It seems that, contrary to the conventional wisdom, most Americans are saving too much for retirement when they would be far better off investing more in education and home improvement. This is the result of numerous studies by prominent economists, including one that “found 88 percent of retirees age 51 and older had adequate wealth.”
Obviously, this finding is meeting with strong resistance from the financial planning industry, which relies on commissions from managing other people’s money.
The argument between the sides is similar to the classic debate between the hardworking ants and lazy grasshoppers of Aesop’s fable. The financial planning industry says saving, even too much, provides a safety net and peace of mind, and possibly a gift to heirs at the end.
The economists answer that people would get more out of their money by using it when they are younger. “There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.”
Mr. Scholz said he and his co-authors of a study, “Are Americans Saving ‘Optimally’ for Retirement?” found oversaving across all economic and education levels and most ethnic or racial groups as well. (It found that Hispanics tended to save less.) Those who were not saving enough were usually missing their target by only a small amount.
The dangers of over-correcting are substantial, too, of course, and people don’t know how long they will live. Then again, as Kotlikoff notes, there are significant consequences to living for tomorrow, too.
UPDATE: Kevin Drum read the piece with a more skeptical eye and notes that, “If you read through it, it presents a grand total of three pieces of evidence for this view.” And that evidence is thin.
A fair point and the type of thing I often catch. Because reporters write in anecdotes rather than data, I generally presume that these types of reports reflect an emerging consensus and the examples are given for flavor. I agree, though, that if this is all there is to the argument, there’s much less than meets the eye.
