“…but most Americans are well-prepared for their futures even ignoring Social Security.”
Grrrrr..
I’m with Bryan on *so* much of what he wrote here, but this claim is whack. Bryan is just awful on the math here, and deserves to be taken to the woodshed.
The idea that a median couple with $400K (mostly in home equity) total wealth and no Social Security is well prepared at 65 for a retirement that could last 30 years is just a failure of Bryan to do basic math.
A reverse mortgage rather than selling the house and moving into a cheaper rental shows even less basic math common sense, because it means home overconsumption and even less cash to pay for all other life expenses.
Even if we went beyond the 4% rule and used a 5% spending rate - and assumed said median household knew optimal portfolio allocation - you really want to claim that the average couple at retirement is “well-prepared” living on $20K per year?!?
And it would be much, much less than $20K if based on a reverse mortgage.
And all of the above is separate from the fact that the only reason Bryan can make the sketchy claim he does about “most” is because of government-provided Medicare, which is the real program bankrupting the country that is in far, far worse shape than Social Security.
I don’t claim to have all the answers, and I agree with Bryan on so much else here, but this claim about “most” being fine if Social Security vanished tomorrow is just… whack awful math.
[Addendum: ChatGPT tells me that a reverse mortgage on a $400K house would generate only about $12,000 annually in real income for a 65 year old couple entering into such a contract. (Yes in reality not all of the assets are home equity, so median reality would be a little better than what the $12K suggests. But the point stands.) Even without a mortgage to pay, the idea that said median Americans are “well-prepared for their futures even ignoring Social Security” don’t hunt.]
I already posted most of this response elsewhere, but I have to post it here where it is more visible:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
Evan, Caplan effectively said that $16K/year is more than enough to live on (for the last third of your life) in comfort. While renting. That is why I am calling him a charlatan, because unless he's a moron, he has to know that isn't true. And if he _isn't_ a moron, he's deliberately being disingenuous and insulting my intelligence.
Do you believe that $16K/year is more than enough to live on in comfort, Evan?
You: nobody is allowed to say $X is enough to live on unless they are ready to give up all wealth they have over $X
Me: "not willing to give up wealth over $X" does not imply "people cannot make it work, given only $X"
You: oh so you think $X is enough?
Me: sigh... another non-sequitur.
Look, your argument is stronger without the attempt to guilt trip the man. Just say "With only $X, I wouldn't be able to afford Y, and I consider Y necessary for a comfortable living".
Others have already done so. You just short circuited and lashed out emotionally.
I love the article in general but your point is unfortunately quite strong. I'd go further and argue that this is even true for most of the 75th percentile group with around a million in wealth. I do wonder about there about the option to sell everything and retire in a place like Vietnam with excellent, private healthcare and much let CoL. However, I don't think that's what Bryan had in mind
FWIW I accept Bryan’s point for the 75th percentile. His definition of “comfortably get by” is not “no sacrifice at all vs historical lifestyle”, so I’m more than happy to accept his point that the top 25% are indeed rich enough that they could indeed “get by” comfortably enough if their SS were simply vanished.
But no way this gets past maybe the 65th percentile at best, which is why his claim about “most” is just bad.
Agreed, it doesn't seem possible with reverse mortgage alone and no downsizing and honestly, even downsizing with $410k doesn't seem to be enough without social security. One thing that isn't covered is many government and private trade union pensions may not be in the above wealth numbers, so the median would be higher, but this isn't what Bryan intended.
Trying to make it work for the median 2022 couple, assumptions:
- $410,000 assets, of which $240,000 home, giving $80,000 reverse mortgage, meaning total $250k portfolio
- Die 20 years after retirement
- 2% inflation, 6% annual returns on portfolio
- $39,000 absolute minimum annual income needed for retired couple who owns their home.
There is no way they can withdraw $39,000 per year for 20 years, not even close. More like 18.5k year one and 27k year twenty.
Even if through some miracle of downsizing and reverse mortgage they start with $300k principal instead of $250k, they still will be nowhere close to the minimum needed for a couple.
No, you're not. I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, insults me). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on.
Scott Sumner over the years has written a lot of posts on wealth vs income vs consumption inequality and by age. A lot of the animosity towards high wealth people is really young spendthrifts being mad at old savers
Agree with everything you said, but I always have felt the major missing component here is the value of a year-of-life.
This is where the young are infinitely more wealthy than the old. You can do the math around a set of discounted QALYs to actually calculate this or you could just intuitively think about it - how much of their "net worth" would a 70 year old offer to be 20 again? This becomes particularly salient if you think about the longevity advances we are about to see. Any rational 70 year old deca-millionaire would give up almost every dollar to be a 20 year old again in 2026.
Re retirees not losing wealth - it’s investment growth and income combined with pension/SSA retirement income and frugal lifestyle. As a CPA of my acquaintance said years ago, his customers who retire with two millions of savings die with four.
