No. of Recommendations: 26
According to a chart to be found at the link below, the household net worth for Americans distributes as follows:

2.70%: over $1 million
8.70%: $500-999k
17.2%: $250-499k
21.6%: $100-249k
19.2%: $25-99k
30.6%: under $25k

I had no idea Americans were so poor. 49.8% of all households have a net worth under $100,000. That is very tiny money: a couple T-bill ladders and hardly adequate reserves in case of a genuine, financial hardship. A mere 11.4% of households have a net worth greater than $500,000, which also worrisome. $500k is merely the size of robustly-constructed, properly-diversified portfolio.

Given that most Americans consider their house to be their best investment and wouldn't feel good about themselves with less than a shiny car or two in the garage, the bulk of their net work probably isn't financial assets. Instead, they have a big house they are making payment, a new car they are making payments on, but probably not enough investment assets to produce a livable income, even if they did have the skills to manage those assets aggressively. Small wonder Social Security payments are such an important item in the lives of most retirees. They have very little money available to them from investment sources and very little net worth once the net equity of their house is subtracted from their total net worth.

What I find worrisome about this data is the nearness to poverty it implies about American households in a supposedly-wealthy country that, to date, has wasted $2.2 trillion dollars invading a country that was never a threat to it and intends to spend billions more on escalating vanity wars. The so-call “terrorists” won't defeat the US. It will be our own politics and economics. As Pogo might have said:

“We have seen the enemy, and he is us.”

http://cgi.money.cnn.com/tools/networth/networth.html

Charlie



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Here are the actual statistics.

Data from 2001
http://www.consumerfed.org/pdfs/evidence.pdf

The median net financial assets, including retirement accounts, and subtracting debt, 1998, was:

Age
Less than 35 years $0
35-44 $10,000
45-54 $20,500
55-64 $32,771
65 and older $34,550

http://www.pcf.org/venture_philanthropy/pdfs/ida_research.pdf

Almost one-third (31%) of American households have no or negative financial assets, including over 60% of Black Americans, 54% of Hispanics, and 62% of single parent households.

Nearly one in three American households possess zero or negative net financial assets.

Half of all Americans have less than $1,000 in investable assets.

The average American family holds only $3,700 in net financial assets.

[end quotes]

I doubt that the situation has improved, since 1998, since the national savings rate was positive, in 1998, but went negative, in 2005, and has remained negative, throughout 2006.
http://bea.gov/bea/dn1.htm

Charlie, you are right to be worried...perhaps more right than you even realized.

Wendy
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I doubt that the situation has improved, since 1998, since the national savings rate was positive, in 1998, but went negative, in 2005, and has remained negative, throughout 2006.

There's been a huge run up in real estate values since 1998. If a home owner can resist the urge to cash out 100% then they've accumlated a fairly nice bit of equity. Very illiquid, but still some equity.

I'm also curious at the number of people retiring. We're starting to see the baby boomers retire and a side effect of this could be a negative savings rate. If so, look for the negative savings rate numbers to get larger as more boomers retire.

Paul
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I'm also curious at the number of people retiring. We're starting to see the baby boomers retire and a side effect of this could be a negative savings rate. If so, look for the negative savings rate numbers to get larger as more boomers retire.

I'd think that the savings rate would be based on households w/ at least one income-earning person. I don't know if retirees would be considered in the savings rate.

jmc
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You might want to take a look at this.
http://boards.fool.com/Message.asp?mid=25009282&post=true

Wendy
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I had no idea Americans were so poor. 49.8% of all households have a net worth under $100,000. That is very tiny money: a couple T-bill ladders and hardly adequate reserves in case of a genuine, financial hardship. A mere 11.4% of households have a net worth greater than $500,000, which also worrisome. $500k is merely the size of robustly-constructed, properly-diversified portfolio.

i hope you never run for any kind of political office

95% of americans would think they were ABSOLUTELY RICH if they ever ended up with 500,000 in savings

-USD
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i hope you never run for any kind of political office

95% of americans would think they were ABSOLUTELY RICH if they ever ended up with 500,000 in savings

-USD



For many - in many parts of the country - they would be.

