Shocked, I tell you!
Have you seen Ali’s post at Anything You Want, ruminating about how our net worth compares to the typical American figures?
Holy maquerel! The graph she posts shows that at the height of one’s earning power, age 65-69, the median net worth — including the value of one’s home! — is $194,226. Exclude the dwelling’s value, and you see net holdings (presumably including depreciating assets such as vehicles) of $43,921.
{hyperventilates}
As DC at Young Adult Money remarks, it’s kind of pointless to compare one’s net worth with the median, or for that matter with any other individual’s, because we can’t really know the factors that bear on the figures.
But I think it is useful — and interesting — to consider the relative poverty that faces 21st-century Americans. No, we’re not trolling through the garbage dumps in Bangladesh…but there is simply no way anyone can go into retirement with 43 grand in savings without looking at a future of real poverty. Social Security would help, but it would not keep the wolf far from the door of a person with so little net savings.
My father, who was a Merchant Marine deck officer, figured he could retire when he had accumulated $100,000. That blessed day came in 1962. Actually, by then he had enough to buy a home and a car in cash and still have a hundred grand left, plus enough to send me to college (in those days four years at a state university cost about $4,000). Today a hundred thousand 1962 dollars would be worth about $783,440.
And I’ll tell you somethin’: my father spent the last years of his life in poverty.
He didn’t bargain on the rampant inflation of the 1970s. By 1975, the $100,000 in his bank had the buying power of 56,134 1962 dollars.
Interestingly, that still is more than the median savings of a 21st-century American on the cusp of retirement.
As of December 2014, my savings amount to less than the 2014 equivalent of my father’s retirement savings, but with the value of the paid-off house added in, the net worth comes to a heckuva lot more than his ever did.
But. All it would take is one period of crazy inflation — and don’t fool yourself; it can and will happen again — to put me in the poorhouse.
It IS “breath-taking” how little folks put away and how most of their REAL wealth is in their home…scary….In that vain, in my neighborhood real estate activity is heating up. Guy down the street is in his 70’s and is done cutting grass. House went on the market for $370K has had a bunch of activity and DW says it’s not as large as our “shack”. Say what you want….after commissions this guy should net $340K tax free….nothing to sneeze at. Send this over to the folks at TIAA-CREF and let them work their magic…and a conservative return of say 10% would yield $34K or around $3K a month.
When I see these figures on what folks need to retire and how much the “average” person has saved it brings to mind what an accounting Professor back in “community college” once said…..”Figures lie…and …Liars figure”….
There’s an article in today’s NY Times going on about how affluent senior citizens are (all that fabulous wealth coming in from Social Security and pensions…wooHOO!). That spin is kinda stupid, but one remark the writer makes that does make sense: he suggests the apparent disconnect in financial “comfort” in older boomers (“pre-boomers”??) and people who are in mid- to late middle-age is that wages are not keeping up with the cost of living — and many people in that age range were unable to replace good jobs with comparable ones after the crash.
That might go a ways to explain the apparent paucity of savings. People lost their shirts in the crash and haven’t had time to catch up. Some of them never will catch up.
Those 10% returns won’t last forever, btw. If the guy has sold a paid-off home, what does he do now? Move into an apartment, which he pays for with the 3 grand a month from TIAA-CREF? Come the next downturn, how does he pay the rent and put food on the table with Social Security alone?
Don’t have to troll through the garbage dumps *yet*.
Inflation is supposed to be a natural tool of the economy, but it has served my generation poorly. My father experienced his highest earning years during the early 1980’s when inflation was regularly over 10%. His brother-in-law fixed himself up (and two generations after him) by investing heavily in municipal debentures at a shocking 20% return until maturity, 10 years later. Instant fortune.
My father signed a mortgage at 4% in the late 50s; by the time it was paid of in the 70’s he spent more on lunches and coffee snacks than his monthly payment. Inflation completely bailed him out of all of his consumer debt.
Me, not so much; with practically 0% return on any investments I make, I can’t take advantage of any inflation at all, paying cash money for every stick of my house’s net value.
Not bitter, just lowering expectations. Fancy Feast or Whiskas, as long as I have a choice.
During a hike on Saturday, my friends and I were talking about the high costs of housing in the Bay area and how people could possibly deal with it. During my Sunday hike with a younger friend, we were talking about her plans for paying off of her student loan debt so she can increase her retirement savings and maybe…possibly…by a home. (Which basically involves her transferring for a few years to work in a lower cost of living area while still pulling in her Bay area salary, which she figures will be like getting a 30% raise.)
My thoughts on the housing topic and the retirement savings topic (which also impacts this generation with the triple whammy of student loan debt, limited high wage jobs, and increasing cost of living) is that innovation is kicking in to address many of these issues. The “sharing economy” continues to grow because of all the pressures already noted (high cost of living, high student debt, etc.) and it will spill over into housing, too. We’ll see an increase in co-housing, as people see it less attainable and desirable to have the big house with the private backyard. “Tiny houses” and small living spaces will continue to increase in popularity.
The “retirement” model that we currently look at as the “normal” goal to achieve has been falling apart for years and it will continue to do so. But since we’re not working our bodies as hard in heavy, manual labor maybe it’s not such a big deal to stop working at 65, 67, or 70 for that matter. At least the intellectual work we’re increasingly doing will keep our brains from totally deteriorating.
I have to have some optimism here otherwise I would just jump off a bridge now. I’m an independent woman who is following all the standard advice of saving as much as possible for retirement, yet there’s no guarantee — and there will NEVER be a guarantee — that it will be “enough.” I have to think our cleverness and ability to innovate will figure something out. Or maybe the suicide booths will be operational by then.
If you want to be even more shocked, consider that the mean household net worth is something just shy of $700K. And when the mean and the median are that far apart… there are definitely some serious outliers there.