I kinda worry about the future decades having a lost decade concluding with some 2008 event. $2 mil can disappear pretty quickly if the retiree isn’t careful to consider SORR and not assume another 15 yearish bull run.
But overall that is what I hear. Retirees spend a bit at the onset, break a hip or knee, spend less, then spend more to stay alive and be given care until they’re dead. If the withdrawals aren’t greater than the returns they absolutely die very wealthy.
Maybe it will create a counter-gerontocracy effect of people who had needed a steady income taking advantage of a seven or eight figure windfall to relieve themselves of their career obligations and retire early, opening up spots for Gen Z and the generation that follows to move up the ladder more quickly. I dunno, spitballing.
Yes I didnt find that point surprising. The challenge of retirement spending is you have to spend to protect downside risk, but doing this will result in under spending against your portfolio growth almost always.
Some people work hard, live frugally, save and invest, and by old age have become rich. They may make only token efforts to share their “good fortune” with others, but what one really wishes is that they could share their *virtue*.
Of course, they were the ones who were supposed to teach us virtue! All they did was teach us to want a lot of nice stuff but not how hard we had to work for it.
(Feel compelled to acknowledge the overgeneralization but still)
I think there needs to be some personal responsibility for hyper-consumers. At some point they have to stop chasing the shiny Gucci carrot and realize they are broke.
I grew up poor, with uneducated parents (still broke and struggling on SS income, having never invested) and I was on the same rough road they were on, until I decided to read and educate myself in my late 20's and early 30's. I'm not "wealthy" per se, but I'm firmly above the 75th percentile in my age group.
My mission in life was to give my kids what little knowledge I have and work ethic. All I can do is hope they have enough interest and discipline to save and invest for their futures. So far, so good. My daughter (Navy) will be 20 and has over $30K invested, while my son just turned 16 and starts his first job tomorrow. He already has over $13K in his custodial account. I've been criticized for investing their gift monies since they were babies, although I let them decide how much to invest when they were old enough to know how to spend their money.
One correction. In #3 you write, "Trade deficits represent borrowing." This is true empirically in the United States but it's not a necessity. Trade deficits can exist even with zero borrowing. Don Boudreaux, your co-author on your forthcoming book, can explain quickly.
I could be wrong, but I believe that "borrowing" is being used in a broad sense by Bryan. Since every transaction involves two sides (even gifts are exports/imports of "good will"), then if a country runs a trade deficit (imports > exports, of course) then we must be "trading" something else assuming the other countries are not giving the goods/services away for free. In this case, "capital account" items--basically, foreigners are acquiring more US assets, than are US residents acquiring foreign assets (that is, on net, a capital account surplus and current account deficit).
100% agree, but I guess what they all have in common is a claim on future income streams, so foreign purchase of bonds, stocks, land, firms.... all have in common a claim on the future income stream generated from that asset (interest, dividends, rent--explicit or implicit, profits...). My interpretation is only based on how macro textbooks write balance-of-payments accounts. But, yes, somewhat confusing for those not familiar with this practice.
If we have a deficit with China, and the Chinese use the entire amount of dollars to buy US assets, we are not borrowing. We are just selling assets. Or, it may be China is using the money to buy American goods and build new US assets.
It's really funny that Trump's whole thing is "we need to stop trade deficits!" and then he touts things like "I made a deal where Japan is going to buy $600 billion in American assets!" Bitch, I don't think you know what trade deficits are!
One can fault Trump for many things. And to be clear I don’t endorse his trade policy in toto.
But he is at least consistent when he does stuff like that.
Because what he is optimizing for is American jobs, and in particular American manufacturing jobs.
So getting foreign manufacturers to do direct investment in the U.S. and build things here is achieving the exact objective he is targeting.
Economists and others who cite only macro accounting numbers and treat foreign purchases of U.S. bonds or U.S. residential real estate as the same thing as an investment in U.S. factories that offer high-paying U.S. jobs are missing an important point. Because if nothing else, in a world with the Fed doing quantitative easing and all sorts of other things with the money supply, all foreign investments in U.S. assets are not actually alike.
To repeat, while there are many aspects of Trump’s trade policy I think are bad, the idea that foreign manufacturers’ direct foreign investment in the U.S. is anything but a good thing for Americans is imo completely wrong.
I'm sorry, but there is no configuration of the English language, logical reasoning or universal metaphysics that allows "I think this is the biggest problem and I love this thing that makes it worse" to be consistent.
"Median net worth peaks at about $400k, which is more than enough to live the last third of your life in comfort." I am skeptical that $400,000 in total assets is enough to live comfortably for 25 years.
It’s not at all. Bryan’s logic is complete and utter nonsense. Disqualifying. Bryan — can the median family cash out their assets and live on like $16k per year. Not at all.
Bryan wants to be the voice of reason but he approaches data with the same degree of bias he impugns others about.
