Wednesday, May 28, 2008

Retirement Assets Increase By $1.1 Trillion in 2007 to Almost $160,000 Per U.S. Household

Washington, DC -- Americans held $17.6 trillion in retirement assets at the end of 2007, up $1.1 trillion from year-end 2006 (see chart above), according to the Investment Company Institute (ICI). In the first comprehensive look at the scope of the nation's retirement market for the full year, ICI found that strong growth in Individual Retirement Accounts (IRAs) and employer-sponsored defined contribution plans, powered the 7% increase.

From the full report: Retirement market assets are held in a variety of tax-advantaged plan types. The largest components are Individual Retirement Accounts (IRAs) and employer-sponsored defined contribution plans, holding $4.7 trillion and $4.5 trillion, respectively, at year-end 2007.

Eighty-two million, or 71% of, U.S. households report they had employer-sponsored retirement plans, IRAs, or both in May 2007. Sixty-one percent of U.S. households report that they had assets in defined contribution plan accounts, were receiving or expecting to receive benefits from defined benefit plans, or both. Forty percent of households report having assets in IRAs. Thirty percent of households had both IRAs and employer-sponsored retirement plans.

Note: The $1.1 trillion increase in retirement assets during 2007 is an increase in about $10,000 per household (number of households is about 110 million, data here), and represents an average of almost $160,000 in retirement savings per household.

The way the recessionistas and media tell the story, the U.S. economy is on the verge of another Great Depression. The facts tell a different story - despite subprime mortgage and housing problems, the U.S. economy generated more than $1 trillion in retirement wealth during 2007!

9 Comments:

At 5/28/2008 4:37 PM, Blogger Trevre said...

I am not sure if that is supposed to be comforting or not. What is the cost of one year in the assisted living home? How many of the retirees will be in an assisted living home in the next 10 years? $160,000 per household is probably just a drop in the bucket when it comes to long term care.

Also, this wealth is likely distributed like other wealth. The retirement assets are likely not distributed evenly, so is an average really appropriate?

It would be an interesting analysis to compare the costs of a retired person to their savings.

 
At 5/28/2008 5:04 PM, Blogger Walt G. said...

According to the GAO, Americans also hold about $9 trillion in national debt as of Sept 2007. No amount of comparing the debt to the GDP will eliminate the fact that the debt will have to be paid back by someone.

Anyone want to guess where a very large chunk of the $17.6 trillion in retirement assets is going to go? I hate to be the bearer of bad news, but I have a pretty good idea.

Did we make the correct choice sheltering current income from tax in hopes of seeing lower tax rates when we retire later with a smaller income? Only time will tell.

 
At 5/28/2008 5:41 PM, Blogger Walt G. said...

trevre, you are correct.

The average distorts the median as does comparing households in the article above and workers in my source below. To be honest here, I guess it depends on if you are looking for a “glass half full” or a “glass half empty” response from whomever you are trying to persuade.

Here's an authoritative source from Nov 2007 about “DC” or defined contribution pension plans, which are the type that makes up the $17.6 trillion in retirement assets:

“GAO’s analysis of 2004 SCF data found that only 36 percent of workers participated in a current DC plan. For all workers with a current or former DC plan, including rolled-over retirement funds, the total median account balance was $22,800. Among workers aged 55 to 64, the median account balance were $50,000, and those aged 60 to 64 had $60,600 (see figure below). Low-income workers had less opportunity to participate in DC plans than the average worker, and when offered an opportunity to participate in a plan, they were less likely to do so.” Source:
http://www.gao.gov/new.items/d088.pdf

 
At 5/28/2008 5:42 PM, Anonymous Anonymous said...

The retirement assets are likely not distributed evenly, so is an average really appropriate?

Good point. It's the old median/mean canard.

According to the 2004 Tricennial Survey of Consumer Finances by the Federal Reserve Board real median net worth (which includes retirement accounts) rose 32% from 1995 to 2004 whereas real mean net worth rose 72%. You could look it up in Table 3.

I doubt that there will be any significant change to that trend when the next survey is published next year.

Another example of ideology trumping reality on this blog

 
At 5/28/2008 6:23 PM, Anonymous Anonymous said...

"ideology trumping reality on this blog"

The "average household" would also include households of those who are decades from retirement. The fact remains that retirement assets increased and this is a positive sign given the substantial decline in the housing prices. Apparently, not everyone is a subprime borrower.

Could the vast majority of citizens improvement their personal financial management? Certainly. Should we be saving more for retirement. YES

 
At 5/28/2008 7:13 PM, Blogger Ken Braun said...

"Another example of ideology trumping reality on this blog"

Professor Mark:

You identify $1 trillion (notice that's with a "T") in household wealth improvement over just a single year and yet draw this pessimism? That's some expensive ideology you have there, sir!

Did you catch Larry tonight? Referencing counterproductive energy policy and destructive treatement of wealth creation coming from the politicos, he offhandedly suggested that we should have an "investor" march on Washington.

A "Million Investor March"? Not a bad idea. I'd go and bring the kids with me.

 
At 5/28/2008 7:35 PM, Anonymous Anonymous said...

this is a positive sign given the substantial decline in the housing prices

Huh. What do housing prices have to do with retirement account balances?

Retirement account assets rose year over year primarily because the US (and global) stock markets rose in 2007, dividends were paid and bond holders received interest. Nothing earth shattering about that.

What happens when the stock markets decline? Retirement assets contract or don't grow as much. You could look it up. Retirement asset balances declined between 1999 and 2003.

In any event, following up on the mean/median matter, the Congressional Research Service has parsed the data based on the 2004 Survey noted upthread in Table 5 found here which shows a mean account balance of $129,300 and a median account balance of $36,000.

 
At 5/28/2008 11:45 PM, Blogger juandos said...

walt g poses the following: "According to the GAO, Americans also hold about $9 trillion in national debt as of Sept 2007. No amount of comparing the debt to the GDP will eliminate the fact that the debt will have to be paid back by someone"...

Good point walt g but let me play the devil's advocate for a minute here, why should the debt be paid back?

Considering that 60+ percent of federal income taxes (pie chart page 33) go to paying for Constitutionally questionable nanny state programs (progams that'll never be paid off) why should the average citizen care about the debt?

 
At 5/29/2008 6:08 AM, Blogger Walt G. said...

juandos,

It probably will not be paid back. If our elected officials can't figure how to meet expenditures with revenue in one year, it's doubtful they can figure out how to pay past years' deficits. Unfunded liabilities in future years will only exacerbate the problem.

People’s expectations need to get more in line with their pocketbooks. The problem is that the “average citizens” you speak about clamor for all the “nanny state” programs you speak of, and politicians get elected by delivering on promises that can’t realistically be paid for. Since the programs cannot be paid for, they are paid by using a cash advance on a government credit card (the national debt). Trying to hide this reality by stating the national debt as a percentage of the GDP does not solve the root cause of the problem and just allows the spending to continue with a clearer conscience.

 

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