U.S. savings rate lowest in 74 years

Some sobering numbers about Americans spending like drunken sailors: The government reported earlier this month the U.S. savings rate is the lowest in 74 years. Worse, in 2006 the savings rate was negative. This means instead of adding to our savings we are dipping into our nest eggs or running up credit-card debt to buy stuff we can’t afford.

“We’ve got to quit spending the way we’ve been spending,” says Gregory Salsbury, author of “But What If I Live: The American Retirement Crisis – A Retirement Guide for Baby Boomers.” Salsbury says the extravagant spending is particularly troubling because most Americans have saved little or nothing for retirement.

“We’ve become a nation that doesn’t give a second thought to spending four bucks on a cup of coffee,” Salsbury says. “If you’re one of those people scrambling to save and may have a few thousand in credit-card debt, you have no business spending $4 on a cup of coffee several times a day.”

In his book, Salsbury details obstacles that can prevent boomers from enjoying a secure retirement. Simply, most of us underestimate how long we will live and how much we will need.

For instance, Salsbury says that once a married couple reaches 65, statistics show there is a better than 50 percent chance that one of them will live to be at least 90. If you retire at 65, your nest egg must last at least 25 years. And much of that money will be needed later because of health-care costs. “Your last few years on this planet are dramatically more expensive than the average of the rest of your life,” Salsbury says.

What can we do?

Boomers must save more and expect less. Salsbury, who works in the financial services industry, says some clients believe retirement will be a time when they increase spending on vacations and buy that sports car they always wanted.

Understand what you are up against. Although health care can eat up much of your nest egg at the end, inflation and taxes will take bites every year. “Your nest egg, if it’s not earning at least 4.6 percent a year, you’re actually going backward,” Salsbury said.

Don’t go it alone. Salsbury advises people hire a financial adviser who can not only help them accumulate assets and make them grow but can help you make decisions on how to “decumulate” – when to reach into a nest egg and how much to take out.