More people should call him out on it. He comes across as a full-blown charlatan.
As I posted elsewhere:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
I'm 70 and I would NOT give up almost every dollar to be a 20 year-old again in 2026. It's a phony thought experiment. Do you mean 20 years old, but I know what I know now? Then sure, I'd have a great advantage. But if you mean go back to me being 20 and very inexperienced and unsure of myself? No, I don't think so . . . And it was much better to be 20 in 1976 than it is to be 20 in 2026.
Assuming you meant *top* 5% of incomes in a middle income country, you are directionally right but WAY off in terms of actual numbers.
Remember Bryan was citing *household* numbers (Primary Economic Unit, technically), *not* individual numbers.
A quick ChatGPT check shows that for middle income countries like Malaysia or China, $20K income might get you to the top 15% for individual income (still not top 5%), but would only put you in about the top 40%-50% for a household.
This is household, not personal net worth, right? And, certainly, ignoring tax liabilities for unrealized capital gains and for withdrawals (e.g., RMDs) from tax-deferred accounts?
Net worths are being compared to historical figures that are also based on households.
Couple of things worth adjusting for... one, the average household size has decreased since the 1950s by about 25% (from 2.89 to 2.50). So, per capita, that boosts household figures.
This immediately brought to mind the "two income trap" issue... but, much to my surprise, the average number of workers per household has ALSO FALLEN since the 1950s, by a small amount (<10%, falling from about 1.3 to about 1.2.) Though two married full time workers are more common, the fall is probably a result of a decrease in inter-generation households - young adult children living with still-working parents. There was also a greater proportion of women working pre-modern feminism than people usually think. So workers per household is actually another upward adjustment in per capita.
The two things together boost the PPP of the household figures about 20% relative to the 1950s when adjusting to per capita measurements.
100% on that former because it allows you to hide the useless eaters living with family. It's why household wealth is always the darling of people trying to show why poor people don't exist in America.
This is the most mind blowing chart I have seen this year. Definitely a keeper.
If I may quote my AI summary of the article though…
“American household wealth is vastly greater, and much more widely distributed through the upper-middle part of the population, than the standard “most Americans are financially desperate” narrative would lead you to believe. Wealth accumulation over the lifecycle is also enormous.
That is real and worth emphasizing. Where Caplan loses me is when he jumps from that excellent observation to “therefore liquidity problems are imaginary, almost everyone could become rich through frugality, and most elderly Americans don't need Social Security.” The SCF data establish the first story remarkably well. They do not establish the second one.”
I think that actual liquidity problems, which do exist, are maybe something that is under-remarked in this piece in an absolute sense, because its main purpose is to show that the liquidity problems are exaggerated. (I will point out that there are some feints towards what redistribution could accomplish if not direct prescriptions about it.)
As Caplan says, there are a hell of a lot of people who are, by any historical or even current standard, rich as hell, who act like they are struggling and/or being screwed over. They deserve their own glare, not a quick side-eye while we go back to focusing on the bottom third.
I'm not sure we will even be able to help the 10th or 25th percentile without the 75th realizing that it actually isn't struggling.
You are not wealthy if you can't afford to own your housing in a place you want to live - several hundred thousand in the bank doesn't necessarily solve this. You are not wealthy if a healthcare problem will bankrupt you. You are not wealthy if losing your job and being unemployed for a few months will bankrupt you.
The chart shows people are much wealthier than we thought. Whether this is quote unquote “wealthy” in a particular case according to your definition is a bit beside the point.
I can’t remotely afford to live where I would like in Rancho Santa Fe. Doesn’t mean I am not wealthy according to my definition.
Anyone without health insurance is playing a risky game. Seems you are describing irresponsibility rather than lack of wealth.
The chart is based on actual distribution. Those with temporary job losses are cooked in already.
Not sure what CPI has to do with the argument.
Guess I don’t really get your point. After reading this article, are you not surprised by how wealthy American families are?
The main issue is young people at the age where they're starting their families in their 20s and 30s. It's unsurprising that people in their 60s et al are doing fine, this is well known. The problems are for younger people who don't already have a home and need to find one in a place where there are also jobs.
Lack of healthcare isn't always a choice, and there are still costs people end up having to pay out of pocket because they're not covered.
And yet when we actually look into it, the young people are doing better than their parents at the same age. And when we zoom out further we see they are doing better than 95% of the people on earth. And when we zoom out even further we see that the 8 billion people alive today are almost an order of magnitude better off than the historic norm of less than $3 or 4 per day living standard.
Let me spell it out for you. Americans today are wealthier than anything seen since the advent of humanity. Not by a little. By a lot. And those failing to recognize this probably should not be considered as serious.
Wealth grows exponentially, while the value of money to a person grows logarithmically. If you are the type of person who can save and grow a million dollars, you probably aren't the type of person who can spend that money in a 20 year retirement. But those who could never imagine having 6 figures in their bank account, will spend any money quickly to reap whatever value they get from it immediately.
