Weekly Relative Value: Work ‘Til You Drop

By Tom Slelfinger, Balance Sheet Solutions

“Although the average American household has saved roughly $175,000 in various types of savings accounts, only the top 10% to 20% of earners will likely have savings levels approaching or exceeding that amount. 29% of households have less than $1,000 in savings.” – Magnify Money

The baby boomer generation (individuals born between the years of 1946 and 1964) is some 76 million strong and one of the largest demographic cohorts in American history. Most boomers entered the work force between 1966 and 1984. As shown below, since the 1980s – with the exception of the burst of the dot.com and housing bubbles – boomers have enjoyed two massive bull markets over the last four decades. From 2008 to present, the S&P 500 has more than tripled in value. With such strong equity performance, one would think that boomers would be sitting pretty as they enter their “golden years.”

 S&P 500 growth











                                                                           Source: Bloomberg


Sadly, that is not the case.

Savings levels of working age Americans remain deeply inadequate. From now until 2030, 10,000 baby boomers each day will hit retirement age. While some will begin to officially retire, collect social security checks and go on Medicare, over 40% of boomers plan to “work until they drop.”

So, what went wrong?

According to the National Institute of Retirement Security, 57% (more than 100 million) of working age individuals do not own any retirement account assets in an employer-sponsored 401(k)-type plan, individual account or pension. Only 51% of Americans have access to a 401(k) plan.

More importantly, only 40% of individuals actually contribute to one.

Almost 60% of all working age individuals do NOT own assets in a retirement account. Four out of five working Americans have less than one year’s income saved in retirement accounts.

And of those that do own retirement accounts, the majority of the wealth, unsurprisingly, is owned by those with the highest incomes.

Lastly, four out of five working age households have retirement savings of less than one times their annual income. This does not bode well for the sustainability of living standards in the “golden years.”

Average household savings for the bottom 40% are under $30,000. Median household savings for the bottom 40% are zero dollars. Clearly the top percentiles and especially the top 1% skew the average. And the top 1/10 of 1%? The point is that the 80% of households have less than $100,000 in savings. That is not enough for even a minimal retirement. Importantly, baby boomers who are nearing retirement had an average of just $40,000 saved for their “golden years.” Let’s make the very aggressive assumption that you can take 5% a year from your savings plan. If you have $100,000, that’s $5,000 yearly or about $417 a month—on top of your Social Security. And if you don’t have your house paid off?