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Income vs. Savings


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June 30, 2005

Income vs. Savings

Amey Stone

I always find Department of Commerce releases on personal income and consumer spending a bit mind boggling. The numbers are tinkered with to factor in the impact of taxes, inflation and the time of year (to name just a few adjustments). Independent economists then pour over the release and pick and choose which number to highlight.

Here's a sentence in the Bureau of Economic Analysis' personal income highlights release for May that I think merits the most attention: "Over the last 12 months, real disposable personal income has increased 3.2 percent, and real consumer spending has increased 3.4 percent."

So there we have it. More proof that Americans are on a path to spend more than they make.

I spoke this morning with Keith Millner, a senior vice president at Nationwide Financial Services. He heads the group that provides insurance and investment products for retirees. He sees economic numbers like the ones released today as further evidence that baby boomers need to do more to prepare financially for the future.

For starters, he says, they should save more. "They tend to be more aggressive about spending vs. saving. While that's good for the overall economy in the short-term, from an individual financial planning perspective, it's very risky."

Nationwide's surveys show that most people want to retire around age 62, but don't think about how long they will live. If they retire that young, they will likely spend 30% of their adult life in the so-called non-productive phase, says Millner. That puts them at risk of running out of savings during their lifetime.

In general, he says the boomers are, "a little overconfident about the future."

09:50 AM

Economics

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Amey --

I'm sure this doesn't surprise you -- it doesn't me. I blogged about it twice:

http://www.freemoneyfinance.com/2005/06/its_not_what_yo.html

and

http://www.freemoneyfinance.com/2005/06/its_not_what_yo_1.html

Hopefully, through your blog and others, people will start to reverse their spending habits. Otherwise, their financial futures are not very bright.

FMF

Posted by: FMF at July 1, 2005 01:31 PM

The title of this section includes: "...personal finance and other important matters." However, I do not see any mention of inflation. Yes, inflation, which is alive and well in the US. In case you haven't noticed, that 1-lb can of coffee was 13 oz, then 12.5 oz and now it is 12 oz. And at the same price that the 16-oz can was. If that is not inflation (the sneaky kind), then I don't know what is. Have you noticed that the tissues in that box are not only fewer, but smaller, at the same old price? I could go on, and on, and on ... but I think you get the picture. I hate to say it, but inflation IS alive here in the good old USA!

-Bob S.

Posted by: Bob S at July 10, 2005 07:46 PM

Thanx for follow-up comments. I'm new to BW magazine and this website. Sorry if I re-hashed old "stuff". I still don't see the "talking heads" on the business channels on TV acknowledging the "hidden" inflation. Where's Greenspan when you need him ...? It must be nice when you don't have to do your own shopping, that way you can stay out of the stores, and crowds (and miss what is really happening in our economy).

Posted by: Bob S at July 11, 2005 11:35 PM


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