What kind of evaluation thinks that 400,000 is a lot of money in net worth? Median household income is about 84,000. Standard calc is that people use about 75% of that in retirement, ie 63,000. Earning that much per year in retirement requires anywhere from 800k-1.6m depending on rate of return (ignoring inflation). So if the median has NW of 400k then we’ve got a gap here, ignoring all of the other problems people have talked about.
I think maybe your eyes got pulled to the 75% which is legit doing well, and away from the actually tight reality at the median. And that 25% is exactly where the action has been for the last 40 years. You’re right that no one is “unable to afford gas” there, but that doesn’t mean they aren’t at the very least feeling downward mobile and fearful of a future that seems less stable than ever.
One made by a disingenuous charlatan. He's either that or truly a complete moron.
As I posted elsewhere:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
Poor people have a big asset actually---- government welfare. It should be added in to a separate account, but it equalizes things considerably, even though Medicare and Social Security are available to all incomes. What is their capitalized value?
I think you are overmarginalizing the lower 25%, much less the 10%. You build safety nets towards the 0.00..01%, not the average. You wear a safety helmet for when you need it, not all the times you don't.
Also not sure how they are counting networth but most of that is illiquid and intangible especially at the lower end, I.e. vehicle, clothes, frying pan, etc. Maybe you inherited a single wall shack, maybe you live in San Francisco, maybe you stole a car, etc, i.e. it's not accounting local costs.
As for #2, get out more, maybe try taking the city bus for six months, volunteer at a homeless shelter, work at Walmart or dollar store in a bad area for a spell, broaden your horizons. Millions of people don't do four hour commutes on city buses daily and work two jobs because they are "wealthy". Costco isn't your typical retail employer, your retail clerk working for the local Chinese liquor store owner or yogurt stand is. Costco is actually a pretty highly sought after job in the retail work sector, the equivalent of landing tenure at Harvard for those folk. Now I get your retort of "well those (nor you ) aren't middle class" but middle class is a cultural, not a monetary, distinction. But even if we were going with money, it's about expendable income, NOT networth because an inherited three million dollar single walled shack in Honolulu with holes in the roof doesn't do you any good, you have to live somewhere, I.e. the farmer problem of high assets, low income.
I'm a middle aged middle class (culturally) American, my expendable income is $225 a month which I use to supplement my diet of beans and rice seven days a week for years with things like onions, Soylent (for nutrients), and treating myself to Taco Bell once a month. Nearly all my food comes from food pantries which I visit three times a week. I can't afford meat, eggs, or gas. I haven't eaten meat now (more than three times a year which i meticulously save for for holidays) in nearly five years because of the price, eggs aren't worth the nutrient per dollar, and being able to afford gas implies you can afford a car which of course, I can't. To eat a cheap steak properly, I'd have to forgo nearly a weeks worth of food. Likewise you have to be able to afford a car to even have a $1000 dollar repair. If I were to go to the pawn shop / Craigslist and sell everything I own except the clothes on my back, I'd probably walk away with $500; as of a couple minutes ago I have $2364.35 in the bank (that includes all accounts including retirement) which is high because some bills haven't cleared yet so I guess in my fifties I have a "net worth" of about $3000.
Yes I get exceptions don't make the rule but the thing is, I know plenty of people in similar boats, that's a whole lot of exceptions. I'm not disagreeing Americans are richer than they think, but I think you are intentionally downplaying the low end to push (understandably) a positive narrative.
10% of Americans is still 1-in-10 people you see, 25% 1-in-4 though yeah I get distribution groupings so people like you can go your entire life and never see them, or maybe not more than 1-10,000 blue moon when you accidentally make a wrong turn or have to go “to the city”. Society is there is provide nets, not attaboys to those that don't need them.
“…but most Americans are well-prepared for their futures even ignoring Social Security.”
Grrrrr..
I’m with Bryan on *so* much of what he wrote here, but this claim is whack. Bryan is just awful on the math here, and deserves to be taken to the woodshed.
The idea that a median couple with $400K (mostly in home equity) total wealth and no Social Security is well prepared at 65 for a retirement that could last 30 years is just a failure of Bryan to do basic math.
A reverse mortgage rather than selling the house and moving into a cheaper rental shows even less basic math common sense, because it means home overconsumption and even less cash to pay for all other life expenses.
Even if we went beyond the 4% rule and used a 5% spending rate - and assumed said median household knew optimal portfolio allocation - you really want to claim that the average couple at retirement is “well-prepared” living on $20K per year?!?
And it would be much, much less than $20K if based on a reverse mortgage.
And all of the above is separate from the fact that the only reason Bryan can make the sketchy claim he does about “most” is because of government-provided Medicare, which is the real program bankrupting the country that is in far, far worse shape than Social Security.
