Updated March 20, 2025

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Money Perspectives With Professor Don Sabbarese

Written by Scarlett Vasquez

Financial Expert

Edited by Kristin Marino

Managing Editor

From historically low interest rates on savings accounts to a persistently sluggish job market, today’s workers face numerous challenges in planning their retirement. To illuminate these issues, Don Sabbarese, Ph.D., professor of economics at Kennesaw State University and director of the KSU Econometric Center, spoke to MoneyRates via email about the challenges surrounding retirement today.

MoneyRates: What should the government do to encourage Americans to save more for retirement – or should it even bother?

Sabbarese: A low private savings rate has always been a concern for policymakers. The greatest challenge is to increase savings for the two lowest-income quintiles. With lower income and education levels, passive savers tend to have much lower levels of savings. Roth IRAs, 401(k)s, and 403(b)s are more utilized at higher income levels. For higher-income and educated Americans, more tax incentives and higher caps certainly would incentivize them to save more. But this doesn’t hold true at the lower income levels. Some have argued that automatic enrollment might be more effective. The issue with any change in policies is how these changes will affect consumption patterns and government revenue from tax subsidies.

Americans, on average, tend to value current consumption more than future consumption compared with many other countries, which is why consumption accounts for over two-thirds of GDP. That said, savings are a critical source for private sector investment in capital and R&D. Over the past 13 years, the United States has relied on foreign investors to offset deficiencies in total savings.

How might the retirement of the baby boomers impact the economy?

Many baby boomers will struggle to maintain their standard of living when they actually retire.

A recent Federal Reserve Survey of Consumer Finances estimates the median balance in 401(k)s and IRAs for households nearing retirement is $120,000. McKinsey Consulting estimates two-thirds of baby boomers will be unable to maintain their standard of living. Since baby boomers account for a disproportionate size of the population, their constrained consumption patterns will be felt in many sectors of the economy. This pattern will be more pronounced as health care takes a growing share of their budgets. Of course, the other one-third will maintain their current standard of living with less disruption in their spending patterns.

MoneyRates estimates that Fed policy has cost U.S. savers more than half a trillion dollars. Have the Fed’s low-rate policies been worth the lost income to retirees and other savers?

If interest rates, such as the 10-year bond rate, were closer to its historical average of 4 percent plus at this point in the recovery, the argument of such a loss is valid. However, if the Federal Reserve’s policy helped expedite the increased asset values for equities and housing, then those wealth effects should also be considered. The point is that there are winners and losers with the Federal Reserve’s quantitative easing policies. In the case of higher-income savers with a greater share of their portfolios in equities and real estate, (they) have probably fared better than others with less of these investments. At the end of the day, it will take a long time to measure the net overall effectiveness of the Fed’s policy. This is certainly a point of contention for some economists.

Wall Street obviously believes its current policy of a historically low federal funds rate is critical to sustained economic growth. That’s demonstrated every time the Dow Jones drops when there is a hint that the Federal Reserve will taper its purchase of mortgage-backed securities and Treasury bonds.