I think the OP should be allowed a certain amount of literary license in making the point that in general the majority of the population of the US does a crappy job of saving and planning for the future.
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<I don't know if retirees would be considered in the savings rate.>

My understanding, from the web site, is that the data includes all households, including those with no working members. Non-working would include those who never worked (living on welfare), households whose members are temporarily unemployed, and the retired. The government data said "households," not "households except."

It's important to know how households that don't have working members are doing. For example, >65 retirees may be poor (not qualified for Social Security, because of inadequate work history), living only on Social Security, or living on a combination of Social Security and earnings from their savings. Some retirees may have substantial income, from investments.

It's important to include all of these, to get a complete picture.
Wendy

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Not to detract from your main point, with which I heartily agree, but one turn of phrase rang false to my ears:

$500k is merely the size of robustly-constructed, properly-diversified portfolio.

Robust construction and proper diversification in a portfolio seem to me to be almost entirely unrelated to the size of the portfolio. $500k can just as easily be "the size of" a poorly-constructed, un-diversified portfolio. By the same token, a $10,000 portfolio can be well-constructed and diversified (albeit in a less manual manner).

Whether or not we should expect the average american household to have a net worth topping $500k is orthogonal to your descriptive terms. I think the choice of language in this sentence was crafted to paint a particular emotional picture and I think that your main point could have been better served with less wordsmithing.
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Whats your source on the 2.2 trillion estimate? Are you including all spending on Iraq, Afghanistan and Homeland defense? Because the numbers on Iraq itself which is the country/war I assume your referring to. In fact I'm pretty sure that all spending might even all short of this. Is your number a broad projection of reset costs on equipment?

The most reliable estimate of total cost I have seen is $378 Billion. Definatly expensive and illustrated at the link below but nowhere close to 2.2 trillion.

http://costofwar.com/numbers.html

This site is actually from an Anti-war group and includes a list of other things that $378 billion could have been spent on. None the less their accounting seemed pretty solid to me.

Total lifetime costs may well end of up in the Trillion range when you count reset cost and deferred expenses (like VA benefits to War wounded etc.).

As far as so-called terrorists you can effectivly debate weather or not we brought them to Iraq with the invasion or not. You can argue intelligently that the War is couter-productive to the overall goal of reducing terrorism or the threat to US interests from Islamic Jihad. Being on the ground in Baghdad though I can definatly assert that there are terrorists here. The overall problem has shifted towards a Sectarian Civil War or Sectarian violence depending on whose wording you would like to use. That doesnt mean that Islamic Terrorist Groups are not operating frequently in Iraq.

Are you creating more terrorists than your killing capturing? Is a question for statemen and in general the whole country to answer. Once again though being on the ground in this country I can tell you there are indeed terrorists here.
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Mac,

$10k is petty cash, not a portfolio.

Moving up the scale to the SEC-required $25k for a PDT account, it would take a very superior trader to make serious money from such tiny assets. In fact, a superior trader wouldn't even attempt it.

At $100k --the typical minimum for managed money-- proper diversification. can be achieved by even an average investor, but probably not a livable income. (Calculate the rate of return that $100k would have to achieve in order to produce, after taxes, even a modest $25k/year.)

At $250k under management, a net income of $25k becomes feasible, provided that investments with stock-like risks and returns are selected. But there's no way someone who traffics heavily in CD's and TIPS is going to pull down a net, annual $25k on that small of an account. .

At $500k of financial assets under management, you're now talking feasibility with even a conservative, “balanced” fund approach. At net-7% gain, the annual income is $35k, which is a modest, middling income that many people would consider quite adequate. Combine that income stream with a modest pension and some Social Security payments, and the investor has achieved a fairly robust financial structure that could sustain a lot of damage and still meet most foreseeable needs.

The tradeoff between assets under management and desired return is this: the smaller the account size, the greater the management burden, all other things being equal. The greater the account size, the lesser the threat that when bad things happen –-either a large event or many small events-- cannot be recovered from. Size matters. The more money that is being managed, the easier it becomes to reduce risk.

“To get from $10,000 to $1 million is all but impossible. To get from $1 million to $10 million is all but inevitable.”