I don’t claim to have all the answers, and I agree with Bryan on so much else here, but this claim about “most” being fine if Social Security vanished tomorrow is just… whack awful math.
[Addendum: ChatGPT tells me that a reverse mortgage on a $400K house would generate only about $12,000 annually in real income for a 65 year old couple entering into such a contract. (Yes in reality not all of the assets are home equity, so median reality would be a little better than what the $12K suggests. But the point stands.) Even without a mortgage to pay, the idea that said median Americans are “well-prepared for their futures even ignoring Social Security” don’t hunt.]
I already posted most of this response elsewhere, but I have to post it here where it is more visible:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
Your challenge to Caplan makes no sense. "Enough to live on" is not saying "zero benefits to having even more."
Evan, Caplan effectively said that $16K/year is more than enough to live on (for the last third of your life) in comfort. While renting. That is why I am calling him a charlatan, because unless he's a moron, he has to know that isn't true. And if he _isn't_ a moron, he's deliberately being disingenuous and insulting my intelligence.
Do you believe that $16K/year is more than enough to live on in comfort, Evan?
Please define “enough” and then give me the excess.
You: nobody is allowed to say $X is enough to live on unless they are ready to give up all wealth they have over $X
Me: "not willing to give up wealth over $X" does not imply "people cannot make it work, given only $X"
You: oh so you think $X is enough?
Me: sigh... another non-sequitur.
Look, your argument is stronger without the attempt to guilt trip the man. Just say "With only $X, I wouldn't be able to afford Y, and I consider Y necessary for a comfortable living".
Others have already done so. You just short circuited and lashed out emotionally.
I love the article in general but your point is unfortunately quite strong. I'd go further and argue that this is even true for most of the 75th percentile group with around a million in wealth. I do wonder about there about the option to sell everything and retire in a place like Vietnam with excellent, private healthcare and much let CoL. However, I don't think that's what Bryan had in mind
FWIW I accept Bryan’s point for the 75th percentile. His definition of “comfortably get by” is not “no sacrifice at all vs historical lifestyle”, so I’m more than happy to accept his point that the top 25% are indeed rich enough that they could indeed “get by” comfortably enough if their SS were simply vanished.
But no way this gets past maybe the 65th percentile at best, which is why his claim about “most” is just bad.
Agreed, it doesn't seem possible with reverse mortgage alone and no downsizing and honestly, even downsizing with $410k doesn't seem to be enough without social security. One thing that isn't covered is many government and private trade union pensions may not be in the above wealth numbers, so the median would be higher, but this isn't what Bryan intended.
Trying to make it work for the median 2022 couple, assumptions:
- $410,000 assets, of which $240,000 home, giving $80,000 reverse mortgage, meaning total $250k portfolio
- Die 20 years after retirement
- 2% inflation, 6% annual returns on portfolio
- $39,000 absolute minimum annual income needed for retired couple who owns their home.
There is no way they can withdraw $39,000 per year for 20 years, not even close. More like 18.5k year one and 27k year twenty.
Even if through some miracle of downsizing and reverse mortgage they start with $300k principal instead of $250k, they still will be nowhere close to the minimum needed for a couple.
Am I missing something?
No, you're not. I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, insults me). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on.
Scott Sumner over the years has written a lot of posts on wealth vs income vs consumption inequality and by age. A lot of the animosity towards high wealth people is really young spendthrifts being mad at old savers
Agree with everything you said, but I always have felt the major missing component here is the value of a year-of-life.
This is where the young are infinitely more wealthy than the old. You can do the math around a set of discounted QALYs to actually calculate this or you could just intuitively think about it - how much of their "net worth" would a 70 year old offer to be 20 again? This becomes particularly salient if you think about the longevity advances we are about to see. Any rational 70 year old deca-millionaire would give up almost every dollar to be a 20 year old again in 2026.
Great point!
Re retirees not losing wealth - it’s investment growth and income combined with pension/SSA retirement income and frugal lifestyle. As a CPA of my acquaintance said years ago, his customers who retire with two millions of savings die with four.
I kinda worry about the future decades having a lost decade concluding with some 2008 event. $2 mil can disappear pretty quickly if the retiree isn’t careful to consider SORR and not assume another 15 yearish bull run.
But overall that is what I hear. Retirees spend a bit at the onset, break a hip or knee, spend less, then spend more to stay alive and be given care until they’re dead. If the withdrawals aren’t greater than the returns they absolutely die very wealthy.
The Great Inheritance of the 2030s and 40s is going to have weird effects and produce its own strange of form intra-middle class inequality.
Not THAT weird I hope. And to be honest, I hope the retirees spend a bit more instead of aiming to bequeath a retirement to their kids.
Maybe it will create a counter-gerontocracy effect of people who had needed a steady income taking advantage of a seven or eight figure windfall to relieve themselves of their career obligations and retire early, opening up spots for Gen Z and the generation that follows to move up the ladder more quickly. I dunno, spitballing.
