or progressive consumption tax, not as a substitute for but in addition to the income tax, to encourage more personal saving. (12 pages)

Next Article

Read This