An article in The Motley Fool this week featured a discussion between two seasoned advisors. I pulled some interesting/important facts out of that chat:
1.) Almost six out of 10 Americans cannot cover a $500 unexpected expense without either borrowing the money, using a credit card or selling something.
2.) The median net worth of a homeowner is 90X higher than the average renter, about $200,000 versus $2,200, roughly. It’s interesting, because in a lot of ways, this median net worth — again, 90X that of a renter — really highlights the difficulty that a lot of Americans have saving money. Home equity, you can think of it as forced savings. Now, that’s an oversimplification on so many levels, because home equity is not liquid, you can’t get to it easily, also real estate prices change dramatically. All those caveats aside, it’s a form of wealth that accrues automatically with every mortgage payment. And that’s something that folks are able to do when they really struggle to do a lot of other saving.
3.) The average American household has about $5,700 in credit card debt. But that doesn’t really tell the whole story, because only about one in three households carry credit card debt. So, among those households that do, the total is a little over $16,000. The average credit card interest rate is about 15% right now. That implies that the average household that carries credit card debt is paying nearly $2,500 a year just in interest for the privilege of owing that money.
4.) It’s completely possible, not even considered unusual, for the stock market to go down 20-30% in a year. It’s happened 10 times in the past 50 years.
5.) The average retirement savings of Americans, which is $95,776 as of the latest data. In the older group, the pre-retirees, which is 56-61 years old, it’s $163,577. Which sounds like a lot at first, but really is not enough. The average social security benefit right now is around $1,400.
6.) So, I would encourage everyone listening right now, do a quick exercise. What are your current monthly expenses? Write them down on a piece of paper, or just do a total average guess. Maybe it’s $5,000 a month, maybe it’s $6,000. Take that, subtract $1,400, because that’s more or less the average social security amount. The remainder, multiply it by 12 (months) and then again by 25 (years). That’s a reasonable guess for how much money you’re going to need to have saved for retirement if you’re going to maintain your current spending. Maybe you spend less in retirement, maybe you spend more because of healthcare. Need $4000/month to live on? That’s $2600 x 12=$31,200 X 25 = $780,000.
Renters won’t be able to save a fraction of that.. MAYBE homeowners can….
Read the conversation that generated these facts at The Motley Fool online.