Aging and Saving

The Consumer Expenditure Survey by the BLS just released an interesting article highlighting their 30 years as a continuous survey.  I decided that it could be interesting to see what their data combined with Census demographic projections imply about the future trend in savings. One way to do this is to break down the savings rate by age and project it forward.

Years: 2004-2008

All consumer units

Under 25 years

25-34 years

35-44 years

45-54 years

55-64 years

65-74 years

75 years and older

Average Savings Rate









As the savings rate obviously wasn’t 17.5% over the past few years, it should be noted that the CES implied measure of savings is rather different than the personal savings rate data calculated by the BEA.

In 2004, the CES changed the way it calculated income for incomplete survey responders, so the savings bias is calculated as an average of 2004 through 2008, which is about 15%.

The analysis assumes that the savings rate of each group will remain constant, and combines CES data with the US Census projections with constant net immigration to predict the future path of savings rate. The census cohorts are adjusted by the relative amount of consumer units because they suffer the same discrepancies as household data, with fewer young consumer units per capita.  This savings rate is adjusted downward by about 15% to be comparable to the BEA’s personal savings rate data.

The results are interesting in their mildness. The savings rate is only expected to drop a little over 1% due to demographic factors.  Of course, this study is biased for many reasons.

  1. The accuracy of the using the aggregate consumer expenditure data without adjustment is questionable.
  2. Social security and other retirement benefits are assumed to exist at levels comparable to the past few years. This biases the savings rate of the old cohorts higher compared to a likely scenario in which government and pensions have solvency issues due to the increasing dependency ratio. 
  3. The educational and racial composition of the projections is held constant when the savings behavior of these cohorts is actually rather variable.
  4. Wealth effects are completely ignored.