What Percentage of Retirees Have 5 Million Dollars?
Understand the financial reality for retirees. Get insights into wealth distribution and what constitutes significant retirement assets.
Many people are curious about the financial realities of retirement, especially the prevalence of significant wealth, such as possessing $5 million, among retirees. Understanding the financial landscape of retirement offers insights into the varied outcomes of long-term financial planning and investment strategies. It shows that while some individuals build considerable assets, a financially secure retirement involves diverse paths and outcomes for different households.
The Current Landscape of Retirement Net Worth
A very small percentage of retirees in the United States have a net worth of $5 million or more. Data from the Employee Benefit Research Institute, based on the Federal Reserve’s Survey of Consumer Finances, indicates that only about 0.1% of retirees have accumulated over $5 million in their retirement accounts. Less than 2% of households have $2 million or more saved for retirement, with 1.8% reaching this level in retirement accounts.
A slightly larger, yet still limited, percentage of retirees hold at least $1 million in retirement savings. Approximately 3.2% of retirees have over $1 million in their retirement accounts. Another analysis suggests that about 4.7% of households had crossed the $1 million threshold in 2022.
When examining the overall financial health of retirees, median net worth provides a clearer picture than average net worth, as averages can be skewed by a small number of high-net-worth individuals. For retirees aged 65 to 74, the median net worth is approximately $409,900, while the average net worth for this group is around $1.79 million. For those aged 75 and older, the median net worth stands at about $335,600, with an average net worth of roughly $1.62 million.
Defining Wealth and Assets in Retirement
Understanding “wealth” or “net worth” in retirement involves a straightforward calculation: the total value of all assets minus all outstanding liabilities. A positive net worth indicates that assets exceed liabilities, suggesting a healthy financial standing.
Assets encompass everything an individual owns that has monetary value. This includes liquid assets such as cash, checking and savings accounts, and investment holdings like stocks, bonds, and mutual funds. Retirement accounts, such as 401(k)s and Individual Retirement Accounts (IRAs), are also significant components of assets. Furthermore, fixed assets like real estate (including a primary residence), vehicles, and valuable personal property contribute to an individual’s total wealth.
Liabilities, conversely, represent all financial obligations or debts owed to others. Common liabilities include mortgages, credit card balances, student loans, and car loans. Other forms of debt, such as personal loans or accounts payable, also reduce an individual’s net worth. It is important to note that while a home is an asset, the outstanding mortgage on that home is a liability, and only the equity (the home’s market value minus the mortgage balance) contributes to net worth.
Net worth differs from annual income, as income reflects what is earned over a period, while net worth represents what has been accumulated over time. An individual with a high income might have a lower net worth if their spending and liabilities are substantial, while someone with a modest income could have a higher net worth through consistent saving and debt reduction. The valuation of assets like a primary residence generally includes the equity in the home, which is the current market value less any outstanding mortgage debt. While some perspectives might exclude primary residence equity for specific liquidity analyses, for a comprehensive net worth calculation, it is typically included.
Understanding Retirement Wealth Data
The primary source for comprehensive data on household wealth in the United States is the Federal Reserve’s Survey of Consumer Finances (SCF). This triennial survey collects detailed information on families’ balance sheets, pensions, income, and demographic characteristics. It combines a standard sample with a supplemental sample designed to capture data from wealthier households, ensuring a representative view of wealth distribution.
The Federal Reserve Board sponsors the SCF in cooperation with the U.S. Treasury Department. Data collection is performed by the National Opinion Research Center (NORC) at the University of Chicago. Approximately 4,500 to 6,500 families are interviewed for each survey, with participation being voluntary.
Interpreting retirement wealth data requires an understanding of certain nuances. Averages can be misleading because they are significantly influenced by a small percentage of high-net-worth individuals. The median net worth, representing the midpoint of all households, often provides a more accurate reflection of the typical financial situation. Some data sources may focus solely on retirement accounts, rather than total net worth, which includes all assets and liabilities. Additionally, the value of defined benefit pensions and Social Security income are generally not included in reported net worth figures, though they represent significant future income streams for many retirees.