There are times when even though you are in the middle of thorough research, you can miss the larger point. We have been writing a fair amount about retirement and it is relevant as we are seeing more and more “gray” divorces, involving people age 50 and over. We wrote about this last week noting that while a couple with $1,000,000 in retirement may have some comfort in the asset pool needed to survive into their eighties, a divorce and division of that pool of assets can put a comfortable retirement into crisis.
Meanwhile, the data show our hypothetical $1 million is far from American reality. The Federal Reserve Bank reported that in 2022 the median retirement savings in America was $87,000 while the mean was $337,000. This data is a bit skewed because it would take in the retirement savings of 20 year olds who are just beginning to save. It appears that those in the throes of retirement (ages 65-74) have $426,000 in savings of all stripes. If we employ the 4% rule we wrote about last week that allows for a draw of roughly $1,400 a month and another $1,800 in social security, assuming average payments and a spouse without his/her own eligibility. We can probably all agree that $3,200 in income does not suggest a lifestyle most of us would see as comfortable. The data seems to ignore home equity and that may produce a significance boost. But, we noted in our earlier article that accessing that equity presents its own set of problems.
The other striking piece of that data is the 4:1 ratio between the mean and the medium. It suggests that the issue of wealth disparity looms heavily over this topic. We are seeing this in initial interviews where two prospective clients live in the same neighborhood. One has the $1,000,000 retirement account while the other tells us he/she plans to live retirement with a reverse mortgage funding needs.
How did we get here? Yahoo!finance published an article on April 9 which kind of sums it up. In substance, it reminds us that we are the creatures of our experience. Those of us who are baby boomers (born 1946-1964) lived with grandparents who typically died in their 70s and survived on social security and modest defined benefit pensions. Individual Retirement Accounts did not exist until 1974. The 401K model was introduced in 1978. As these engines of retirement progressed, the typical pension form of retirement retreated. Today it survives with unions and public employees.
The good news is that we now “control” our retirement. But retirement savings requires discipline, a characteristic which Americans eschew. Our ancestors didn’t have to worry, much. They did not live as long and their lifestyles were far more modest. With some exceptions they knew their money was coming and when. They could not bargain it away nor could they tap it before the day they retired. They were not investment alternatives. Today’s employees have far more flexibility. They can suspend contributions, borrow from the balances and even tap the money to meet current needs.
History has shown us that Americans have tried to “play” retirement to their advantage with mixed results. We have sat with clients in similar circumstances where one has $500,000 retirement while his neighbor down the street has but $50,000. The explanation often provided when the absence of retirement is discussed often comes back as: “My home equity is my retirement” or, more ominously, “My business is my retirement.” Some clients have gamed these alternate retirement strategies quite well. Others have essentially no retirement and pronounce “I’ll never retire” as if fate had no role in their continued employment.
Today’s Wall Street Journal offers another source of anxiety not often discussed. In 1900 the average American family had 3.5 children. A large part of the world in that day was agricultural. As you grew older the expectation was that your children were part of your retirement plan. The land supported your children when you were raising them, and your children and land would support you in your dotage. The Journal reported that today families are down to 1.62 children. Today only 2% of Americans live from farming and the notion that Gen X, Y, or Z will be rallying to support their elderly parents is fantasy. If anything we see people 50+ supporting kids and grandkids with car payments, tuitions and even everyday items like cellular service and yes, those sometimes needed “legal services.”
So, the anxiety is quite real. Your golf partner may have bought the last round but he may live in a world where his family has very little retirement and his kids are borrowing their way to an undergraduate degree.
A Motley Food survey of retirement can be found here :https://www.fool.com/research/average-retirement-savings/#:~:text=Median%20retirement%20savings%3A%20%2487%2C000,Values%20are%20in%202022%20dollars