How Much Is the Working-Age Population Saving?

This paper addresses how much individuals are saving for retirement. The standard measure, the personal saving rate reported in the official U.S. National Income and Product Accounts (NIPA), has fallen dramatically and in 2004 stood at a dismal 1.8 percent of disposable personal income. But is this indicator an accurate measure of saving behavior? NIPA combines the saving of the working-age population with the dissaving of retirees. This study attempts to separate the saving of these two groups. Three conclusions emerge from the analysis. First, adjusting the NIPA personal saving rate shows that personal saving by the working-age population is significantly higher than the reported national rate. Moreover, allocating a portion of business saving to workingage households further raises their saving rate. Second, commentators should be careful not to double count saving through employer-sponsored plans by referring to pension saving and personal saving as if they were different components. In fact, for most of the time between 1980 and 2003, pension saving accounted for all of personal saving. Finally, the analysis (inadvertently) helps explain the puzzle surrounding the collapse of the total NIPA personal saving rate beginning in the early 1980s. While capital gains were part of the story in the 1990s, most of the downward trend can be explained by changes in the saving rate of those 65 and over.