Question for someone smarter than I

[mickeyd]

Occasionally I run across an article that indicates that we Americans (generally baby boomers) are not saviing enough $$ for retirement. I don't recall the exact details but as I recall the article may state that the average American (or boomer) has $49,450 saved up for retirement.

Then I run across an article like this which makes me scratch my head.




Retirement assets hit $14.5 trillion

By Kathie O'Donnell
July 17, 2006
The nation's retirement assets reached a record $14.5 trillion in 2005, marking a 7% increase over the prior year and a 40% jump since 2002, according to research published today by the Investment Company Institute.

Retirement assets now account for more than one-third of household financial assets, up from about 23% in 1985, ICI, the mutual fund industry's national trade association, said.


"Clearly, Americans are focused on saving for retirement as a top priority," said ICI senior economist Sarah Holden, who co-authored the study with ICI senior economist Peter Brady, in a statement.

"Our research continues to indicate that individuals are building retirement nest eggs by using employer-sponsored plans and IRAs."

The move toward individual control of retirement assets continued, ICI said.

The majority of retirement savings, 51%, is now invested in defined-contribution plans and individual retirement accounts, in which investors make the investment choices.

During the past two decades, defined contribution plans and IRAs have grown faster than other retirement accounts.

In 2005, defined contribution and IRA assets grew nearly 9% while other retirement vehicles grew less than 5%, Washington, D.C.-based ICI said.

Mutual funds remained important vehicles for retirement assets, representing about $3.4 trillion of the total.

Mutual funds' share of the retirement market continued to increase given their prevalence in rapidly-growing defined contribution plans and IRAs.

Funds now manage 48% of assets in defined contribution plans and 45% of IRA assets, ICI said.

http://www.investmentnews.com/news.cms?newsId=1544~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

$14,500,000,000,000 is a bunch of savings. I am confused.* If few folks are saving for retirement, who the heck is stashing away all of these zeros?

[GMueller]

Two things come to mind. First, most of those zeros belong to the very rich. Second, I wouldn't be surprised if most of the remaining increase is due to the housing bubble. IMHO boomers are still ill-prepared for retirement.

[Andre1969]

Interestingly, if you take $14.5 Trillion and divide by 290 million people, which is about the population of the USA, you get $50,000 per person. So in simple terms, there's $50K in retirement per person in this country. However, then you have to take into account that many of those are children, teens, and young adults, who would most likely have nothing saved. Not to mention countless others in their 20's, 30's, 40's, etc who have nothing saved. But then at the other end you have Bill Gates, Warren Buffet, etc. And then everyone in between.

I'd imagine that, in general, that while retirement assets are hitting new records, it's mainly because of a very small percentage at the head of the pack amassing all these assets. As for the rest of the masses, most of them are probably no better off than in previous years, or in some cases, worse.

At least, that's my guess on it. But I don't know if I'm smarter than you or not? :P

[TromboneAl]

Thinking out loud here...

$14.5 trillion / 100 million households = $145,000 per household -- did I get all the zeros right??

Then subtract the amount in pensions, and the figure isn't so far off from the $49,450 figure. *Also, it figures in the amounts saved by all the 70 somethings who are already retired.

[Scrooge]

Originally Posted by GMueller

Two things come to mind.* First, most of those zeros belong to the very rich.

I can't access the article since it apparently requires you to sign in, but it looks like they are talking about traditional Defined Benefits (company provided pensions) and Defined Contributions (e.g. 401k) retirement plans. With the latter, your contributions are limited to $15K/y plus Roth in most cases. In the former case, hm, I am not sure what the limits on Defined Benefits plans for higher income employees are as set by PBGC. Probably something to look up in Title 29.

Second, I wouldn't be surprised if most of the remaining increase is due to the housing bubble.*

Is the article counting primary residences and other real estate?

[SteveR]

Here is an article from the IRs on how much $$ has been invested in IRAs and 401k account from 1990 to 2002. The title is

ACCUMULATION AND DISTRIBUTIONS OF RETIREMENT ASSETS, 1996-2000—
RESULTS FROM A MATCHED FILE OF TAX RETURNS AND INFORMATION RETURNS


link
http://www.irs.gov/pub/irs-soi/03pete.pdf

[mickeyd]

First, most of those zeros belong to the very rich.

Maybe so GMueler, but Gates and Buffet, for instance, are worth about $100 billion, however I doubt much of that stash is in retirement funds. There are limits on how much even the very wealthy can place in a tax sheltered fund.

[Texas Proud]

Like others have said... statistics can lie...

I remember when Microsoft was flying high and Gates was close to $100 billion... there was an article that said he has as much wealth as the lowest half (145 million) of the population... so Gates = 145 million people in net worth..

Since we will assume that most of those people want to retire someday, they are a bit behind in savings... as they have ON AVERAGE less than $700 net worth...

And how many of those people are actually under water Negative net worth??

[mickeyd]

as they have ON AVERAGE less than $700 net worth...

AWW come on. *They gotta have at least a grand. No?

[Delawaredave]

Originally Posted by mickeyd

Mutual funds remained important vehicles for retirement assets, representing about $3.4 trillion of the total.

Also, I don't understand how only 3.4 trillion of the 14.5 is in mutual funds ?* Where's the rest of the money invested ?

I wonder if the bulk of this total is goverment worker defined benefit plans.

[LOL!]

Originally Posted by Delawaredave

Also, I don't understand how only 3.4 trillion of the 14.5 is in mutual funds ?* Where's the rest of the money invested ?

It's all in variable annuities.* They don't really count as mutual funds.*