Jason and Greg discuss net worth and income in retirement compared to your peers.

To learn more also visit:

Federal Reserve Bulletin: Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances

Bureau of Labor Statistics: A closer look at spending patterns of older Americans

Below is the full transcript:


Announcer: Welcome back America to Sound Retirement Radio where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. And now here is your host Jason Parker.

Jason: America. Welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. You’re listening to episode number 185. The title is How do you Compare? And this is going to be a really good one. But before we get started there are two ways that we like to get this morning started right. But before I share with you my verse this morning it’s my good fortune to have one of our advisors on the program with us this morning, Mr. Gregory Graves. Greg welcome to Sound Retirement Radio.

Greg: Thank you Jason good to be here and hello everyone.

Jason: Man I’m excited, thanks for stepping out here and doing the show with me. This should be a lot of fun. So to start the morning right I have this verse I want to share, it’s John 15:11. “I have told you this so that my joy may be in you and that your joy may be complete.” That’s Jesus talking. Now Greg you’re filling in for Amelia here. And so we tasked you with coming up with a joke for us. Were you able to find something that …

Greg: Yeah. Those are some big shoes to fill but thankfully I’ve got a couple of daughters that are really good at this and they can come up with a joke at the drop of a hat. I’m not sure how they do it. It’d probably take me all day to come up with this but you’ve got your choice Jason between a gorilla joke and an earthquake joke. Which one would you prefer today?

Jason: Well I’ll tell you people around here are a little paranoid about the big one, the big earthquake, so maybe we should do the earthquake one just to lighten them up a little bit.

Greg: All right. I like this one too. They’re both good. But here we go. What did one tectonic plate say to the other tectonic plate when he bumped into him?

Jason: No idea.

Greg: That’s my fault. Thought that one was pretty good.

Jason: That’s pretty good. Amelia would be proud of you.

Greg: Yeah. I have another one if we have a dry moment here. Just let me know and I’ll tell that second joke.

Jason: Well we are going to have a dry moment because I’ve got all kinds of numbers and facts and figures to go through with people on how do they compare. But Greg there’s a game that I’ve been playing with my kids lately as we’re driving down the street. And so I’ve got this game is the way that it works is I give them two options. You have to pick one but you can only pick one. So I put together a list of some of the questions, the first couple are some the ones I’ve been asking them.

Greg: Do your kids like this game? I’m curious.

Jason: Well my daughter does. My son’s like “Dad I don’t want to do this again.” He’s a teenager but. So I’ve got a couple of these and some of them are geared specifically for our audience, for our listeners. So I’m just gonna go through some of these if you’re driving down the road with us this morning. If you’re out jogging here you go. The rules of the game are you have to choose one but you can only choose one. So chocolate or vanilla? The next one is red or blue? Man this next one’s a tough one for me. Spaghetti or sloppy Joes?

Greg: I can just imagine what people are thinking right now.

Jason: Slip on shoes or shoes with laces? Which one would you choose there?

Greg: I’m definitely going with the slip on. I try really hard to get slip on shoes with everything. When I do get laces I just keep them tied and slip them on.

Jason: That’s a good point. I didn’t think about that, yeah. The next one is RV or hotel? Now this is one I asked my daughter the other day, my daughter and son. And it was interesting but if you had to choose between these two which would you prefer? My daughter she said “Dad you’re just trying to trick me into answering one because then you’re going to make me do it, it’s doing the dishes or doing the laundry?

Greg: That’s definitely a toss-up. That’s a hard one.

Jason: This next one, now this one this is where it starts getting more serious. And so this is for our retirees. Now would you rather choose pleasure or joy? You can only choose one but you have to choose one. Pleasure or joy? The next one is, this one’s kinda interesting. Would you rather choose safety or adventure?

Greg: Wow it’s starting to get hard.

Jason: These are not easy. Yeah.

Greg: Some difficult ones.

Jason: So not only do you after you answer that one safety or adventure the follow up question to that might be which one do you find yourself praying for more often? OK and this next one is getting even tougher. This is for our retirees. Imagine that you’ve saved this pot of money and you only get one of two options. Option one is you can have growth with no income or income with no growth.

Greg: We’re getting into the real questions now folks.

Jason: Next one is at the end of your life people are at your funeral, would you rather them say that person was happy or would you rather them say you were honorable?

Greg: And we only get one choice here right Jason?

Jason: Yeah. You can’t be happy and honorable. You have to pick between the two. Yeah I asked you that one the other day, I actually like how you responded to it. What’d you tell me? Neither  one of those are very good options.

Greg: Right, yeah. I answered it but I said neither one of those. I’d rather die happy and honorable but that wasn’t an option.

