New Report Illustrates Financial Fragility for many American Families

As Certified Financial Planners we are committed to encouraging savings for a rainy day, whether that is an emergency fund or for retirement. A new report released by the Economic Policy Institute last month further brought into focus the current financial preparedness of the median American family.*  Most statistics seem to quote averages which is not always the most informative number. The median on the other hand is the midpoint of numbers by frequency, or the most common midpoint, and is not skewed by smaller numbers of people with larger account balances.

According to the study the average savings of all working-age families, defined as those between 32 and 61 years old, is $95,776. A closer look shows us that the median savings for the same group is just $5,000.  That number is beyond discouraging, it’s dismal.

In our opinion, the current state of financial unpreparedness requires immediate actions if families are to have the assets needed for emergencies, let alone retirement. The trends exhibited in the report paint a picture of increasingly inadequate savings and retirement income for successive generations of Americans—and growing disparities by income, race, ethnicity, education, and marital status. Women, who by some measures are narrowing gaps with men, remain much more vulnerable in retirement due to lower lifetime earnings and longer life expectancies.

The issue does not only strike less affluent populations. Those with six figure incomes can also have to deal with the inability to pay for unexpected expenses. ** Volatility in spending needs from month to month, coupled with the lack of sufficient savings, can create enormous stress about having enough to make monthly payments.

Our charge as Certified Financial Planners is to always make sure our clients are as prepared as possible for emergencies. We know the financial challenges each family faces can be very different, however, it is vital to start addressing financial concerns in a realistic way based on one’s circumstances. Rules of thumb can be helpful, but do not always layout easy to follow paths to reach goals. Focusing on goals you cannot realistically reach can be discouraging. Reading you should have ten times your annual income saved to retire can be overwhelming. Starting with realistic/achievable goals and successfully hitting, say six months of living expenses for an emergency fund can be much more productive than spinning your wheels.

Most investors have built their sums up over time with discipline. Those that are fortunate enough to inherit assets know that the family member that left them the assets did it bit by bit too. Doing the math and understanding how much one can realistically save based on realistic rates of return is the first step to building a sustainable financial future.

 

*Economic Policy Institute March 3, 2017
**Farrell, Diana and Greig, Fiona. “The Monthly Stress-Test on Family Finances.” JPMorgan Chase Institute, 2017.
Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

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