Retirement Plan

Individual saving means spending less on consumption than available from one's disposable income. What an individual saves can be held in many ways. It can be deposited in a bank, put into a pension fund, used to buy a business, pay down debt, or kept under the mattress, for example. The common element is the claim on assets that can be used to pay for future consumption. If there is a return on the saving in the form of interest, dividend, rent, or capital gain, there can be a net gain in individual saving, and thus in individual wealth. Suppose an individual decides to increase saving by consuming less. His cutback in spending necessarily means a reduction in income to others. They in turn might cut their consumption to match the loss of income, but then others would lose income. Most people do not reduce consumption equal to the loss of income, so there will usually be a net reduction in saving. Thus the net saving of everybody else may decrease more than the original increase, which would result in a decrease in aggregate saving