HS Dent | The Average Retiree Has a Whopping $50,000 Saved for Retirement

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The Average Retiree Has a Whopping $50,000 Saved for Retirement

By Charles Sizemore⋅ August 27, 2009 ⋅ ⋅ Post a comment

In its August report, the Employee Benefit Research Institute published new data on the account balances of America’s retirement savers, summarized in the chart below. The results are, shall we say, disappointing.Giving American savers the benefit of the doubt, let’s ignore the bear-market-ravaged 2009 figures and focus instead on 2007. After five full years of strong bull markets in virtually ALL asset classes, the average 45-54 year old had only $50,000 in his 401(k) retirement account. 55-64-year olds, having the benefit of another decade’s worth of saving, had managed to accumulate an average of $81,000.

There are a couple points worth making here. First, this illustrates what HS Dent has been saying for years: Americans do not begin to seriously save for retirement until their late 40s to early 50s, when their children have begun to leave the nest. The problem with this is obvious. Waiting so late to save and invest, middle-aged investors miss out on two decades or more of compounding. Try as you may, you cannot make up for two decades of lost compounding by saving more aggressively in your 50s. The math just doesn’t work out.

Meanwhile, Deutsche Bank estimates that half of all American mortgages will be underwater on their mortgages by 2011, meaning that the house isn’t an asset at all, but a liability.

With little home equity and 401(k) balances embarrassingly small, the retiring Baby Boomers will have to depend on other savings they might have (which are also pitifully small) or, more likely, their Social Security checks or private pensions. This doesn’t end well.

Charles Sizemore, CFACo-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

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Discussion

4 comments for “The Average Retiree Has a Whopping $50,000 Saved for Retirement”

NO, it doesn’t end well. As one of those couples who did save and invest (and put two kids thru college) our concern is SS and what ever health care us old “drags on society” are granted will be subject to means testing that considers ones nest egg in addition to income. At some point we will again be “penalized” for responsible behavior to pay for the irresponsible. One can begin to see why so many have off shore accounts or go to some lengths to avoid taxes.

Posted by mkern | August 27, 2009, 8:35 pm
Charles, while I don’t doubt the accuracy of a basic premise, this may be a case of statistics lying.

1) The comment about “insufficient data” for 76-74 year olds in 2004 leads me to believe that all of these are very small samples.

2) Family savings generally does not follow a bell curve. The actual distribution has a long head, a shallow peak, and a very steep tail. This sharply non-symettrical distribution makes the “average” come out lower than it would on a bell curve.

I agree that Americans woefully undersave for their retirements. But it’s important to be honest about how woefully. These stats likely overstate the problem.

Posted by bdvillanueva | August 27, 2009, 11:41 pm
Mkern: I fear you are correct about means testing. It’s disgusting, but it seems to be the general consensus that that’s where we’re going.

Bdvillanueva: I too wondered about the sample size issue, but I think it’s normal for the data to get a little thin in the older cohorts. There are fewer people working at older ages, and of those that do work, many never opened a 401k account.

But regarding your statistical question, we used median in this case, not mean. So there shouldn’t be much of a skew in the data. If anything, the data is overly optimistic because it excludes persons who never bothered to open their 401k account. We’re only measuring the “overacheivers” who actually did the paperwork with human resources to open an account!

Regardless, I think we can all agree: The Baby Boomers are not ready for retirement, and this is going to be a big problem going forward.

CLS

Posted by Charles Sizemore | August 28, 2009, 9:47 am
These data suggest to me that retirement incomes are going to be worse in the future, when most retirees have only 401K-based pensions and defined benefit pensions have mostly been phased out.

I also wonder what percentage of the increased American savings we are hearing about is just due to demographics, namely the retiring and near-to-retiring baby boomers.

The media always atrribute it to recession effects, mostly fear and increased financial conservatism. Undoubtedly that’s a factor, but would the change have been so much without the reduced spending of the retiring baby boomers who lack the higher income they once spent while still working.

Aging boomers may also account in part for the increased American buying of Treasury and GNMA bonds, despite their very low interest rates.

Posted by fitz3 | September 11, 2009, 4:04 pm