New Study: Median Retirement Account Balance Is $0 - Asset Allocation Daily

by: Gil Weinreich

Marc Gerstein: There’s a difference between saying “sell stocks” and advocating merely pulling back on the degree of risk you’re taking.

WisdomTree: Separating emerging markets into their components casts headline risk on the side of China and Turkey, while casting India and South Korea in a different light.

Thought For The Day: If there’s a silver lining in a report showing $0 in median retirement savings, it is that this uniquely empty number enters the imagination and not just the intellect.

Separating Emerging Markets Into Their Components

“When it comes to the single biggest threat facing EM stocks right now - trade and geopolitics - we hear of certain countries like China and Turkey much more often than countries like India and South Korea.” (WisdomTree)

Conservative Investing

“There’s a big difference between saying ‘sell stocks’ versus saying ‘hold stocks and even buy more, but consider pulling back a bit on the degree of risk you take.’ I’m not saying the former. I am proposing the latter.” (Marc Gerstein)

Extreme Market Movers

“As for our own trading models, we generally stick to the 750 most liquid stocks. However, some individual traders might be able to do better if they can handle the volatility. And why don’t we trade these extreme market movers? For starters, because we've had a lot of success without them.” (Jeff Miller)

Thought For The Day

“What’s your number?” has become the cliché question as to how much one needs to retire safely, but if the question instead were how much you actually have, then the depressing answer based on new research is: Zero, zilch, zip, nada, bupkis!

You may be wondering – especially if you have more than zero saved yourself – how that can be. The answer is that research out this week by the National Institute on Retirement Security (NIRS), a Washington, DC-based nonprofit research group, reports its findings in terms of median rather than mean results. The latter would necessarily be a positive number, but would impart a false sense of security about U.S. retirement achievements since it would merely average the high level of savings of the wealthiest Americans with those who have not saved at all.

The median, on the other hand, presents the middle number in the range of outcomes on the retirement savings landscape. Sadly, because the numbers of Americans with no retirement savings at all is so high, the median household – that is to say, the typical U.S. household – has nothing. More shocking, when broken out in ten-year age bands, the median retirement savings remained zero for each age cohort – including even Americans aged 55-64, the oldest group.

Another reason this zero figure may seem surprising to anyone who has seen research with positive (albeit low) numbers is that some surveys are based on an examination of 401(k) or IRA accounts; in other words, they look at the segment of the population that has indeed saved (e.g., Fidelity conducts an annual survey of the retirement plan savings it administers). The NIRS study, however, is based on much broader U.S. Census data.

One important technical note that should be clarified is that NIRS uses the Census Bureau’s Survey of Income and Program Participation, which NIRS acknowledges oversamples lower income households. NIRS says it wanted to avoid the problem of oversampling higher income households as comparable data sets do, such as the Census Bureau’s Survey of Consumer Finances. It is puzzling and frankly disappointing that NIRS did not seek a way to avoid oversampling either group.

With the above important caveat, the NIRS researchers found that just under 60% of Americans have no retirement savings at all, via a 401(k) or IRA, and that those who did have a retirement account had, on average, more than three times the annual income of those without such accounts. Of those with retirement accounts, the median account balance was a measly $40,000. And of those with such accounts who are in the 55 to 64 age cohort, 68.3% have balances less than their annual income, and thus far short of the “number” they need to maintain their pre-retirement standard of living in their later years.

Even if the research design corrected the oversampling problem, the adjusted findings would be grim – this we can surmise from every study that has come out. They are all downers. What the NIRS report reminds us, especially given its sampling bias, is that we are witness to a large swath of society that is either incapable of or unwilling to heed and take actions appropriate to the looming retirement savings crisis. Those among the middle-class who could have socked away something for their future but who prioritized expensive vacations and the like have either been tone deaf to the crisis’s nuances or perhaps afflicted with modern society’s low attention spans.

But we can offer some consolation. First, Americans who have worked do have a retirement account called Social Security; it may not add up to the dream retirement but its annuity-structured payout ensures you won’t outlive its income. Moreover, people can usually earn supplemental income if they wish, perhaps via hobby-based work. Second, anyone who still has a number of working years left can make adjustments to their current consumption patterns and boost their savings. And if you are young, then diligent effort starting now can all but ensure a high degree of comfort in your later years.

Perhaps the best thing about this NIRS report is its median retirement-savings result of zero, whether or not precisely calculated, enters the imagination rather than just the intellect, and there it has a far greater chance of actually motivating change.

Note to readers: The Asset Allocation Daily resumes publication October 3.


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