The median American heading into retirement has just enough
wealth to live on for a little more than three years, according to a new
paper by the Center for Economic and Policy Research’s David Rosnick and
Dean Baker. These Americans are the first 401(k) generation: Their prime
working years coincided with the 3 1/2 decades since the introduction of
tax-deferred retirement accounts. And yet most of them have accumulated a
relatively small amount of wealth, if any, outside of owning their home.
For Americans ages 55 to 64, net worth, the equity they own
in their homes, and the value of other assets they own are each falling at
precisely the time in their lives when they should be rising.
The path of Americans’ net worth, including those about to
stop working, hasn’t been a continual downward slide. In fact, Rosnick and
Baker note that net worth grew significantly for more than two decades. But
then, it was hit with the dual blows of a stock market and housing crash.
Net worth for the middle 20 percent of soon-to-be-retired
Americans has fallen every year since 2004, and it is now just under $170,000.
(The median is $165,700.) That might seem like a lot, but it’s just enough
money to live at the median U.S. income of $52,000 for a little over three
years. And when most of that wealth is tied up in a home, it's unclear how many
of those in their upper 50s and early 60s plan to stay afloat without working
or selling their home for what could easily be 20 or more years of retirement.
The poorest of the soon-to-be retirees have been hit the
hardest. In comparison, the richest group is in an excellent position. Fewer
Americans in the bottom 60 percent of wealth who are close to retirement own
their homes than used to: In 1989, 77 percent of this group owned their homes,
the researchers found. In 2013, that number was 60 percent.
And the poorer you are, the less of your home you own. Poorer
near-retirees also own less outside of the value of their home than their
wealthier counterparts:
The wealth, or absence of it, among Americans on the brink
of traditional retirement age is another manifestation of a stock-market-led
recovery. The stock market has boomed back from the financial crisis. Housing
prices have recovered with it, but on a relatively smaller scale. Despite a
more than 30-year commitment to tax-deferred personal retirement saving, stock
ownership is not widely distributed across the American wealth spectrum.
Recent years have shown that tying your net worth to your
home’s price is, in fact, risky. Homeownership should not be a retirement plan.
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