Yes I didnt find that point surprising. The challenge of retirement spending is you have to spend to protect downside risk, but doing this will result in under spending against your portfolio growth almost always.
Some people work hard, live frugally, save and invest, and by old age have become rich. They may make only token efforts to share their “good fortune” with others, but what one really wishes is that they could share their *virtue*.
Of course, they were the ones who were supposed to teach us virtue! All they did was teach us to want a lot of nice stuff but not how hard we had to work for it.
(Feel compelled to acknowledge the overgeneralization but still)
I am officially calling out your overgeneralization!
James clearly wrote "some" not "all" or "most."
So your point "All they did was teach us to want a lot of nice stuff but not how hard we had to work for it" is not valid.
The "some" lived frugally rather than buy a lot of stuff. They are the ones to emulate if you are a slightly above average saver/worker.
There are certainly some who spend a lot on nice stuff, whatever your definition of "nice" may be.
I accept and appreciate the criticism of the overgeneralization. It drives me crazy when other people do it. Problem with trying to "write strongly."
I think there needs to be some personal responsibility for hyper-consumers. At some point they have to stop chasing the shiny Gucci carrot and realize they are broke.
I grew up poor, with uneducated parents (still broke and struggling on SS income, having never invested) and I was on the same rough road they were on, until I decided to read and educate myself in my late 20's and early 30's. I'm not "wealthy" per se, but I'm firmly above the 75th percentile in my age group.
My mission in life was to give my kids what little knowledge I have and work ethic. All I can do is hope they have enough interest and discipline to save and invest for their futures. So far, so good. My daughter (Navy) will be 20 and has over $30K invested, while my son just turned 16 and starts his first job tomorrow. He already has over $13K in his custodial account. I've been criticized for investing their gift monies since they were babies, although I let them decide how much to invest when they were old enough to know how to spend their money.
Excellent, excellent post!
One correction. In #3 you write, "Trade deficits represent borrowing." This is true empirically in the United States but it's not a necessity. Trade deficits can exist even with zero borrowing. Don Boudreaux, your co-author on your forthcoming book, can explain quickly.
I could be wrong, but I believe that "borrowing" is being used in a broad sense by Bryan. Since every transaction involves two sides (even gifts are exports/imports of "good will"), then if a country runs a trade deficit (imports > exports, of course) then we must be "trading" something else assuming the other countries are not giving the goods/services away for free. In this case, "capital account" items--basically, foreigners are acquiring more US assets, than are US residents acquiring foreign assets (that is, on net, a capital account surplus and current account deficit).
Could be.
But it's strange to use the word "borrowing" that way. When I buy a house from someone, we don't say that he borrowed it.
100% agree, but I guess what they all have in common is a claim on future income streams, so foreign purchase of bonds, stocks, land, firms.... all have in common a claim on the future income stream generated from that asset (interest, dividends, rent--explicit or implicit, profits...). My interpretation is only based on how macro textbooks write balance-of-payments accounts. But, yes, somewhat confusing for those not familiar with this practice.
If we have a deficit with China, and the Chinese use the entire amount of dollars to buy US assets, we are not borrowing. We are just selling assets. Or, it may be China is using the money to buy American goods and build new US assets.
It's really funny that Trump's whole thing is "we need to stop trade deficits!" and then he touts things like "I made a deal where Japan is going to buy $600 billion in American assets!" Bitch, I don't think you know what trade deficits are!
One can fault Trump for many things. And to be clear I don’t endorse his trade policy in toto.
But he is at least consistent when he does stuff like that.
Because what he is optimizing for is American jobs, and in particular American manufacturing jobs.
So getting foreign manufacturers to do direct investment in the U.S. and build things here is achieving the exact objective he is targeting.
Economists and others who cite only macro accounting numbers and treat foreign purchases of U.S. bonds or U.S. residential real estate as the same thing as an investment in U.S. factories that offer high-paying U.S. jobs are missing an important point. Because if nothing else, in a world with the Fed doing quantitative easing and all sorts of other things with the money supply, all foreign investments in U.S. assets are not actually alike.
To repeat, while there are many aspects of Trump’s trade policy I think are bad, the idea that foreign manufacturers’ direct foreign investment in the U.S. is anything but a good thing for Americans is imo completely wrong.
I'm sorry, but there is no configuration of the English language, logical reasoning or universal metaphysics that allows "I think this is the biggest problem and I love this thing that makes it worse" to be consistent.
"Median net worth peaks at about $400k, which is more than enough to live the last third of your life in comfort." I am skeptical that $400,000 in total assets is enough to live comfortably for 25 years.
It’s not at all. Bryan’s logic is complete and utter nonsense. Disqualifying. Bryan — can the median family cash out their assets and live on like $16k per year. Not at all.