Net worth is not true wealth. Henry David Thoreau was one of the richest men this coutry has ever known, even though, as he says of himself, "He ate many a supper in another man's house." But net worth can be one sort of insurance policy against financial hardship. Not the best one, but one of the ones which are available. With nearly 50% of this country's households having a net worth under $100k, we are living in the land of the under-insured, which was my point. The net worth numbers are worrisome, given the escalating war debts, which will be coming due.

Charlie
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I think the OP should be allowed a certain amount of literary license in making the point that in general the majority of the population of the US does a crappy job of saving and planning for the future
I don't.
I think the OP has no idea how much money most people make or how difficult it can be to get ahead.

I had no idea Americans were so poor. 49.8% of all households have a net worth under $100,000. That is very tiny money: a couple T-bill ladders and hardly adequate reserves in case of a genuine, financial hardship
When one considers that the average salary is south of $50k, how long should it take to generate a net worth of $100k? Let's assume that the individual saves 10% of their gross income and puts it into T-bills. My math says that it takes 15 years.
So, remembering that $50k is an average, this means that half of the wage earners in this country will not have that $100K savings even after 15 years of diligent effort. How long does it take if you make only $40k? 18 years.
And of course, this doesn't take inflation into account.

Tiny money? Twenty years of scratching and saving?
Why do I hear the ending soliloquy of the Ghost of Christmas Present ringing in my ears (the insect on the leaf mocking his brothers in the dust)?


What about the $500k, which is merely the size of robustly-constructed, properly-diversified portfolio? That takes about 40 years, roughly the length of a career.

Literary license? No, I think the OP needs to learn a little bit about demographics and the real value of a dollar.
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I'm 30 years old and have a net worth just over $100,000. My highest income over the last 10 years was $51,000 and that was just once. Mostly it has been low 40s or high 30s. My wife and I managed to save money in ROTHs while giving over 10% of our gross wages every year. We also have 2 kids and no insurance for the second birth which we paid $11,000 for in cash.

My point is that poverty for most people is a choice and as Americans we have chosen poorly. The most important thing my family has done that others haven't can be summed up with one word: Discipline.

Jesse
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Are you creating more terrorists than your killing capturing? Is a question for statemen and in general the whole country to answer. Once again though being on the ground in this country I can tell you there are indeed terrorists here.


and how does one define the difference between a terrorist and a civil war fighter? guerilla warriors are not equated with terrorists in previous guerilla conflicts. they just use unconventional tactics to achieve their tactical goals

-USD
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My understanding, from the web site, is that the data includes all households, including those with no working members. Non-working would include those who never worked (living on welfare), households whose members are temporarily unemployed, and the retired. The government data said "households," not "households except."

Thanks for hunting that down Wendy. Well if the savings rates of retirees is included, then yes, I could see the savings rate going down to negative territory because the population is aging. Seems to me to be difficult to save when you're not earning. Unless they include all unearned savings also (i.e. something like saving some of your investment proceeds from a given year.)

jmc
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My point is that poverty for most people is a choice

What utter and absolute drivel. People don't CHOOSE to have ignorant parents. People don't CHOOSE to be ignorant themselves. And yet, lack of education is pretty much the one thing that is common worldwide to those who live in poverty.

If someone with a college education were living in poverty, we'd probably assume that he/she had been stricken with a severe mental illness. So, why would we assume that someone without a good education made the choice to live in poverty?
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I'm 30 years old and have a net worth just over $100,000. My highest income over the last 10 years was $51,000 and that was just once. Mostly it has been low 40s or high 30s. My wife and I managed to save money in ROTHs while giving over 10% of our gross wages every year. We also have 2 kids and no insurance for the second birth which we paid $11,000 for in cash.

My point is that poverty for most people is a choice and as Americans we have chosen poorly. The most important thing my family has done that others haven't can be summed up with one word: Discipline.


And where do you live? Comparing a $51,000/year salary in San Francisco or NYC is much different than comparing a $51,000/year salary in Mississippi or North Dakota. It's an apples to oranges comparison rather than an apples to apples one. (Plus you say nothing of what your wife earns, if she works for an income. So is $51,000 even your household income?)

jmc
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Literary license? No, I think the OP needs to learn a little bit about demographics and the real value of a dollar.

