How Much Do Americans Really Have Saved?

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I regularly look at the data on how little people were able to save under the present system. It is really a shame because it is not about people not doing the right thing as much as people being sold faulty retirement income strategies. Recently, several media articles about how little people have saved have been distributed. So I thought the readers of BiggerPockets would be interested in what the latest numbers show us. The definitive study is done by the Federal Reserve every three years. They just started the 2013 study, so we will look at the 2010 study.

Federal Reserve Household Finances Survey

The top line number is household net worth. Net worth is all assets minus debts. All numbers given are the median number, which represents the best statistic to understand this data because it is not skewed by the large concentration of wealth in a few hands.

Median Net Worth in 2010 was $77,300. A drop from $126,400 in 2007. Obviously the recession hit families hard with drops in all asset classes in those years.

In the 55-64 age group [head of household]the median was $179,400. That is the group that is heading into their retirement years! There was a drop from $266,200 since 2007.

Even more scary is in the 80-90% income range [Median income of $114,600] the net worth for these families was $286,600. So these upper middle class families, with substantial income streams have only been able to muster a net worth of a little over two years income.

Savings; Retirement Accounts; Other

The median retirement account for all families that have a retirement account is $44,000. For those in the 80-90% income range with a median income of $114,600 it is $88,000. For those in the 55-64 age group it is $100,000. Now here is the kicker only 50% of families own a retirement account. So these numbers only apply for the top 50% of people who save!

Other places where families put savings are Certificate of Deposits [$20,000], pooled investments [mutual funds]$80,000, cash value life insurance $7,300, stocks $20,000, and bonds $137,000. These numbers are skewed because so few families actually own individual bonds, for example, and the ones that do tend to be the wealthiest families.

As an aside, the higher up the income level you go, the more likely that they own individual stocks, privately held stocks [mostly businesses], cash value life insurance, investment real estate and bonds. The smaller the percentage of mutual funds are owned the further up you go..

How do You Compare?

I hope all that are reading this blog compare favorably to these rather pathetic numbers. The amount of people that do not have available a defined benefit pension has risen to over 85% in current society. The amount of current retirees that social security represents their highest income source is 60%, while 33% are totally dependent upon SS. This is a huge societal problem.

Bad Strategies Lead to Bad Outcomes

The financial planning industry likes to blame individuals for this crisis. But the facts are very different than what they want people to think. The strategy of investing in mutual funds inside a IRA/401K wrapper has many fatal flaws. First is the high volatility that does two things, it panics people and it is difficult to turn those investments into sustainable and steady retirement income. When we look at why the amounts are so low in retirement accounts, we see that people do save inside of them, but stop saving or sell their equity funds AFTER a major stock market drop. This leads to lack of confidence in the strategy and a reticence to get back to investing in it later. Much of the financial planner industry time is spent trying to work around these problems, that really have no work arounds. Human psychology dictates this behavior, not some impaired set of morals. Finally, the government makes out really well when people choose to defer taxes and end up paying taxes on much higher total amounts later in life. Of course, this only applies to the few that are actually successful in their Wall Street approved plans and have income to pay tax on.

This is probably preaching to the choir, but Real Estate Investing combined with an EIUL and maybe some dividend producing individual stocks overcome the known issues that the popular strategies engender. Don’t be afraid to use the information in this blog to make the leap and get a real retirement strategy. I mean trying to retire on income derived from $100,000 in an retirement account doesn’t really sound like fun to me!

Photo: jeffedoe

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16 Comments

  1. David:
    It’s really great to see all of these numbers laid out so well.
    Well, maybe not “great” but “helpful.” We know this is real, but actually very distressing to see all laid out.

    I certainly hope you’re preaching to the choir. The BiggerPockets crowd should be way ahead of these statistics. Real estate is probably the fastest way to overcome financial lack. That, or creating Facebook…

    Your article needs to be nationally syndicated with a “Now here’s your solution” follow-up.

    Thanks for your post.

  2. Great article! To be able to retire in luxury you have to have passive income coming in. Otherwise it’s a giant guessing game based in how long you will live, how frugal you can be and what returns the market brings in retirement. I think it is crazy to depend on those factors to retire, not too mention real estate is the best vehicle to build enough cash flow to retire early.

  3. I was shocked by these numbers a year ago, but have finally gotten over it. I am much more satisfied since I took over and now actively managed my wealth building plan, including buying investment property, stocks, and an EIUL. This blog site was the start of my realization that my 401K wasn’t the answer.

    I track my net worth in a spreadsheet on a monthly basis, and am really glad I’m way ahead of the curve.

  4. I’ll admit that I was getting stressed out just reading this blog! It’s concerning that Americans don’t save more money. It’d be fascinating to do a study that takes these numbers and incorporates the type/price of the car they own and also the value of their current home. This would probably make for some interesting correlations, especially for the people who have so little saved yet live beyond their means!

    • Lee, home values, mortgage values, cars and auto financing are included in the study.
      Basically, home ownership dropped a couple of percentage points. Overall indebtedness did not move much. Fewer people bought new cars in that time period [2007-2010]. Pretty much what you would expect in a recession. The big change was the value of assets dropping pretty dramatically in the lower 90% [including retirement accounts].

  5. Not to step on anyones toes but an Equity Indexed Universal Life Insurance Policy would seem on the surface like a bad long term use of money. Wouldn’t it make more sense to by a simple term policy, and take the enormous difference in saved premiums and invest that in dividend paying stocks or REI?

    When I first got married I was sold this type of life insurance policy, after paying near $3000 a year for near 4 years I had a whopping $750 of cash value. As I was all of 26 years old in excellent health buying a term policy for $250k for at the time $90 a year seemed a lot better deal.

