Saving takes a risky turn

WASHINGTON -- Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression.

Soaring home prices apparently have convinced people they don't have to worry about saving, a belief that could be seriously tested as 78 million baby boomers begin to retire.

The Commerce Department reported yesterday that Americans' personal savings fell into negative territory at minus 0.5 percent last year. That means that people not only spent all of their after-tax income last year but had to dip into previous savings or increase their borrowing.

The savings rate has been negative for an entire year only twice before -- in 1932 and 1933 -- two years when Americans were having to deplete savings to cope with the massive job layoffs and business failures caused by the Great Depression.

This time the reasons for the negative savings rate are vastly different. Americans are spending all their incomes and then some because they feel wealthier because of the soaring value of their homes.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement. The baby boomers start turning 60 this year, which means they can begin retiring with Social Security in just two more years.

Analysts said with this huge wave of pending retirements, the savings rate should be going up rather than being on a steady decline over the past two decades. The savings rate stood at 10.8 percent of after-tax incomes in 1984 and has been declining steadily since that time. It was down to 1.8 percent in 2004 before turning negative last year.