Jason: Yeah, no. OK last one of these. If you could choose how you were going to die. Option number one is you die at age 90 but you spent the last two years in a nursing home with Alzheimer’s or you die at age 65 but you die while you’re swimming in Maui by a shark attack.

Greg: Okay yeah this does ring a bell. I do remember when you asked me about this one and I believe I said I’d rather die 65 in my sleep. That’d be much easier to answer.

Jason: You can only choose one.

Greg: It’s really a toss-up for me. I don’t know how the audience feels about that but that’s definitely a toss-up.

Jason: So let’s get into the episode. This is again number 185, the title of the show today is How do you Compare?

Greg: All right so the first question I have for you here Jason is why are we doing the show today called How do you Compare?

Jason: So there’s a couple of reasons. But there was a new bulletin that came out the end of last year from the Federal Reserve and the Federal Reserve talks about a couple things. Number one is average net worth and average income. And of course they did this across all demographics, all different age types but we’re going to focus in today primarily on retirees and what that looks like for the retired population. The Bureau of Labor and Statistics they had a report that they put out back in 2012 that was updated in 2014. And what they do in the Bureau of Labor and Statistics is talk about how retirees spend money. So I thought this would be kind of fun for people to get an idea of how these two areas affect their life, both the net worth and the income side. And Teddy Roosevelt said that the thief of … How did he say it? “Comparison is the thief of joy.”

Greg:  I’m familiar with that quote. That’s a good one.

Jason: It is a good one. But as you know it’s probably good to set people’s expectations before we start doing this comparison because some people are going to think boy they’re way ahead of others and some people don’t think they’re way behind.

Greg: Right.

Jason: Kind of some interesting numbers here.

Greg: Yeah it takes your contentment away if you’re comparing too much so. Well let me ask you this then. What were some of the highlights from these reports?

Jason: So the first one and these were just some of the things that really stood out, from the Bureau of Labor Statistics. They said the population aged 65 and older 83.7 million people will be aged 65 and older by the year 2050. When they did this in 2012 there were about 43.1 million. So that’s massive. We’re talking about doubling the population of people aged 65. And to think about the effect that that’s going to have on the economy over the next 15-20 years. What are the resources, what are the things that people are going to be spending their money on? How are they going to be spending it and how can being armed with that knowledge help people make better decisions about the purpose of their money?

 The next thing that I thought was interesting the Bureau of Labor Statistics said 77 percent of people age 55 to 64 are homeowners but only 44 percent of those people are mortgage free. And then they go on to look at people aged 65 to 74, they say 81 percent of people aged 65 to 70 for our homeowners. So home ownership increases from 55 to 65 but they say that 61 percent of people are mortgage free. But what’s startling about that in either instance Greg is that people have a mortgage at 40 percent. Anywhere from 40 to 50 percent of people have a mortgage going into retirement.

Greg: Right. It looks like a lot of people are getting those mortgages paid off before the age of 74. But then there’s 39 percent that are not.

Jason: Yeah, 65 to 74, 61 percent are mortgage free. And one of things we’re big fans of is freedom and there’s that verse that says “The borrower is slave to the lender.” We don’t want anybody to be a slave. We want people to experience freedom and we think one of the ways you can have that freedom is by being debt free. And a lot of people are asking that question today. They’re saying jeez interest rates are really low with the new tax law, are we really going to be able to capture this mortgage interest anymore. Maybe we’re just better off paying this thing off.

Greg: Right.

Jason: And so something we do know more and more people are asking us about. One of the things about this most recent Federal Reserve bulletin that came out though was they said that home ownership rates decreased from 2013 to 2016. So they said home ownership rates were at 63.7 percent versus the peak back in 2004, 69.1 percent of Americans were homeowners.

Greg: Oh that is a surprising statistic.

Jason: Interesting trend that we’re seeing home ownership decline at a time where we had some of the lowest interest rates in the history of our country. And one of things I attribute that to is when you have those ultra-low interest rates what that’s doing is it’s driving up values. And as prices are going up if you’re just starting out and you’re making $15-$20-$25 an hour it’s hard to qualify for a mortgage for $300,000-$400,000. And so the number of homes that people can get into just it’s harder and harder to do. In fact we’ve had the opportunity to travel around the country recently and in Seattle we have this amazing, maybe amazing is not the right word, it’s devastating the amount of homelessness that we experience when we go over to Seattle.

Greg: Right yeah.

Jason: But in all the big cities we go to one of things I’ll ask people, the Uber drivers and the taxi drivers, I’ll say “What are you experiencing with homelessness?’ And it seems like the big cities we go to, it’s not just a Seattle issue, it seems like there’s a lot of homelessness everywhere. So not only are we seeing home ownership decline but we’re seeing a lot of people that just can’t even afford rent.

