Ages 65 to 74 Gain Most in Assets;
Older Americans Control 25 Percent of Retirement Funds
(Rye, NY) – Americans grew wealthier last year with total household investable assets up 16 percent annually, and seniors ages 65 to 74 enjoyed the largest increase in aggregate wealth of any segment, according to the 2014 Portrait of U.S. Household Wealth: Market Sizing, Segmentation and Product Ownership by Hearts & Wallets, the preeminent financial research resource for understanding consumer savings and investing needs and behaviors.
Total U.S. investable household assets reached $41.2 trillion at year-end 2013, up from $35.4 trillion the prior year. Earlier increases from 2009 to 2012, ranged from around 12 percent to more than 5 percent as Americans slowly recovered from the Great Recession’s significant dent to household assets in 2008.
Investable assets, or those liquid monies about which consumers make investment decisions, are only part of the household balance sheet, which also includes accumulated pensions, real estate and, on the liabilities side, mortgage and consumer debt. In addition to the increase in investable assets, some households experienced an increase in stated household wealth thanks to an accounting change in the Federal Reserve’s Flow of Funds Defined Benefit pension accounting. Instead of funded benefit, promised benefit is now counted as household wealth, resulting in a more than $3 trillion wealth increase for government pensioners.
Growing Retirement Assets and Questions
Retirement savings grew to one third (33.7 percent) of all assets at $13.9 trillion with retirement assets of consumers age 65 to 74 rising from $2.3 trillion to $3.5 trillion, a new high. Retirement assets grew much faster from year-end 2012 to year-end 2013, increasing by nearly 17 percent from $11.9 trillion to $13.9 trillion, than at anytime since the Great Recession when retirement assets decreased from $10.5 trillion to $8.1 trillion.
IRAs strengthened their leadership position as the fastest growing and largest retirement asset, totaling nearly half (46.8 percent) of all retirement savings at $6.5 trillion. IRAs increased more than 20 percent in one year, up from $5.4 trillion in 2012. Private Defined Contribution (DC) showed strong 20 percent year-over-year growth, reaching $4.9 trillion.
“Rollovers out of employer plans into IRAs used to be the most important type of money movement in retirement assets, but now that the IRA category is so much bigger than DC, shifting IRAs from one firm to another is becoming more important,” Laura Varas, Hearts & Wallets partner and co-founder, said. “IRAs are highly mobile, and the ability to move them to access different services and products is a positive development for retail investors. The age of the consumer comes to retail investing, bringing with it a flurry of innovation that will improve lives.”
The Hearts & Wallets annual Portrait study sizes total investable assets (retirement and taxable assets) of households nationally by 48 age/asset segments with lifestage and behavior segmentation and projections. The mutually exclusive and collectively exhaustive analysis – scalable by investor age and asset segment – identifies trends in financial services accounts and products. Hearts & Wallets Investor Quant (IQ) database attitudes and behaviors can be layered for more sophisticated queries.
Boom in Affluent and High-Net-Worth Households
Americans moved up in asset segments in the $5 million-plus and $100,000 to under $2 million ranges. The $5 million-plus households now control $13.8 trillion with $4.3 trillion of the total $5.8 trillion gain. Almost one million households are in the $5 million-plus category. One in three are newcomers to the segment, moving up from the $2- to $3-million asset range with the market, most in the 65- to 74-age group. Households with $5 million-plus hold $4.3 trillion in stocks, up from $2.8 trillion last year. Households identified as “Affluent,” having more than $100,000 in investable assets, grew from about 31 million to 34 million households.
“Financial services firms have a great opportunity with high-net-worth households,” Chris J. Brown, Hearts & Wallets partner and co-founder, said. “Americans with more than $2 million in assets hold more stocks in taxable brokerage accounts than retirement accounts. They are smart and recognize the advantages of equity investing. Overall, Americans with the wealth or risk tolerance to invest in equities fared well this past year.”
Savings Goals and Shrinking Ranks of Pre/Post-Retirees
Households ages 45 to 64 with $100,000 to $250,000 in assets represent the largest age-wealth group within the Portrait of U.S. Household Wealth. Older households, ages 53 years and older, control most of U.S. households investable assets, totaling $30.8 trillion. Older investors who don’t intend to stop full-time work control $9.4 trillion, up from $7.6 trillion last year. Hearts & Wallets research shows these Americans are more influenced to save with a lifestyle control goal rather than a goal of retirement or stopping work. Most households ages 55-64 do not consider retirement a near-term option. Four out of five have not stopped full-time work.
Pre-Retiree households shrank by one million in the past year. Only 14 percent of households with a primary breadwinner ages 55 to 64 are Pre-Retirees, down from 17 percent. Many who are among this age bracket have returned to full-time work. The number of Post-Retirees also dropped. Last year, 36 percent described themselves as Post-Retirees. Only 28 percent did this year. Conversely, the Fully Employed Seniors segment grew.
“Given demographics, savings rates and equity allocations, the Hearts & Wallets model predicts that in 2020 assets, the biggest lifestages by assets will be Post-Retirees, Late Careers and Mid-Careers, who are ages 40 to 52,” Varas said. “Younger investors in their 20s and 30s and Fully Employed Seniors will show the fastest asset growth rates.”
Where’s the Retirement Income Market?
The retirement income market, defined as households ages 65 and older that take income at four percent or more and are interested in “retirement income solutions,” has reached $4.7 trillion or 11 percent of all U.S. household assets. Hearts & Wallets projects this market will reach 20 percent in 2020. But people who are still saving, not retirees, hold the bulk of retirement assets. And the trend of fewer people stopping work altogether introduces a downward pressure on the retirement income market.
“The first $100,000 in assets is a huge hurdle and big accomplishment for a household,” Brown said. “Financial services firms can help Americans achieve this important milestone through innovative products and services.”
Americans in their 30s and 20s are great savers with 7.0 percent of the 7.9 percent projected seven-year compound annual growth rate (CAGR) comes from factors other than population growth, such as savings behavior and new-found openness to equity investments. Many in this age segment can benefit from financial offerings to build the first $100,000 in assets.
About the Hearts & Wallets Study Methodology
The Hearts & Wallets 2014 Portrait of U.S. Household Wealth: Market Sizing, Segmentation and Product Ownership is drawn from the Hearts & Wallets Investor Quant (IQ) database and analysis of the Survey of Consumer Finances and U.S. Census data. The IQ database platform serves as the engine for Hearts & Wallets annual reports as well as emerging trend analysis and consists annually of more than 2 million data points from 85 families of savings and investment questions asked during 40-minute interviews of 5,500 U.S. households. The integrated database engine now consists of more than 30,000 U.S. households over five years.
About the Hearts & Wallets®
Hearts & Wallets LLC is the preeminent financial research resource for understanding savings and investing needs and behaviors of American households. More than half of the top 10 retail financial services firms, assets under management and investors served, subscribe to the Hearts & Wallets Investor Quant (IQ) database engine platform with data on 30,000 U.S. households over five years.
For more information, visit www.heartsandwallets.com.