Excluding Real Estate, What Are the Average Financial Assets by Household in the USA by Age?

Troy Sharpe: Stocks bonds mutual funds cash these are all financial assets. In today’s video, we’re going to look at what are the average financial assets by household broken down by age in this country but this does not include the equity in your home. We’re going to see where you stack up.

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Troy: Hi, I’m Troy Sharpe CEO of Oak Harvest Financial Group, host to The Retirement Income Show, certified financial planner professional, and certified tax specialist.

When we talk about the average of anything we also have to take into account the median because the average can be skewed by outliers. We’re talking ballplayers, we’re talking movie stars. People who make a whole lot of money and have saved a whole lot of money. This can help you understand the difference between the average and the median and help you feel a little bit more comfortable about where you are now.

The disparity in these numbers is much much greater than the videos we’ve done on net worth broken down by age in this country and also income broken down by age in this country. Part of that reason is because the United States has a pretty poor savings rate for as wealthy of a country that we are. Now we’re going to look at these numbers but first I just want to give a quick example of what the median and mean are so you can have a little bit better understanding of these numbers.

Before we get into the data. YouTube loves engagement, they love interaction, if you hit that thumbs up button or if leave a comment that lets you to know that, “Hey this video is interesting and we should share this with other people, and that will help others be more connected to their money and hopefully make better financial decisions.” Especially as we get to the bottom of this where we talk about some of the financial planning strategies not just how much you have and how do you compare but then how do we make better decisions with our money?

Hit that thumbs up if you get a chance and if you like the content you want to stay connected to us, you can hit that subscribe button and then the little bell icon. You’ll be notified when we upload new content. The median again is the middle. If we look at a data series, all of these data points the one in the middle is the median. I’ve done it like this to show that if most people have zero net worth but one person has 50, the median is zero. That’s more indicative of the data sample itself, but the average we take that by adding all of the data points up dividing by the total number of data points and then we get five.

Five is the average in this dataset but as we can see most people here have zero so the data is skewed by an outlier on the outside. Just a little refresher to help you understand the difference between these numbers. At the end of this video, I’m going to provide some financial planning advice. It’s not specific advice to you necessarily but it’s general advice. We need to understand this when we’re saving money. It can mean the difference between running out of assets in retirement or being able to retire at 60 versus 65 or paying hundreds of thousands of dollars in additional taxes. This will be very very important at the end of the video. 35 to 44 years old the average financial assets.

Now again this is not including the equity in your home. $170,740 the median for this demographic only 22,650. The average again is skewed by people who have made a whole lot of money and done a really really good job saving outside of the equity in their home. The median 22,650 this is the one that’s in the middle. Realistically if you’re watching this, this is a more realistic target of where you probably are maybe not you specifically but where the middle of people in this country are. Honestly, this is a very very low number. We need to be doing better than this. From 45 to 54 the average is 373,420. The median goes up a little bit here to 36,800.

Again if we’re 50 years old and we have $36,000 saved, we’re probably not on track to have a very lucrative retirement because this money would have to last us our entire life. Now for the majority of people, these are the prime earning years. This is where we start to make more of our money, so we should be saving somewhere between 10 to 15% of the income that you make on an annual basis. Now, where you save that money is very very important and part of what we’re going to talk about at the end of this video. 55 to 64 the average as you can see jumps up pretty substantially to $570,000 in financial assets. Again we’re talking stocks, bonds, mutual funds, cash, CDs.

This does not include the equity in your home. For many of us, the equity in our home is one of our biggest assets but these are financial assets. The median here still 46,900.

Now we’re getting into baby boomer territory and an amazing statistic is about half of the baby boomers in this country have less than $100,000 saved for retirement. The other half have done pretty well. As we start to look at these numbers, they’re skewed on the average by those baby boomers who have done a really really good job saving throughout their years. Then obviously the median is indicative of the middle again which includes about half of baby boomers that have not saved a lot for retirement.

65 to 74 the average financial assets not including the equity in your home 643,110 and the median 54,300. Again we’re still in the baby boomer territory so it’s not shocking to me that the disparity between these numbers and the amount of these numbers are quite similar because when we look at baby boomers as a whole, again half of them have done a very good job saving, half of them have not. Moving up to the 75 plus range 507,600 and 53,000. This makes sense as well because as we go through retirement you’re in the distribution phase, you’re starting to spend your money.

Now the goal in retirement with the sound investment plan, tax strategy et cetera is to maintain your principal balances, live off the interest, and try to keep these as high as possible. At the end of the day, the retirement phase is the distribution phase so it’s common to see accounts go down over time as we’re taking money out. Now, where are you saving your money? When we look at these assets, the average or the median whatever number you want to look at we’re saving our money. Where are you saving it at? Are you saving it in your 401(k)? Are you saving and what we call your non-qualified account or are you saving it in your Roth account?

