Thursday, October 24, 2013

Financial Idiocy

And the idiocy continues:

A majority of Americans with 401(k)-type savings accounts are accumulating debt faster than they are setting aside money for retirement, further undermining the nation’s troubled system for old-age saving, a new report has found.

Three in five workers with defined contribution accounts are “debt savers,” according to the report released Thursday, meaning their increasing mortgages, credit card balances and installment loans are outpacing the amount of money they are able to save for retirement.

The imbalance is expanding even as policymakers are encouraging people to set aside more by offering generous tax breaks and automatically enrolling workers in retirement accounts that in some cases automatically escalate the amount of money over time.

Currently, workers with retirement savings accounts put aside more than 11 percent of their pay for retirement — 5 percent in their own accounts, and 6.2 percent in Social Security.

Despite that — and despite the $2.5 trillion the report says employers have poured into defined contribution accounts from 1992 to 2012 — the retirement readiness of most Americans has been slipping, according to the report by HelloWallet, a D.C. firm that offers technology-based financial advice to workers and conducts research of economic behavior.

Now, I’m not a big fan of these investment firms, largely because they rely on economic data that comes from the government, but they do have a good point here.  People simply aren’t saving for retirement.

But there is good reason for this: the inflation rate is at least 3x higher than it’s being reported.  To top that off, the savings interest rates are not high enough to justify saving any kind of money.

So now that the Federal Reserve interest rates are near zero, we are seeing Americans go into debt more than save for their future.  This is because inflation is outpacing savings anyway, so you might as well let the good times roll.