I agree but I was hoping to avoid the pious "you can simply pull yourself up by your bootstraps like I did..it just takes discipline" crap that would be sure to follow.
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My point is that poverty for most people is a choice and as Americans we have chosen poorly. The most important thing my family has done that others haven't can be summed up with one word: Discipline.

Oops, too late.

I should have read ahead before posting.
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<Seems to me to be difficult to save when you're not earning. Unless they include all unearned savings also (i.e. something like saving some of your investment proceeds from a given year.)>

Of course, they include all income. Interest and dividends are an important part of retirees' income...if they were wise enough to save and invest, so they aren't just living hand-to-mouth, on Social Security.

It's unwise to retire, unless you know that you can live on less than your non-salary income. How can you know? You can keep accurate budget and expenditure numbers, and live below your means (LBYM) for years. You can do calculations, which project expected earnings from your investments (good resources at Motley Fool and www.fidelity.com).

If you plan to retire before you receive Social Security and Medicare, especially if you retire before age 59.5, you have to be sure that your nonretirement savings will produce enough income to cover all your living expenses, most notably private health insurance. (There is one way to tap into retirement accounts, without a penalty, before age 59.5 -- substantially equivalent distributions -- but I think that's a bad idea.)

Incidentally, I don't consider my investment income to be unearned, whatever the IRS may call it.

Do I spend less than my investment income? You bet I do. I've been a dedicated LBYMer, my entire life. I spend less than my taxable income...and that doesn't count the income in my retirement accounts.

When the government tallies up income, they include all income. The table includes retirement income, too. Where could they get the data for "all income"? Well, the IRS just happens to be a branch of the government :-).

Wendy
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“To get from $10,000 to $1 million is all but impossible. To get from $1 million to $10 million is all but inevitable.”

Well, this may or may not be true, but by scale it is intuitive and obvious - it is easier to turn your money in 10X than it is to turn it into 100X!
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Incidentally, I don't consider my investment income to be unearned, whatever the IRS may call it.

I wouldn't consider investment income to be "unearned" either. However, a lot of us on TMF are probably more into finances & investing than the general populace. Still, no one is paying me to work on my investments. :)

Do I spend less than my investment income? You bet I do. I've been a dedicated LBYMer, my entire life. I spend less than my taxable income...and that doesn't count the income in my retirement accounts.

When I can spend less than my investment income, then I'll consider myself financially independent. I'm not at a place where I can do that yet. (Full-time graduate student.)

oh & when I went back to school, I did not break into my 403b. I rolled most of it over into an IRA. But this is one big area where average people make a mistake -- cashing in their 401Ks (or equivalent) when they switch jobs. Then there's the folks who totally stopped contributing to their 401Ks in the latest bear market. Missed out on some fine market lows/buying opportunities.

jmc
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But this is one big area where average people make a mistake -- cashing in their 401Ks (or equivalent) when they switch jobs.

All the retirement planning methodology from 10-15 years ago is obsolete. It included retirement plans as a source of income.

Last night we met friends for a meal out. During the conversation, the wife mentioned that her husband (consulting engineer) only had a 401k but no retirement plan. (She still has a retirement plan, thanks to the union she belongs to.)

I pointed out the MDH also did not have a retirement plan.

I refrained from noting that my "retirement plan" was converted to a "cash balance" plan over 10 years ago.



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I don't know why this is a surprise to anyone.

With the decline of defined pension plans, it has been clear the bottom half has little chance of saving enough to retire at 65, if ever, and sustain a middle class lifestyle, even if they had enough income while working to qualify in some way as "middle class." And, that's those who do manage to save 10% of their wages/salary.

I'm very critical of people who make $100,000 or more and can't seem to put away $20,000 a year, but I don't think it is fair to criticize those who make $50,000 with a family of 4 and manage to save $5000, especially if they live in an expensive population center, which is where most of the jobs are.

Someone retiring with about $35,000-$40,000 in expenses, including taxes, which is hardly extravagent, with Social Security, having $500,000 in net worth entering retirement, would have an initial withdrawal rate of about 5%. That's plausibly sustainable with an age appropriate asset allocation if markets provide historical returns, but 4% is more like the consensus "safe withdrawal rate," and those of us who consider optimism a terminal disease would prefer 3% or less. In other words, even though a net worth of $500,000 is near the top and something most people can only wish for, it is certainly not an amount that makes someone rich. Neither is a million, which may have been a fortune when they wrote pop songs in the '20s or the Depression, but is now the equivalent of 100 million or so.
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4% is more like the consensus "safe withdrawal rate," and those of us who consider optimism a terminal disease would prefer 3% or less.

