Now Wonder The US Population Retires So Late In Life
Here is a quick fact: the average U.S. household made $66,877 of gross income in 2014. Gross, meaning before tax. The average household also has 1.6 income earners. This means that 1 person works full-time and another person works 60% of full-time or any combination that makes up that ratio.
Here is where it gets interesting. The same average U.S. household also spent $53,495. At first you might think, big deal, they still have $13,382 left… not bad. But… the first number ($67k) was gross and doing a quick calculation using my favorite online tax calculator yielded an after-tax income of $55,876.
This means that the average U.S. households has a disposable income of $2,381 a year. Scary, sad and eye-opening. That’s $198/mo that can be stashed away and invested or used as an emergency fund. And frankly, if a household is living on such tight margins then emergencies happen probably every month.
Breakdown By Age
I’m a nerd so I enjoy looking up these statistics. My source, by the way, is the U.S. Bureau of Labor Statistics. I looked up how the income/expense levels change based on age group and I was able to find that as well.
I know you hate charts and if you don’t you should but this one is really simple. Each age group represents a household income and a household expense for 2013 (haven’t found the 2014 data yet).Each age group represent a household which is generally 1.6 income earners most of which have kids.
So around age 35-64 it appears that the average U.S. household wises up and their income to expense ratios increase. For this age range the average household income is $77,148 while the average household expenses is around $58,400. Again, the income is a before-tax value so conservatively the after-tax (net) income is $63,475.
With an average net income of $63,475 for this age group it means that the average household is left with $5,075 for the year. I should add, that the way the BLS does this survey, one of the expense categories is cash contributions. This is on average $1,800 per household. I will add that to the $5,075 and we get a total disposable income per household of around $6,875/year = $573/month.
What About The Income?
$77k of gross income is pretty sweet. For those of you living in major metropolitan cities it might not seem like much but the majority of Americans do not live in Los Angeles, SF or NY. Their $63k of net income comes out to $5,290/mo. which is damn good income. Not to mention that due to the tax code penalizing those with higher incomes the average U.S. household get to keep 82% of their income while the average doctor gets to keep somewhere around 58% of their income.
What About The Expenses?
Most families have pets based on the stats reported and the average household has 2.1+ cars. Again, WTF?! Not 1, not 2 but 2+… enough said about that.
- Food expenses are around $563/mo (41% is eating out)
- Housing expenses are $1,483/mo (58% have mortgages)
- Clothing expenses are $149/mo
- Transportation comes out to $756/mo (27% of this is gasoline)
- Healthcare expenses are $358/mo (69% is health insurance)
- Entertainment is reported at $227/mo
- Miscellaneous expenses are $296/mo
These are self reported expenses so right off the bat I call bullshit on entertainment and I call bullshit on food expenses. I believe that food expenses are higher and a higher percentage of food is eaten out. Most cell phones and home cable and extra cars should go under the entertainment budget and I have a feeling the miscellaneous holds most of that.
What Would A Financial Adviser Advise?
I don’t know, I’m not a FA but I’ve worked with a lot who have beaten me down into this efficient saving machine. They have scrutinized my expenses and my savings goals.
For the average american $1,500 on housing expenses is an insane amount. I know those of you living in LA and SF are rolling on the floor but I did a month-long rotation in Jacksonville Florida – ‘nuf said.
My good friend taught in a tiny city in Arkansas just a few years ago and for $400/mo she was living in a beautiful and spacious house (not apartment).
$150/mo on clothes is just too much. Buying used or not buying are 2 solid options… I’d generally lean more towards the former. I understand that clothing with kids gets expensive but those too can be purchased used.
You know I’m gonna take a massive dump on that transportation budget. Sure, if you have to negotiate contracts on another continent once a month face-to-face with your Korean counterparts then by all means, spend that $756/mo and don’t feel bad. But… and a big fat hairy butt… $756/mo is spent on 2+ cars which gives me diarrhea just thinking about it.
And, since this household will move closer to work in a cheaper place and get rid of 1.5 cars and start bicycling their health will improve which bring us to the next item, healthcare. $239/mo is what the average U.S. household spends on health insurance, the other $119 is spent on what? Possibly dental care, vitamins, supplements, office visits etc.
How Do Doctor Households Compare?
I would say that if the income went up proportionally then the savings rate for physician households would probably be about the same. If a household of docs makes $300k a year then I doubt that they would have more than $2,500/mo to invest/save.