You're probably used to hearing dismal news about the nation's savings rate, but this new twist may catch your eye. Last year, the personal savings rate fell to the lowest level since the Great Depression.

More specifically, the Commerce Department measured a negative 1% savings rate for 2006. That means the nation as a whole spent all of its discretionary income, then dipped into savings or borrowed money in order to spend even more.

That's impressive. Yet when you look outside, you probably don't see any rampant bread lines that might indicate we're in the midst of a second Great Depression. In fact, there's a lively debate going on about whether the national savings rate should be considered an economic canary in the coal mine, signaling doomsday predictions for our future -- particularly our future retirement.

The macro view
The savings rate measures the big picture, and it takes the amount of total personal income after taxes (disposable income) and subtracts total spending. What this doesn't count is the rising value of our investments and real estate.

Many economists say the savings rate has turned negative precisely because the value of our investments and real estate have been growing at such a steady clip. They call it the wealth effect, and it describes the propensity among consumers to spend more money as their net worth grows, even though their disposable income may not be growing nearly as fast.

And, despite the negative savings rate, average wealth has been growing. This leads a lot of people not to worry so much that our savings rate has been in the red for two years in a row. Read "Should We Sweat Our Savings Rate?" for more about this argument.

On the other hand, the trend is unmistakable. The national savings rate has been steadily declining, and many other measures of our preparedness for retirement don't look good. Survey upon survey shows that we fail to save enough money in our retirement accounts, we're carrying massive amounts of credit card debt, and we're drawing on our home equity at a furious rate. In other words, some believe "Our National Savings Rate is Embarrassing."

The micro view
Wouldn't it be wonderful to just sit back and let the "wealth effect" work its magic on your personal finances? Unfortunately, that will not guarantee you a comfortable retirement.

The negative savings rate leads me to wonder how many of us, as individuals, are not building sufficient wealth that will enable us to live comfortably now and retire comfortably later. Your personal savings rate can turn negative for a host of logical reasons. You may have been saving up for a big expense and finally taken the plunge. You may be retired and drawing on a pension and a significant nest egg.

More often, a person's negative savings rate indicates they're living on borrowed time. Even if your investments and real estate are growing nicely, a negative savings rate can indicate that you're not adding to your wealth by expanding your investments or building your home equity. You may even be depleting your wealth.

If you're not saving anything out of your regular paycheck, you may be:

  • tapping your home equity to pay for current consumer spending;
  • using your investments or retirement accounts to pay for current consumer spending;
  • financing your purchases with credit cards;
  • lacking an emergency reserve of short-term savings;
  • failing to save enough money for retirement; or
  • assuming Social Security or an employer's pension will support you in retirement.

Any of these things may indicate that you're undermining your own wealth effect. If you're not shunting at least a little of your discretionary income into short-term savings or long-term savings, you might be setting yourself up for trouble down the road. Take a look at the Short-Term Savings and Retirement centers to find out whether you're too far in the red.

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You don't want to be caught in retirement with too little savings, do you? If the answer's no, let Robert Brokamp help you prepare for the retirement of your dreams. A free trial to Rule Your Retirement is but a click away.

Fool contributor Mary Dalrymple has a basement laboratory where she's trying to figure out how to bottle and sell the wealth effect. In the meantime, she welcomes your feedback. The Motley Fool has a disclosure policy.