Upper Income
Bring Savings Rate in Line By Curbing Some Expenses
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Upper-income Americans suffer from some of the same problems as other families but may not know it.
Those near the top of the pay charts, with $104,700 in annual income, have more savings than those in middle-income brackets -- a median net worth of $311,100, to be precise, according to the Fed data. But it may not be enough to give them a comfortable retirement. They may, financial planners say, be lulled by their high incomes and comfortable lives into thinking they are better positioned for the long term than they are.
That's because the affluent in this category don't just earn more, they spend more. The typical family has $25,800 worth of vehicles, $10,000 more than the average family. They have a median of $11,000 in cash savings, but as a proportion of their incomes, that's only a little better rate of saving than all families.
Another example of spending more: vacation homes. Almost 20 percent of such families own a secondary residence, with a median value of $98,000. That strikes Charles Berk of UBS Financial Services Inc. as too high a proportion. "Most people focus on the first home and building up net worth as opposed to a vacation property," Berk said. A second home "can be a lot of fun, but for this family, if they have a car loan and kids they have to put through college, their financial assets are really quite low relative to their income."
Other planners note another wrinkle in the average affluent family's finances: About 16 percent of them own equity in a business. That could create interesting challenges -- and opportunities -- as family members head toward retirement. Those with a significant portion of their assets tied up in a business will need to find some way to turn it into a cash to meet living expenses as they age. With a median value of $100,000 for these stakes, many of them likely small businesses, holding a public offering on the New York Stock Exchange isn't exactly an option.
There's no single answer for that dilemma, but the experts suggested that those whose net worth is largely held in a family business start detailed planning far in advance of an expected retirement with qualified advisers.
