Most Americans adding debt faster than savings

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(MoneyWatch) More than half of Americans with 401(k) accounts are accumulating debt faster than they are putting away money for retirement, according to a new report.

The study, by HelloWallet.com, found that the average 401(k) user puts around 11 percent of his income away for retirement every year, through savings and social security taxes. But such savings remains "stubbornly low," according to the personal finance site, which said that the typical worker nearing retirement has roughly only two years of replacement income stashed away. That is about 15 years less than people tend to live after they retire.

For many Americans, the financial impact of this lack of savings has been compounded by heavier borrowing. From 1992 to 2010, people now nearing retirement, meaning those age 50 to 65, increased their total debt by 69 percent. For a fifth percent of these households, the debt was from mortgages, which have the potential to increase in value. But the remaining 80 percent of the debt was from credit cards, accumulated installment debt like auto loans and other revolving debt such as home equity loans, according to HelloWallet.

As a result, 60 percent of U.S. households with a 401(k) or other defined contribution plan added more debt than they put away money for retirement, a group the report refers to as "debt savers." Because most people participating in defined contribution plans make more than the median U.S. income of around $50,000 a year, most of the debt savers have higher incomes. Almost 78 percent of them make more than the median, and 44 percent earn more than $90,000 a year.

Using homes an alternative retirement savings vehicle, where equity can accumulate over time, suggests people have quickly forgotten the lessons of the mortgage meltdown. "Unfortunately, the long-term return on housing has only matched inflation, making it a potentially weak investment vehicle," the report states. "Just as importantly, homeowners now move, on average, every nine years, which may not be enough time to make up transaction costs. Similarly, no studies that we are aware of takes into account the additional costs of homeownership over renting, which includes maintenance costs, remodeling costs, utility costs, and, for some, longer commuting times and associated transportation costs."

The report is the latest piece of evidence highlighting theinadequate retirement savingsfacing most Americans.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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