Below is a chart showing the median net worth for Americans. The median is much more helpful than mean (i.e. average), because it isn’t skewed by the ultra-rich. The median tells us that half are above and half are below. Where do you stack up?
Not surprisingly, the vast majority of American’s net worth is in their house. At age 65, half of Americans have less than $200k in total net worth. If you subtract their home value, this drops to less than $50k. This accords with the 2016 study by the Employee Benefit Research Institute (EBRI), which reported that 62% of retirees have less than $50k in total savings and investments.
What should be obvious is that the vast majority of Americans are unprepared for retirement. They simply do not have the assets needed to produce an livable income. Of course, the Federal Reserve isn’t helping things either, by pushing interest rates so low.
This means that for the majority of American retirees, their only source of guaranteed income is social security. Their assets cannot produce the income they need, and their biggest source of worth (their home) is a consumer good. But the saddest part of this is that things may not even be this good. We are currently in another housing bubble. In the next recession, home prices will drop – perhaps significantly. What happens to these numbers then? It may not effect American’s income, but the loss of equity does present additional challenges.
All this has rather predictably led to Americans expecting to retire later – some say never. However, despite the expectation of a later retirement, the percentage of Americans actually retiring at 65 or younger has slightly increased.
What Are They Doing?
Another interesting point on the graph above is the difference in net worth between those in the 55-64 age group and those in the 65-69 age group. The net worth (excluding the home) drops by only $1,000 over all five years. This suggests that a) families are cutting expenses dramatically within the first few years of retirement (not likely), b) (which is what I suspect) retirees are continuing to earn income while declaring themselves “retired”, or c) children are helping to support their parents – either by letting them move in or by supporting them so they won’t.
If you are in retirement and are feeling the squeeze, then looking for supplemental income is always a good option. Cutting expenses is always difficult – until you reach an age where it becomes easier, if you know what I mean. We usually tell our retirees to not worry about taking distributions from their retirement accounts early in retirement, as they are in the best health of their lives. We encourage them to travel, enjoy their time with their spouse, and make memories while they can. As people age, their ability to earn money is diminished. However, so is their ability and desire to spend it.
Clients of Plan Financial enjoy access to all sources of global expertise and we can help you analyze your options. Whether you are close to retiring or still a ways off, it never hurts to start planning now. We typically recommend individuals aim to save 10% of their income. If you get to 10%, shoot for 15% or even 20%.
Still, saving is only half the battle. While you can’t invest your way to retirement, you can invest your way out of it. The markets today are not your father’s markets. They have been tweaked and meddled with by central planners the world over. And now we are on the verge of deflating the third stock market bubble in the last 15 years. If you would like to learn about our investment process and how it can help you accomplish your objectives, give us a call.
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