The median for all families in the U.S. is just $5,000, and the median for families with some savings is $60,000.
I find this very hard to believe. Nobody can retire with 5k in the U.S. The money will be gone within a year. Is it possible? What is the actual figure?
If indeed 5k is an accurate figure, how do 50% of old Americans survive in their old age? Do most old Americans rely on their children for financial support?
I find this very hard to believe
Believe it. The bottom quarter of American households have negative net worth, and the bottom three quarters have no more than a tiny amount saved up.
https://en.wikipedia.org/wiki/Wealth_in_the_United_States#/media/File:MeanNetWorth2007.png
In an emergency, 63% of Americans would not be able to come up with $500 without going into debt.
Nobody can retire with 5k in the U.S. The money will be gone within a year. Is it possible?
Now you begin to see why the long-term stability of Social Security and Medicare are at present hot topics in American political life. Without them, a great many more Americans would die in poverty.
What is the actual figure?
The $5000 figure is accurate but irrelevant; that median includes people who are thirty years from retirement and people who are two days from retirement.
The more relevant statistics are those restricted to people at or close to retirement age, and they can be found lower down in the article you cite, or in numerous other studies. Here's one from the GAO for example:
http://www.gao.gov/products/GAO-15-419
The figures here are, unfortunately, no less terrifying:
Now $104K is a lot better than $5K, but it's still not much to retire on.
Why we believe that it is reasonable to throw out all the zeros before taking the median, I do not know. That seems like bad math to me.
UPDATE: There is some discussion of this point in the comments; all I'm saying here is that this is a clumsy and possibly misleading way to characterize the situation. The linked report has the actual data, but let's try to summarize it here in a more meaningful way.
Let's suppose that we make buckets for how dependent on SS is a retirement-age household to avoid starving to death, being homeless, and so on?
Maybe these buckets are not ideal, and we could move them around a bit. The takeaways here are that the ratios of nothing:inadequate:barely adequate:comfortable is about 40:30:20:10. That only the top decile of retirement-age households can fund a comfortable retirement without help illustrates just how dependent on SS American households are.
how do 50% of old Americans survive in their old age?
Social Security and Medicare. As the cited GAO report indicates:
"Social Security provides most of the income for about half of households age 65 and older."
Do most old Americans rely on their children for financial support?
One day I met a woman at a party and we were making small talk about her kids. She had a couple already and one more was on the way. "I want to have lots of children to support me in my old age", she said. "Do you support your parents?" I asked, which frankly seemed like an entirely reasonable question. "Of course not! I can't afford it. I've got a baby on the way and two more kids at home!"
I left her to draw her own conclusions as to the viability of her retirement plan.
Social security and pensions make up a big part of it. You may want to look at the source of the data. If a person, has 5K at Vanguard, 5K at Fidelity and 100K at the bank; Fidelity will report on that person as having only 5K. Vanguard will do the same.
The opening pitch of a life insurance salesman sometimes includes the "100 man story". Before retirement age: 26% of people will die, 54% will be broke, 5% will work, 4% will be secure, and 1% will be wealthy. Then they sell you life insurance which is a horrible product for retirement savings.
If you further dig into this subject you will find a great disparity between the mean and median retirement savings. That is because many Americans have none, and those that do skew the average upward and have no where near mean or average.
Its like this with other things in personal finance. For example those with actual credit card debt have much higher than the average. As those with none, or even no credit cards skew the average downward.
In my opinion it is like this because of behavior. If one saved half of the average car payment over their working life in a growth stock mutual fund, they would make it to that 4% category. If they also had a good salary, kept debt to a minimum, and saved a healthy amount they would make it to that 1% category. It was a daily choice that was made many years prior to retirement.
Note that the quote distinguishes between "all families" and "families with some savings" - this just means there are so many families with less than 5k that they equal all those with savings above 5k. That might be because they are young and haven't started yet, or because it is just not a priority for them compared to food and rent.
Nothing about the quote suggests that anyone believes once you've saved 5k, you're done. In fact since they show savings vs age, you can immediately see many people still have decades to save more. They may have 5k or less now, but they're not retiring now.
How do you survive if you get to 65 and have nothing saved? There is some government money (social security) and many people sell their houses or get a reverse mortgage. Having equity in a house is not the same as having savings. And some older people live very frugally - they stop buying clothes, they stop redecorating their houses - while others live in flat out poverty. But you can't tell if that is their future from the fact they only had 5k saved when they were 32.
Statistics are often tough to grasp. Specifically, we need to understand the exact context and implication of the data and how it's presented. An example -
I look at real estate sales data for a given town, and find that for the last 10 years, the average sale price has dropped, 3%/yr, every year for these 10. What can I conclude?
- Demand has dropped, the town is undesirable
- Demand is steady, but lower prices homes are turning over faster.
- Demand is through the roof, but new homes are smaller, and even though all homes are enjoying a year on year gain ahead of inflation, the new sales prices drag down the average.
Now, to your data. You don't mention age.
When we look at this chart, combined with the next -
The picture, while still bleak, is at least more clear. Nearly half of pre-retirees have no "retirement" savings. If that lower half is running close to zero, the average for the upper half is nearly twice the reported $164K.
Even now, there are important bits going unaddressed. People who have had no access to retirement accounts, either through lack of company availability, or self-employeds who just ignored them, may very well have saved outside of retirement-labled accounts. You can see these graphs are tracking only 401(k), IRA, and Keogh accounts.
Last, social security for the $30K earner will replace nearly half their working income at retirement, almost 65% if they work till 70. I don't advocate counting on SS for the entirety of one's retirement income, but the way SS benefits are structured, replacement benefits are far higher (as a percent) for lower wage workers, as the system intended.
To conclude, median alone is too small a data point to be useful, in my opinion. This kind of information presented in these charts is far more preferable to get a fuller picture.
If you dig deeper and look at the original study, what's being measured is "retirement-plan participation": specifically, money in 401(k) plans and IRAs. This omits every other possible source of retirement money: things such as general savings, non-retirement investments, property ownership, pensions, etc.
As an extreme example, I know someone who's retired with property worth a million dollars, another million dollars in stock, a pension providing thousands of dollars a month plus health insurance, and not one penny of what the study would consider "retirement savings".
Yes, the average American family is under-prepared for retirement. But it's nowhere near as bad as the article makes it sound.
