Shutterstock licensed image

The financial state of retirement is so dismal, even if you’re above the median it might not be good enough.

American society expects us to work for 49 years, from the age of 18 until our full retirement age of 67. During those years, we’re supposed to responsibly fund a modest lifestyle and regularly invest a portion of our income in anticipation of the future.

When we retire we’ll have paid off our debt, built a comfortable cushion of assets, and organized our finances properly so our income supports the lifestyle we wanted.

But does anybody really do that?

• A third of us were too broken down to work beyond age 62, so we jumped off the hamster wheel and onto the Social Security bandwagon.
• Half of us didn’t save more than we could fit in our wallet so we scrape together an existence that’s vastly different from our dream.
• The majority marched into retirement with a load of debt and are taking chances under a dark cloud of economic risk.

Does society expect too much of us? Or do we need to step up our game?

I think you know the answer, so let’s take a look at the averages, compare where you are, and find some helpful nuggets of retirement wisdom along the way… in case you need to step it up.

But first —

Median: Throughout this article, I’ll be using median values. It’s the best measure when a set of values has extreme outliers (like billionaires). The median value lies exactly in the middle, with half above and half below.

Data: The charts represent data from the Federal Reserve. Every three years they release results from a detailed Survey of Consumer Finances. Further, an independent site has done extensive analyses of that data which I used in this article as well. All data reflect household figures, not individuals.

Median Assets

“I bought a million-dollar house, so I’m a millionaire!”

No, not if you have a mortgage.

Assets can be deceptive, so be careful when comparing yours to these. They’re an important part of a total financial picture, but they don’t tell the full story. Based on the chart below, a typical 65-year-old has assets of $344,700. That same person, if they have a mortgage, will likely owe about $100,000 (see the debt section below).

Assets counted in this chart include savings and retirement accounts, as well as automobiles, businesses and real estate. Almost everything you own.

Median retirement accounts

Retirement account balances are one of the best measures of retirement wealth because they can be easily converted to cash for use in retirement. Homes, cars and other belongings have value but are rarely used to fund a retirement because it’s hard to sell part of your basement to pay for a steak dinner.

Retirement savings amounts shown in the charts below include both taxed and tax-protected accounts such as IRAs, Keoghs, Pensions, 401(k), and 403(b).

51% of all retirees have NO retirement account savings. Therefore the median retirement account balance is $0.

This first chart illustrates the embarrassing fact that we Americans suck at saving for retirement. The median number — half above and half below — is zero.

It’s shocking to realize that half of all American households with people age 65 and over have no retirement savings to speak of. They’ll continue working full- or part-time, take Social Security as soon as they can, and leverage their home equity and bank savings accounts, putting their futures at higher risk.

As a result, 10% of all retirees live below the poverty line (annual income of $18,310 for a couple).

In contrast, the top 1% of retirees have retirement savings accounts in excess of $1.8 million.

This next chart reflects data from only the 49% of Americans who have retirement accounts. Here you can see strong growth approaching retirement and then the expected decline as savings are used for living expenses — exactly as planned.

This is how it should work for all of us. (Except the numbers should be bigger.)

Median Income

“Income” in the chart below refers to pre-tax wages, Social Security and pensions, self-employment, rents, dividends, royalties and almost any money regularly received from an outside source.

Retirement accounts can be another source of income, and I’ve added them to the chart below to illustrate the importance they play in your future.

Interpreting this chart: The colored columns represent the median retirement income of all Americans. That’s useful for comparison if you have no retirement account savings.

If you do have retirement account savings, the gray boxes at the top represent how much extra income the retirement account balances above would provide at a safe 4% withdrawal rate.

Median Debt

Conventional wisdom and mainstream advice suggest we should have paid off all of our debt by the time we retire. So, if you’re retired with no debt you deserve to be commended because it’s estimated that fewer than 40% of retirees can say the same.

Over 60% of retirees bring debt into retirement.

Both charts below reflect only the 60% who have debt. The first is the median of those who have any type of debt whatsoever. The second chart shows several types of debt and the median amount per type.

Remember that each value shown is independent of the others. For example, one may have credit card debt but not a mortgage. That household would be counted in the first chart and in the credit card column of the second chart, but nowhere else.

Net Worth

Net worth is a great number to compare to. It represents the sum of all your assets minus all your debts. It is a true indicator of wealth, but even this value has its drawbacks.

Risk: Net worth does not take risk into account. If you have all your assets in Bitcoin, you have a high-risk portfolio. If your assets are in Treasury Bills, you’re extremely safe. Neither position is recommended.

Liquidity: You’ve heard the saying “House rich and cash poor.” That refers to someone who has all their assets in a home (or any fixed asset) with little free cash to live on. They look wealthy on paper but can barely afford to eat.

A strong net worth with good liquidity and a properly risk-balanced portfolio should be your goal.

Nuggets of wisdom

You need to step up your game, America. We have a retirement crisis with too many people marching blindly into retirement without adequate planning. I hope the charts and data presented here were helpful and provided you with a few nuggets of wisdom to help you in your future.

Here are a few that I found:

• Save aggressively and spend wisely
• Keep your debt to a minimum and keep paying it off
• Maximize your savings and income everywhere you can
• Balance risk and liquidity in your portfolio
• Net worth is a better measure than assets
• Invest in a plan for the best retirement you can dream of

Don’t try to be average — you can be better than that!

Regardless of how you compare, I wish you the greatest success in your retirement, with endless happiness, health and security.