Greg: Any housing.

Jason: Yeah it’s amazing. Another interesting statistic here from the Bureau of Labor and Statistics regarding spending was that for most categories from age 55 to 64 spending was higher. There were two exceptions to that. So once people reached age 65 to 74 there were two categories, two areas where spending actually increased. And you can probably guess which one of them were. Healthcare.

Greg: Nope, got me.

Jason: Healthcare. Of course people generally aren’t getting healthier as they’re getting older. The other one that caught me by surprise though was entertainment. So usually you think of the go-go years of retirement is the early years, 55 to 64. But what this report said was that entertainment costs actually increase for people aged 65 to 74. Now one of the reasons I wanted to bring this to everybody’s attention retirement is a two part equation. One is understanding your spending, making sure that you really understand what the spending piece is.

 The second part to that though is understanding your net worth because a lot of people today the only guaranteed income they’re going to have in retirement is most people have Social Security but some people will have a small pension. And so if you’re not careful there, if you really don’t understand the spending piece man you can quickly run out of money in retirement. And so this is an exercise in spending and we need to understand the net worth. It’s one of the reasons we developed the Retirement Budget Calculator. People can find that at retirementbudgetcalculator.com. And that’s what it’s designed to do is really help people get granular on those two areas, both on the budgeting and on the spending. And we still have our coupon going which is PODCAST. So people can get 50 percent off the cost of the Retirement Budget Calculator. Right now it’s priced as just a one-time expense so it’s not a reoccurring expense but that means if they use that coupon code PODCAST it’s only $27 to sign up for the report.

Greg: And that’s just a one-time fee.

Jason: Right now it is. Yeah I imagine I’ll change that at some point but we just launched it last year so we just want people using the calculator so we’re making it really really affordable for people.

Greg: Yeah. That’s a great tool. Well let me ask you this. What did the report say about people’s financial literacy in general?

Jason: It says that we need to be doing a better job with this podcast and radio show.

Greg: We’re not giving enough information out here.

Jason: Yeah, no we’re drowning people in information probably, making it too complicated form. But it was interesting. So there were three new questions that were included this time around. I guess this report, these observations, this analysis is done about every three years but they did add three new questions this time around. ANd before they added these three questions they asked people to rate themselves on a scale of 0 to 10 in terms of financial literacy. A zero would mean that you have absolutely no knowledge of personal finance and a 10 would be that you are an expert, you would feel that you are very knowledgeable. This time around they went around and asked three additional questions regarding decisions around savings, borrowing, investing. They asked questions about inflation, diversification, mutual funds, compounding interest. And then they gave people a multiple choice. So this wasn’t a situation where people were having to do math of any sort, it was just which one of these options would you think would be most applicable. This is what was startling Gregg at least as I saw this. 43 of people provided correct answers to all three questions.

Greg: 43 percent. Okay.

Jason: 43 percent. We’ve got a lot of work to do to help people.

Greg: Yeah. I’m curious where people rated themselves in the financial literacy. Did you have those results?

Jason: Yeah well some of them. But what was interesting there and almost kind of sad it said “Respondents who gave themselves the maximum self-rating of 10 provided fewer correct answers than those with a self-rating of 9.”

Greg: Oh man, ouch.

Jason: So that brother-in-law or that family member that comes over at Thanksgiving and just thinks they know everything, be careful, that guy … But the bottom line results are only 43 percent were able to answer all three of these multiple choice questions correctly. And so we’ve just got to do a better job of helping people make-

Greg: Understand.

Jason: Yeah. This doesn’t have to be complicated but it there is definitely an education that’s required and unfortunately it’s not something that a lot of people come out of school with an education in personal finance. In fact we serve some people that are brilliant. But this is not an area where they spend all their time. They’re brilliant in the area of life where they’re trained and they’re focused and they’re spending all of their life. But this personal finance especially retirement planning where you have so many moving parts it really can be complicated.

Greg: Well that’s why we all specialize in something. And the results of this reminds me what Jesus said in the Bible about never take the most honorable seat, take the lowly seat and let someone put you in the more honorable seat. By taking that 10 they did themselves a disservice.

Jason: Ah man.

Greg: Well let me ask you this question. What did you learn about income from this Federal Reserve bulletin?

Jason: Yes, remember comparison is the thief of joy according to Theodore Roosevelt. But so hold on your hats. The average income for a family aged 55 to 64 was $141,000. From aged 65 to 74 was $106,000. And from 75 and more was $77,100. And so the concern that I have there is of course from 55 to 64 more people are working, from 65 to 74 people are starting to scale back on work and then from 75 and more it was down to $77,100. But it is a little bit alarming when you see a declining income trend. 141,000 to 106 to 77. But at the same time I think most people would be surprised that incomes are as high as they are, $141,000 for a family aged 55 to 64.