Calling 4% optimistic is misleading. It survives most 30 year periods of the last century or so. It represents planning for a near worst-case scenario. You can certainly argue for a more pessimistic view, and I might even agree, but 4% is pretty pessimistic in its own right.
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Im glad you asked the question as its a point of huge point of difference that I dont think gets pointed out enough. Being a guerilla fighter does not make you a terrorist as the word is used today. First off a terrorist intentionally targets civillians with the intent of causing fear in the general population. A guerilla fighter on the other hand may well target infastructure of a military value, enemy troops, supply depots a number of items but his intent is to sabotage, disrupt, or destroy the enemies ability to wage war.

This is not a new conveniant theory I've come up with either it has a long historical and of course a contemporary distinction.

Looking all the way back to Roman Occupation of Britiannia (modern day Great Britian). The Britons were guerilla fighters unable to do battle on the field with Romans they engaged in guerilla war fare designed to force a withdrawal. The hit supply lines, burned crop fields, and did battle with any tribes that supported Rome. Not so far from that area the IRA a definate terrorist organization attempted to drive out the British with terrorist tactics. The left package bombs in market centers, hit shops, attempted assisinations of British politicians (not heads of state).

The french resistence during WWII had access to modern day explosives but also were not terrorists, they targeted communications networks and ran spying operations feeding information to allied forces. The did such a good job Hitler didnt even know about D-day till the next day because the Paris Telegraph had been sabotaged. The french resistence fighters didnt infiltrate Berlin and take school children hostage like you saw in Chechniya in an attempt to create mass fear. The french resistence targeted the German war capabilities not attempting to cause fear by targetting school children.

I wasnt calling Baathists terrorists. If an Iraqi views the US as a hostile occupying force and targets US military assets (me) he's merely an irregular fighter not a terrorist. A foreign fighter or an indegenous fighter who comes in with foreign money and has an agenda merely to cause chaos and fear in Iraq, but doesnt care about Iraqi's is a terrorist. The bombing of the mosque in Samarra by Al Qeada is a prime example. They've been writing papers for years on the need to sow ethnic cleansing in Iraq as a method of defeating the US. They dont care about the Iraqi's there hostile to US interests AND are willing to target innocent civillians to get what they want. They spread fear, kill innocent people intentionally and have no vested interest in one form of government here or another. It makes them terrorists.

You can respect a guerilla, if you look at the story behind "We were Soldiers" which is about 1-7 Cav's battle in the I Drang valley in Vietnam , then LTC Moore's unit engages in fierce fighting with a VC unit. 30 Years later Gen Moore sits down with the commander of the VC that day they had respect for one another if not friendship. You can respect a guerilla even if you dispise everything he stands for, you cannot respect a terrorsit who simply despises everything.

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Calling 4% optimistic is misleading. It survives most 30 year periods of the last century or so. It represents planning for a near worst-case scenario. You can certainly argue for a more pessimistic view, and I might even agree, but 4% is pretty pessimistic in its own right.

I've said many times that the assumptions behind using historical statistics, even including "worst case scenarios," to predict the future is fundamentally bad research methodology. Historical statistics are effects not causes, and unless there is a thorough understandning of the complex and changing causes of those effects any attempts to build models to predict how those effects will change as causes change in the future are useless.

The last century, and even the century before it, were times in the US and other now developed economies of expanding populations and expanding resources, notably per capita energy use, as well as increased productivity due to science and technology. Population and resources are both likely to lead to much slower growth in currently developed economies, including the US, in the 22nd Century. It may or may not prove possible to sustain something we might call quality of life with greater reliance on information technologies, etc., which may allow less energy use, for example. But how that translates to "growth" in the sense that leads to the kind of return on investment that has been seen in the past is a huge question mark.
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I'm 30 years old and have a net worth just over $100,000.

May I ask, what portion of that is capital gains, either real-estate or equity appreciation, vs. original savings? Just curious.
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