Counting Capital Gains As Savings
September 14, 2000
Official statistics paint a sobering picture of Americans' savings habits. The personal savings rate has shrunk by half since 1994 -- and in July it dropped to the lowest monthly rate ever recorded since the government began tracking it in 1959.
But include the capital gains being realized by Americans, and -- presto! -- the savings rate from 1995 to 1998 becomes the highest in the postwar period.
- The Brookings Institution's William Gale adjusted savings rates to include capital gains and discovered that savings more than doubled in the past 40 year -- from 15.8 percent in the 1960s to 32.6 percent in 1998.
- Between 1995 and 1998, the median net worth of families rose 17.6 percent, according to the Federal Reserve.
- Yet about one-third of Americans "are going to retire dead broke," warns Paul Hewitt of the Global Aging Institute at the Center for International and Strategic Studies.
- A 1997 study by Olivia Mitchell, at the Wharton School of the University of Pennsylvania, concluded that the median household of those in their mid-50s must save 16 percent more a year to sustain its lifestyle after retirement.
Earlier this month, a bill raising annual contribution limits for 401(k) plans and individual retirement accounts passed the Senate Finance Committee. A catch-up provision would let anyone over 50 put up to $7,500 a year into an IRA.
A similar bill cleared the House in July. The White House opposes the measure -- but has not yet threatened a veto.
Source: Kevin Butler, "America Doesn't Save Enough, Right? Hold On -- Data Don't Tell Real Story," Investor's Business Daily, September 14, 2000.
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