Now putting it into the Roth has certain limitations and you have two different Roth to choose from typically. You have a Roth IRA which is an individual retirement account outside of your workplace plan and you have a Roth 401(k) which is inside your workplace plan. Any money inside your workplace plan, so a 401(k) is nothing more than your workplace retirement plan. This is considered qualified money. The way I used to remember it is you qualify to pay taxes when you take it out. If this is qualified money then money outside of your retirement account is considered non-qualified money.

This is money that you pay taxes on as you’ve earned it but then you save it inside a brokerage account, inside the bank, inside a money market account. Then you have your Roth account. Now the Roth can be an IRA or certain people have a Roth 401(k) option. This is becoming more and more popular but not everyone has a Roth option inside the 401(k).

Let me just to break this down. Many of us have a pre-tax portion of our 401(k) where you put money into there. You get a tax deduction now. It grows tax-deferred and when you get to retirement you can take it out but you have to pay income taxes.

It’s becoming more and more popular for there to be another place for you to save inside your 401(k), so this is still the same account. It’s your 401(k) at work. A lot of us aren’t aware that we also have a tax-free portion of our 401(k) that we could possibly be saving into. Now the difference is you do not get a tax deduction for putting money inside the Roth, it will grow tax-free, and then when you get to retirement you can take it out tax-free. Pre-tax is a traditional part of the 401(k). You get a tax deduction today. Roth is after-tax money, you pay tax on it today but once it’s in this account all the earnings will be tax-free forever and you can take it out tax-free to help supplement your retirement income.

Now if your employer’s providing you a match, it goes into the pre-tax part, the match does. If you want to retire before 65 and some of the videos I’ve done on this channel we talk about I’m 60 years old, I have a million dollars. Can I retire? Depending on what your income goal is the answer to that question and your investment profile how much risk versus conservative investments do you want. Your health, when you take social security all these things play but one of the most important things you can do if you want to retire early is save money inside this non-qualified account. Why? Because health insurance is a tremendous cost if you want to retire before Medicare age.

For the average family what we see around 60 61 years old if they retire soon we have to build into their income plan and their investment plan the ability to generate about $2,000 a month of additional income to pay for health insurance if all of their money is inside the 401(k). Now, having money inside here what does that do? Let me explain very clearly why this is so important. When you take money out of here it goes on to your tax return.

If you have too much income on your tax return and we’re not talking about a lot here we’re talking about 50, 60, $70,000. You do not qualify for a subsidy for the Obamacare health marketplace. That means you’re paying 100% of your health insurance premiums if you retire at 60 for 5 years essentially until you’re 65. Now, if you’ve done a good job saving and you have money inside this account we can take money out of here, you pay taxes on this as it was earned throughout your working career. We can take let’s say you need $50,000 a year. Well, we could take 30,000 from here, maybe 20,000 from here manage what goes on your 1040 which is your annual tax filing form that you send to the IRS.

Now, we qualify for a subsidy to get health insurance instead of at $2,000 a month at 300,000 a month or $400,000 a month or whatever that number is. When we’re talking about all of these numbers throughout here, it’s not– This is great, this is good to know where you stack up and how you compare but if we’re saving money outside of our– This is all non-equity, real estate, personal financial assets. When we’re saving that money where are you saving it? Are you putting all of your money into the 401(k) because if you’re, you’re probably making a mistake.

If you want to retire early you are almost certainly absolutely making a mistake because when you take money out, you pay income taxes, you can no longer control what goes on your 1040 it’s automatically going there and you have no flexibility. Now the Roth is also extremely important but we want the Roth to be able to defer and grow. This is where I personally put all of my most aggressive investments. Well, I’m 100 stock personally across the board here but I’m young, I don’t need my income for– I don’t need these assets for a very long time I have an income.

Everyone’s risk profile is different but the Roth we want that to grow because that’s tax-free money that’s going to be beneficial down the road if you believe taxes are going to be much higher. One last thing to point out here is the investments or excuse me the tax characteristics of the course of these accounts are different. Bonds are taxed differently than stocks, stocks are taxed differently than CDs. All of these different investment choices that you have they are subject to different tax rules, you want to have congruity with the tax investments that you have or the taxable characteristic of the investments that you have and which accounts you put them in.

This is why having an investment plan that’s working in coordination with a future income plan if you’re not retired or your current income plan if you are retired, and a tax plan part of that tax plan is looking at not only what taxes are you paying today but how are we keeping your taxes down the road. If this seems like a lot to you and it is a lot and there is a tremendous amount riding on this, if you need help with the investment plan working in coordination with your income plan and your tax plan this is part of our Oak Harvest Retirement Process process. This is what we do every single day and we’ve done this for a very long time.

There’s always a link in the description below where you can click on to schedule a consultation to talk with one of our advisors. If you like this video make sure to hit that thumbs up button, that shows interaction and engagement and that tells YouTube that, “Hey we should show this video to other people,” and that helps other people get more connected to their money understand that the things that we’re talking about here and hopefully helps them make better decisions with their personal finances. Share this video with a friend or family member, hit the subscribe button, hit that bell icon and you will be notified when we upload more content just like this.

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