Bryan wants to be the voice of reason but he approaches data with the same degree of bias he impugns others about.
More people should call him out on it. He comes across as a full-blown charlatan.
As I posted elsewhere:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
I'm 70 and I would NOT give up almost every dollar to be a 20 year-old again in 2026. It's a phony thought experiment. Do you mean 20 years old, but I know what I know now? Then sure, I'd have a great advantage. But if you mean go back to me being 20 and very inexperienced and unsure of myself? No, I don't think so . . . And it was much better to be 20 in 1976 than it is to be 20 in 2026.
Please tell me how to make $400k fund a retirement. I would sleep much more soundly at night if I believed that were possible.
It is entirely possible, go live in the third world. 20k$ a year is 5th percentile in even middle income countries.
Assuming you meant *top* 5% of incomes in a middle income country, you are directionally right but WAY off in terms of actual numbers.
Remember Bryan was citing *household* numbers (Primary Economic Unit, technically), *not* individual numbers.
A quick ChatGPT check shows that for middle income countries like Malaysia or China, $20K income might get you to the top 15% for individual income (still not top 5%), but would only put you in about the top 40%-50% for a household.
Heh. I only looked at Brazil's individual income for numbers.
This is household, not personal net worth, right? And, certainly, ignoring tax liabilities for unrealized capital gains and for withdrawals (e.g., RMDs) from tax-deferred accounts?
Net worths are being compared to historical figures that are also based on households.
Couple of things worth adjusting for... one, the average household size has decreased since the 1950s by about 25% (from 2.89 to 2.50). So, per capita, that boosts household figures.
This immediately brought to mind the "two income trap" issue... but, much to my surprise, the average number of workers per household has ALSO FALLEN since the 1950s, by a small amount (<10%, falling from about 1.3 to about 1.2.) Though two married full time workers are more common, the fall is probably a result of a decrease in inter-generation households - young adult children living with still-working parents. There was also a greater proportion of women working pre-modern feminism than people usually think. So workers per household is actually another upward adjustment in per capita.
The two things together boost the PPP of the household figures about 20% relative to the 1950s when adjusting to per capita measurements.
100% on that former because it allows you to hide the useless eaters living with family. It's why household wealth is always the darling of people trying to show why poor people don't exist in America.
This is the most mind blowing chart I have seen this year. Definitely a keeper.
If I may quote my AI summary of the article though…
“American household wealth is vastly greater, and much more widely distributed through the upper-middle part of the population, than the standard “most Americans are financially desperate” narrative would lead you to believe. Wealth accumulation over the lifecycle is also enormous.
That is real and worth emphasizing. Where Caplan loses me is when he jumps from that excellent observation to “therefore liquidity problems are imaginary, almost everyone could become rich through frugality, and most elderly Americans don't need Social Security.” The SCF data establish the first story remarkably well. They do not establish the second one.”
I think that actual liquidity problems, which do exist, are maybe something that is under-remarked in this piece in an absolute sense, because its main purpose is to show that the liquidity problems are exaggerated. (I will point out that there are some feints towards what redistribution could accomplish if not direct prescriptions about it.)
As Caplan says, there are a hell of a lot of people who are, by any historical or even current standard, rich as hell, who act like they are struggling and/or being screwed over. They deserve their own glare, not a quick side-eye while we go back to focusing on the bottom third.
I'm not sure we will even be able to help the 10th or 25th percentile without the 75th realizing that it actually isn't struggling.
You are not wealthy if you can't afford to own your housing in a place you want to live - several hundred thousand in the bank doesn't necessarily solve this. You are not wealthy if a healthcare problem will bankrupt you. You are not wealthy if losing your job and being unemployed for a few months will bankrupt you.
CPI doesn't really capture all these nuances.
The chart shows people are much wealthier than we thought. Whether this is quote unquote “wealthy” in a particular case according to your definition is a bit beside the point.
I can’t remotely afford to live where I would like in Rancho Santa Fe. Doesn’t mean I am not wealthy according to my definition.
Anyone without health insurance is playing a risky game. Seems you are describing irresponsibility rather than lack of wealth.
The chart is based on actual distribution. Those with temporary job losses are cooked in already.
Not sure what CPI has to do with the argument.
Guess I don’t really get your point. After reading this article, are you not surprised by how wealthy American families are?
The main issue is young people at the age where they're starting their families in their 20s and 30s. It's unsurprising that people in their 60s et al are doing fine, this is well known. The problems are for younger people who don't already have a home and need to find one in a place where there are also jobs.
Lack of healthcare isn't always a choice, and there are still costs people end up having to pay out of pocket because they're not covered.
And yet when we actually look into it, the young people are doing better than their parents at the same age. And when we zoom out further we see they are doing better than 95% of the people on earth. And when we zoom out even further we see that the 8 billion people alive today are almost an order of magnitude better off than the historic norm of less than $3 or 4 per day living standard.
