The Reality of Retirement Savings for the Aged: How Much Does an Average 70-Year-Old Have?

When discussing retirement savings for the aged, many of us may wonder if there's a specific number. But it's important to clarify what we mean when we talk about 'the average 70-year-old' and why such a claim is misleading.

Understanding the Data

Numbers like 'average retirement savings' can indeed be deceptive. These figures are often based on surveys of a small number of people, which can't give a broad or accurate picture of the overall financial reality. The term 'average' can be misleading here, as it can either refer to the mean (the sum of all data points divided by the number of data points) or the median (the middle point of a data set when all numbers are arranged from lowest to highest).

The Difference Between Mean and Median

With income and expense data, the average is often significantly higher than the mean due to the skewing effect of high-net-worth households. The median is generally a better representation of the economic context. According to the latest data from the Bureau of Labor Statistics, the average retirement savings for Americans aged 70–74 is approximately $203,964. This figure can be disheartening for many households, as only 53% of this age group have any traditional retirement savings at all. However, this figure is significantly skewed by the savings of the top 1% of households, which have an average of $2,739,000.

Understanding Percentile Rankings

Knowing that the average retirement savings is at the 80th percentile ($203,964) and that a million dollars would place you in the top 5% signifies that a comfortable retirement can only be achieved by a small proportion of the population. Even Suze Orman's recommendations, such as needing $5 million for a comfortable retirement in America, or $20 million for early retirement in your 30s or 40s, are not realistic for most people. Having 5 million dollars qualifies you as part of the top 0.1% of the population, and 20 million means you are in the top 0.05%.

Realistic Expectations

When considering retirement savings, most people I know factor in home equity. If you include home equity, the average might range from $850,000. If you exclude home equity, it might be around $600,000. For many of these individuals, their savings would be approximately halfway between these figures, suggesting that the typical person might have around $300,000 in investments and $150,000 in home equity.

Conclusion

In conclusion, understanding the reality of retirement savings for the 70-year-old demographic is crucial. While the figures can be alarming, it's important to recognize the impact of high-net-worth individuals on the average. For the typical individual, realistic financial goals should be set, and regular saving, even in smaller amounts, becomes crucial for a secure retirement. Remember, financial literacy and planning can be key to achieving your retirement goals.