Greg: Yeah that does sound high.

Jason: Now remember that’s the average. So the average was a lot higher than the median, the median is just the middle number there. And I don’t have those numbers with me here today but it is interesting to see from that standpoint. The other one that I really found interesting though was the average net worth that people had accumulated by different time periods. And I’m only going to focus on what the report said about net worth for the folks that are in their 50s and 60s. So this report by the Federal Reserve said that people aged 55 to 64 the average net worth $1,167,400. Now remember net worth is simply assets minus liabilities. So average net worth by your 60s was, again this is 55 to 64, 1,167,400.

Greg: That is the average huh.

Jason: That’s a lot of millionaires in the United States of America.

Greg: Yeah, that’s a lot of millionaires. That sounds quite high for average. I’m almost a little bit surprised by that number.

Jason: Well the median, now the median was much lower. Remember the median is that middle number and the median was only 187,000.

Greg: Oh wow.

Jason: Yeah. So-

Greg: Quite a difference.

Jason: Well. And so one of the things this points to is that the top 10 percent of Americans really have most of the wealth. So you’ve got this really big imbalance, a lot of money on one and very little on the other. So the median was one 187,000 but the average across folks 55 to 64 was one 1.1 million. And so sometimes it’s just people are interested in how much other people have and how much they’re making. And so these reports reveal some of that.

Greg: Yeah definitely some interesting facts there. I think we’re about that time for the radio show here. But I want to encourage everyone to sign up for the webinar on November 29th at 5:30 p.m. You’ll be doing a webinar, won’t you Jason?

Jason: Yeah. So if people don’t have a retirement plan maybe they want to know … like me I’m a visual learner, I need somebody to show me what to expect or what a good plan should look like. And that’s the purpose of a webinar. We have people joining us from all around the country and there’s an opportunity to actually see the type of work that we do. So then they can say do we have a good plan now, if not what should a good plan look like. What are all the different pieces that it entails.

 One of the things I want to talk about though on net worth Greg was the net worth for that demographic for people ages a little bit older. So this is from folks aged 65 to 74 the average net worth there is one 1,066,000. So it actually dips down a little bit. It was at one 1.1 for 55 to 64 but then it drops down to 1,066,000. And that’s the average across the spectrum. The median net worth for that age demographic is $224,000. So I just want to emphasize retirement is an exercise in cash flow. If you think about this from the standpoint of income. So right now the maximum Social Security for the high income earners in 2018 is $2861 per month. So that’s $34,332 per year if you’ve been a high income earner for a long time and you’ve always paid the maximum into Social Security. And then let’s assume that that person, that high income earner or their spouse never worked but they qualify for the spousal benefit which is 50 percent. So we’ll say $1430 per month would be 50 percent of the spousal benefit. So combined if they have maximum Social Security, the husband has maximum Social Security and the wife has just taken the maximum spousal benefit they’re looking at $51,498 per year of guaranteed income from Social Security.

 Now why is that important? Well it’s important because if you’ve built your lifestyle around $141,000 of income because remember that’s what it said the average income was for that demographic. So now you’ve got $51,000 of income coming in but you’re used to living on 141,000. The question that most people want to answer was how we saved enough to be able to retire. Well if you’re planning on still trying to meet that income need of 141,000 then what you need is $90,000 per year of additional income on top of Social Security. So how do you back into those numbers? How do you find out if you’ve saved enough? There was a study called the Trinity Study done some time ago, a lot of people know of it as the Prudent Man’s Rule. It’s called the 4 Percent Rule and it has to do with investing in stocks and bonds and various allocations. But basically what that tells us is that in order to know if you’ve saved enough, if we know that you need $90,000 a year you would take that 90,000 multiply it by 25 and that would tell you that you need $2,250,000 to support that $90,000 of additional income.

Greg: Wow that’s a big number.

Jason: It’s about double what it says the average 55 to 64 actually has set aside. So that means we could see people’s incomes potentially dropping. The other way you could do this is if you know how much money you’ve saved. Say you’ve saved a million dollars and you divide it by 300 or let’s say you use that example from before. 2,250,000, divide it by 300. That would tell you that you would have $7500 per month or $90,000 a year. But Greg with that I realize we’re out of time. Thanks so much for being a guest with me today.

Greg: Thank you.

Announcer: Information and opinions expressed here are believed to be accurate and complete. For general information only and should not be construed as specific tax, legal or financial advice for any individual and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the President of Parker Financial, an independent fee based wealth management firm located at 9057 Washington Avenue NW, Silverdale Washington. For additional information call 1-800-514-5046. Or visit us online at soundretirementplanning.com.