Wednesday, August 19, 2015

Congratulations, Americans, On Saving More!

Just over 1 year ago, I wrote that the savings rate in America has been declining and was currently at the woeful level of 3.8%. But it looks like that has turned around. Now, according to this article, the personal savings rate has increased to 5.15%.  This is great news. The article does go on to mention that it seems most of the savings have been going into building up emergency funds rather than into retirement savings accounts (either 401(k)s or IRAs). I can understand that and, to some extent, am OK with it. Chances are an emergency will arise well before you retire. However, it is important to start funding your retirement plan as soon as your emergency fund is filled. Ideally, you should be building both at once, even if it means splitting the money between the two and taking longer to fully fund the emergency account.

Why is funding a retirement account so important? Time. You want to leave your money invested and earning interest as long as possible. That is the difference between retiring with a million dollars or more or retiring with just enough to splurge on the wet cat food once a month.
Don't let your retirement pantry look like this
Another point the article makes is that 25% of the people saving in a 401(k) that features an employer match are not contributing enough to get the full match. This is missing out on free money. But the good news is that this figure is down 1 percent form last year, so things are moving in the right direction.

Perhaps the long economic downturn and anemic recovery have taught people the importance of financial security. One can only hope.


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