Three ways to deal with a smaller nest egg

Post by YiLin Zhu on Jan. 20 2009

Article By Robert Powell

BOSTON (MarketWatch) -- It's not as if we need another survey to tell us what we already know. Given what's happened to our retirement accounts and home equity, none of us feel as wealthy as we did a year ago -- and that feeling is only backed up by the latest Survey of Consumer Finances.

But economists who pored over the SCF data said the typical American family is much worse off today than it was in 2004, if not before that. The typical (as in median) American family watched its net worth fall to $56,700 this year from $87,300 in 2007, according to the economists who pen the Baseline Scenario, an economics Web site. In 2004, it was $86,000.

According to estimates by the Baseline Scenario, the typical American family had assets in early 2009 of $160,600, including $125,400 in home equity (down from $150,000 in 2007), $17,900 in retirement accounts (down from $23,900 in 2007) and the rest in bank accounts and other physical assets. That same family in 2009 had liabilities of $103,900, including a $88,700 mortgage on a primary residence (the same as in 2007), $12,800 in installment loans (the same as in 2007), and $2,400 in credit card debt (the same as in 2007).

All those changes in net worth, mostly in assets rather than debt, happened at a time when household income remained about $47,000 from 2004 through 2009. "This current crisis has significantly reduced the assets that many households were counting on for retirement," said James Kwak, co-author of The Baseline Scenario. "If there is a silver lining in there somewhere, perhaps it is that people will focus more carefully on the amount of money that they need to save for retirement, and on ways to ensure that that money is there when they do retire."

So what should the average pre-retiree or retiree do, given what's happened to their net worth?

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