Typical Wealth Held by Those at the Verge of Retirement

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Abstract

A great way to assess how well adults have accumulated wealth is to look at their finances in the years shortly before they retire. We show wealth among households with an adult age 57–61 in 2004, using the Health and Retirement Study. This wealth snapshot highlights the extraordinary importance of Social Security, traditional pensions, and owner-occupied housing for typical near-retiree households today, which together comprise nearly four-fifths of wealth for middle quintile households on the verge of retirement.

Introduction

A great way to assess how well adults have accumulated wealth is to look at their finances in the years shortly before they retire. Here, we show wealth among households with an adult age 57–61 in 2004, using the Health and Retirement Study. We examine financial assets, home equity, retirement accounts, vehicles, property, and businesses as well as the present value of individuals’ future Social Security and pension benefits. We show mean per adult holdings for the middle quintile of the wealth distribution (wealth for married or partnered couples is divided by two).

Social Security and traditional pension benefits comprise a substantial share of wealth for typical near-retiree households (figure 1). Middle-quintile households have $151,000 in Social Security wealth per adult and $72,000 in pension wealth per adult. Together, Social Security and pensions account for nearly two-thirds of their $361,000 in total wealth.

At $61,000 per adult, owner-occupied housing is the next largest source of wealth for middle-quintile households. Retirement accounts, including individual retirement accounts and defined-contribution (DC) pensions, such as 401(k) plans, are $33,000 per adult. While DC plans have largely replaced traditional pensions for many younger workers in the private sector, traditional pensions are still the more important source of wealth for middle-quintile households near retirement today, as well as many public-sector workers. Middle-quintile households have $26,000 per adult in other assets, including vehicles, vacation homes, other property, and businesses. Holdings of financial wealth—bank accounts, CDs, stocks, bonds, and mutual funds—are just $18,000 per adult for typical households, about 5 percent of their total wealth.

This wealth snapshot highlights the extraordinary importance of Social Security, traditional pensions, and owner-occupied housing for typical near-retiree households today. Together, these assets comprise nearly four-fifths of wealth for middle quintile households on the verge of retirement.

(This publication is also available in PDF format.)

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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