    When I tried to cash in the policy for the cash value the agent tried to talk me out of it later telling me I was an ass for doing so (great customer relations).

    What I did instead right or wrong, was to take the money I saved and pay towards my 12% mortgage, I paid that 30 year note off in 8 years. Which was the better investment?

    Later I used the equity in my home and my excellent credit rating (you get that when you pay things off early) to open a line of credit that allowed me to make low cash offers on 9 rental properties. These rental units paid off the line of credit. America is the greatest place to invest in RE, who would think, you could buy property with no money out of pocket and have someone else pay the bills?

    Personally tying my money up in an investment that depends on my death to gain a benefit is not for me.

    • Sounds like your agent didn’t understand how to setup the EIUL to be overfunded. That is a critical step and sadly, only a small minority of agents set up policies that way. It reduces costs drastically, and causes the cash value to grow much, MUCH faster. I have had a policy less than a year, and have more cash value already accrued than what you have posted above.

      EIULs don’t require you to die to garner their benefits. You can always take out a loan against the cash value at any time, which conveniently is a non-taxable event. If you don’t pay it back (the idea suggested here), they simply deduct it from the death benefit when you finally do pass away. They don’t make you rich, hence shouldn’t be used to replace real estate investments.

      Before getting into a term vs. permanent policy debate, I want you to know, I have both an EIUL and a term policy. The term policy is to cover things for the first 20 years, but after that time frame, I will have built up enough real estate, cash value life insurance, AND stocks to take care of myself. Notice that 401K and mutual funds are NOT on my list.

    • I’m not sure that paying stuff off early increases your credit rating. What I’ve learned is that paying things off on time, i.e. not late is what gives you a superior credit rating. Mine is in the high 700s, and I was able to buy my new prime residence with a 25% down/secondary mortgage combined with a HELOC to get the other 15%, thus only requiring 10% out of my own pocket. I never paid off a mortgage early in my life. The only thing I did was pay credit card bills on time, and pursue paying off furniture and cars in the past before things went past due.

      My wife’s credit rating is higher than my own, and I do all the buying since we got married five years ago. She had a bigger outstanding debt than I ever did five years ago. But we paid it off swiftly, and she stopped buying the big stuff. I was surprised when we got a credit report about two years ago while seeking to buy another property, and she topped me in credit rating. I told her if need by, we could use her credit in the future to buy real estate.

      • Greg, the reason that your credit score is lower is because every time you go to a bank and talk to a mortgage lender your credit score drops 5-10 points. Up to five times in one year. Hint, talk to them in the same month, counts as one. Mortgages and car loans are deducted differently, renting furniture etc. really hurts one credit score for example.

  6. Jeff Brown

    Much akin to the virtual bottomless pit of ignorance in my own industry, the ignorance in the insurance industry relating to the EIUL, at lest in my experience, is almost epic. The combination of inaccurate information and not even knowing so many of the questions, much less the answers has proven lethal for far too many.

    What goes unnoticed is that most retirement incomes today, and in the future, have been doomed, NOT by mistakes made, but by actions not taken.

  7. David,

    Thank you for this article. I’ll agree and disagree – if I may…

    It is true that the “investment vehicles” that the system pushes people into is at fault. It is even more true that the entire debt-driven / fractional reserve banking system relies on the vast majority of citizens to remain paupers.

    However, WE DO NOT HAVE TO PLAY ALONG!!!

    We don’t have to be a society of instant gratification – yet we are. We don’t have to pay $300 for a pair of Nike shoes – yet we do. We sure as hell don’t need $4 lattes every morning, or $400 satellite TV packages, but we want them and we get them.

    The fault lies within that reflection in the mirror staring at us every morning :)

    • Ben, Don’t disagree with you. But, to issue blame on folks because they are reacting to billions of dollars of advertising created by folks with the latest social psychological technology is someplace I won’t go. Our economy is predicated on increasingly complex interplay between human needs and desires. Giving people avenues for success is what it is all about in my opinion.

  8. David,

    If I am in the real estate market in lieu of handing my money to a stock broker, it is because I think that I can do a better job. If I pay cash for cheap used cars that’ll get me from point A to point B it’s not because I either don’t want to or can not qualify for a loan to look fly in a BMW. Life happens and most things are out of our control. The few choices that are up to us to make – we need to make.

    Here is the system. It’s rigged! Am I going to zig like everyone else, or am I going to zag – the choice is mine, and I have to own the outcome. What has happened to frugality and delayed gratification. Our grandparents had it, and our parent too. Why are we so special that we should have it, and have it right now. We are the system in a lot of ways!

  9. As a recent college graduate, I truly hope my generation starts cluing in to these statistics and that we realize as a group that we still have time to change the trends for ourselves before we get into the middle and later parts of our careers. We have a lot to learn, though- especially as it comes to avoiding a reflexive love of instant gratification.

    Also, I want to express my appreciation for the general attitude on this blog. Almost anywhere one cares to go on the internet, most people are only interested in communicating negativity. It wears me down, as I’m sure it does many of those who read this. It’s refreshing to read through an article and accompanying comments and see positive critique of circumstances and polite, knowledgeable input. Both the author and the community have made a great impression with this first time reader, so thank you!

    • Hey Taylor,

      Welcome to BiggerPockets. This is hands down the best resource on the internet! Stick around and please participate as you have been – we all learn from these exchanges!

    • I also hope more people catch on that some of the most hard pressed, heavily marketed products, like company 401Ks, aren’t cutting it for most people. Sadly, I find it hard to see any change. It wasn’t until I stepped out on my own that I discovered this site and began my recovery.

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