Full piggy banks an upshot of the financial crisis?
If predictions pan out, it will reverse a drop in the savings rate that developed in recent years as flush Americans spent more than they set aside.
“The decline of the personal savings rate is largely explained by the increase of net worth,” said Eric Chaney, chief economist for Paris-based insurance group Axa, at a forum on retirement held by Axa Equitable in New York on Tuesday.
Chaney said the nations hit hardest by the financial crisis were those where the biggest imbalances between savings and spending had developed, including the United States and United Kingdom. But if big spenders shift into savings mode it will help stabilize the situation, he added.
Chaney, who was formerly chief economist in Europe for Morgan Stanley, predicts the U.S. savings rate will rise to between 8 and 10 percent over the next five to ten years. “That is a seismic change” from recent years when Americans largely stopped saving at all, “but would make the world more stable,” he added.
Saving will help Americans better their chances of a secure financial retirement, but how much is saved and the timing of retirement also makes a big difference, added another panelist at the Axa Equitable forum.
Dallas Salisbury, CEO of the Washington, D.C. -based Employee Benefit Research Institute, said careful savings and investment contributions can help people recover from the financial crisis in as little as one to four years. It could take more than twice as long for those who, spooked by investment volatility and questions over where to put their money, sit on the sidelines waiting for the economy to improve, he added.
When one retires can also make a big difference to the amount of social security income that one will receive annually, with the amount rising significantly for those who stay in the workforce until retirement age of 65, or later, said Salisbury.
The majority of Americans continue to rely on social security as their biggest source of retirement income, said Peter Brady, senior economist with the Investment Company Institute.
Photo: Hillary Clinton, who is now U.S. Secretary of State, gives talk show host Oprah Winfrey a piggy bank in this Reuters file photo.