Let me spell it out for you. Americans today are wealthier than anything seen since the advent of humanity. Not by a little. By a lot. And those failing to recognize this probably should not be considered as serious.
This is not true in terms of housing. Housing affordability as a function of median income has gotten worse.
Wealth grows exponentially, while the value of money to a person grows logarithmically. If you are the type of person who can save and grow a million dollars, you probably aren't the type of person who can spend that money in a 20 year retirement. But those who could never imagine having 6 figures in their bank account, will spend any money quickly to reap whatever value they get from it immediately.
What kind of evaluation thinks that 400,000 is a lot of money in net worth? Median household income is about 84,000. Standard calc is that people use about 75% of that in retirement, ie 63,000. Earning that much per year in retirement requires anywhere from 800k-1.6m depending on rate of return (ignoring inflation). So if the median has NW of 400k then we’ve got a gap here, ignoring all of the other problems people have talked about.
I think maybe your eyes got pulled to the 75% which is legit doing well, and away from the actually tight reality at the median. And that 25% is exactly where the action has been for the last 40 years. You’re right that no one is “unable to afford gas” there, but that doesn’t mean they aren’t at the very least feeling downward mobile and fearful of a future that seems less stable than ever.
One made by a disingenuous charlatan. He's either that or truly a complete moron.
As I posted elsewhere:
I was inclined to like this article in the beginning but the more I read it, the more Caplan grinds my gears. Because either he's truly an idiot (I am close to certain he isn't) or he's taking his audience to be idiots (which, obviously, I find insulting). He most definitely has wealth that is far more than $400K. Yet he claims that $16K/year (4% of $400K, renting as well, mind you, as most median households would have to liquidate the house they own to access that $400K) is far more than enough to live on. I feel compelled to say to Caplan: Unless you yourself are willing to give away your wealth until it's no more than $400K, you should just kindly STFU.
Poor people have a big asset actually---- government welfare. It should be added in to a separate account, but it equalizes things considerably, even though Medicare and Social Security are available to all incomes. What is their capitalized value?
I think you are overmarginalizing the lower 25%, much less the 10%. You build safety nets towards the 0.00..01%, not the average. You wear a safety helmet for when you need it, not all the times you don't.
Also not sure how they are counting networth but most of that is illiquid and intangible especially at the lower end, I.e. vehicle, clothes, frying pan, etc. Maybe you inherited a single wall shack, maybe you live in San Francisco, maybe you stole a car, etc, i.e. it's not accounting local costs.
As for #2, get out more, maybe try taking the city bus for six months, volunteer at a homeless shelter, work at Walmart or dollar store in a bad area for a spell, broaden your horizons. Millions of people don't do four hour commutes on city buses daily and work two jobs because they are "wealthy". Costco isn't your typical retail employer, your retail clerk working for the local Chinese liquor store owner or yogurt stand is. Costco is actually a pretty highly sought after job in the retail work sector, the equivalent of landing tenure at Harvard for those folk. Now I get your retort of "well those (nor you ) aren't middle class" but middle class is a cultural, not a monetary, distinction. But even if we were going with money, it's about expendable income, NOT networth because an inherited three million dollar single walled shack in Honolulu with holes in the roof doesn't do you any good, you have to live somewhere, I.e. the farmer problem of high assets, low income.
I'm a middle aged middle class (culturally) American, my expendable income is $225 a month which I use to supplement my diet of beans and rice seven days a week for years with things like onions, Soylent (for nutrients), and treating myself to Taco Bell once a month. Nearly all my food comes from food pantries which I visit three times a week. I can't afford meat, eggs, or gas. I haven't eaten meat now (more than three times a year which i meticulously save for for holidays) in nearly five years because of the price, eggs aren't worth the nutrient per dollar, and being able to afford gas implies you can afford a car which of course, I can't. To eat a cheap steak properly, I'd have to forgo nearly a weeks worth of food. Likewise you have to be able to afford a car to even have a $1000 dollar repair. If I were to go to the pawn shop / Craigslist and sell everything I own except the clothes on my back, I'd probably walk away with $500; as of a couple minutes ago I have $2364.35 in the bank (that includes all accounts including retirement) which is high because some bills haven't cleared yet so I guess in my fifties I have a "net worth" of about $3000.
Yes I get exceptions don't make the rule but the thing is, I know plenty of people in similar boats, that's a whole lot of exceptions. I'm not disagreeing Americans are richer than they think, but I think you are intentionally downplaying the low end to push (understandably) a positive narrative.
10% of Americans is still 1-in-10 people you see, 25% 1-in-4 though yeah I get distribution groupings so people like you can go your entire life and never see them, or maybe not more than 1-10,000 blue moon when you accidentally make a wrong turn or have to go “to the city”. Society is there is provide nets, not attaboys to those that don't need them.