Here are the average net worth and retirement savings of American households by age

The Federal Reserve Survey of Consumer Finances (SCF) is published every three years. The report is a financial snapshot of U.S. households across demographic and economic groups, providing details on income, assets, debt and wealth.

The last SCF was conducted in 2022 and published in October 2023. U.S. households reported an average retirement balance of $333,940 and average net worth of $1.06 million. Read on for an age-based breakdown of these numbers.

The average retirement account balance by age

Retirement savings is measured as the cumulative balance of individual retirement accounts (IRAs), Keogh accounts, and employer-sponsored accounts such as 401(k) plans, 403(b) plans, and the Thrift Savings Plan. Importantly, this does not include investments held in individual investment accounts.

The chart below shows the average retirement balance of U.S. households by the age of the reference person, defined as the man in mixed-sex couples and the older person in same-sex couples.

Data source: Federal Reserve 2022 Survey of Consumer Finances.

The average wealth by age

Net worth equals assets (financial and non-financial) minus liabilities. The most common financial assets reported by U.S. households in the 2022 SCF were bank accounts (98.6%), retirement accounts (54.3%), and brokerage accounts (21%). The most common non-financial assets were vehicles (86.6%) and primary residences (66.1%).

More than three-quarters of U.S. households reported some form of debt, with an average debt burden of $163,800. The most common sources of debt were credit cards (45.2%), car loans (34.7%), and education loans (21.8%).

The chart below shows the average wealth of US households based on the age of the reference person.

Data source: Federal Reserve 2022 Survey of Consumer Finances.

The average pension balance and assets per age

Averages can be misleading when working with asymmetric data, that is, data that does not follow an even distribution. Net worth and retirement savings are good examples of asymmetric data because wealth is not evenly distributed across the U.S. population. According to the Federal Reserve Bank of St. Louis, the top 10% of U.S. households control 66.9% of total household wealth.

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In this case, the asymmetric data causes the average to be higher because a small part of the population is very rich. Therefore, the median (middle) value is a better measure. By definition, 50% of the data points are greater than the median, and 50% of the data points are less than the median.

The chart below shows the median retirement account balance and median net worth of U.S. households based on the age of the reference person.

Data source: Federal Reserve 2022 Survey of Consumer Finances.

As shown above, the average U.S. household reported a retirement account balance of $87,000 and a net worth of $192,700 in the 2022 SCF. That means half of U.S. households reported a larger retirement account balance and greater wealth, and half of American households reported smaller retirement account balances and less wealth.

These statistics may evoke feelings of dissatisfaction or even shame among some readers. But with the right attitude and guidance, anyone can improve their financial position. The first step is to draw up a budget. Financial planners often recommend the 50-30-20 framework, as explained below.

• Necessary expenses: 50% of income should be allocated to necessary expenses such as groceries, gas, rent and utilities. Minimum debt payments also fall into this category.

• Discretionary expenses: 30% of income should be allocated to discretionary expenses such as travel, entertainment and luxury purchases.

• Savings: 20% of income should be saved for retirement through individual accounts, employer-sponsored accounts, or a combination thereof. Debt payments above the minimum also fall into this category.

Typically, it’s best to pay off high-interest debt before investing additional dollars in brokerage or retirement accounts. The definition of high interest debt ranges from 6% to 8%, but ultimately depends on what your investments will yield. Of course, no one knows the future, so estimates are very conservative. You want to avoid a situation where debts add up faster than dollars invested.

Once high-interest debt is paid off – a good example is credit card debt – financial planners usually recommend paying off other debt gradually, while saving for retirement at the same time. A common recommendation is to ensure that contributions to employer-sponsored plans are sufficient to earn the full company match. Not all employers offer matching contributions, but those that do are offering essentially free money.

Additionally, I think additional savings should be invested through an IRA or personal brokerage account simply because they offer more flexibility. Anyone who isn’t sure where to start should consider an index fund that tracks the price S&P500, a benchmark for the entire U.S. stock market. Plus, with interest rates at their highest levels in decades, now is a good time to transfer money to a high-yield savings account.

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Trevor Jennevine has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Here are the average net worth and retirement savings of American households by age, originally published by The Motley Fool