A recent survey by the Federal Reserve shows what some experts are calling “a shocking decline in the average net worth of U.S. households from 2007 to 2010.” After adjusting for inflation, the Fed survey concluded that the average American family experienced a decline in their net worth of about 40 percent over that three year time frame.
In 2007, the average family had a net worth of about $126,400, according to the report. That same average family now has a net worth of only $77,300. About three-quarters of the loss in wealth is attributed to falling home prices, which are down by 40 percent or more in some parts of the country as a result of the housing bubble burst in 2007.
Despite the drop, home owners still fared better than average. The average home owner reported that their net worth fall by about 30 percent, declining from about $250,000 in 2007 to an average of about $175,000 in 2010.
“Savings wiped away” said research authors
According to experts, what is surprising about the report is that “in three years, 18 years of savings have been wiped away for the majority of the country and at the same time wages have fallen.” Falling wages make it more difficult to save.
The impacts on retirement are worrying. Financial advisers usually recommend withdrawing about 4 percent of your savings as income each year. For the average family in the survey, this means an income of about $3,100 a year, about $250 a month, is available to supplement Social Security benefits. For a couple drawing average Social Security benefits of about $1,100 a month, their annual income could be about $29,500 or about 65 percent of the average income of $46,000 a year.
Home owners would do much better with that rule. After the decline of the past few years, their net worth of $175,000 could yield income of $7,000 a year and replace almost three-fourths of the average income for workers which about the amount that most financial planners say retirees need.
That can be done if they can unlock the equity in their home. It’s possible with a reverse mortgage. A reverse mortgage has other benefits in addition to helping access that equity – there are no monthly payments required, which eases the burden of monthly living expenses. In addition, the cash can be used for anything, which for one, makes unforeseen emergencies manageable.
Home values may have fallen, but a home is still a valuable asset and could be the largest asset many families have. It is important to use all of your assets in retirement planning and a reverse mortgage could be very useful for many retirees.