Who is the "average American?" What does she (there are more females than males in the United States) look like? What's her life like? Is she happy, or desperately depressed?
In truth, it's impossible to answer any of these questions, because no such person exists. No matter what, whenever you have a sample of more than one, it's mathematically impossible not to get an average. But we get into a lot of mental trouble when we try to compare ourselves to this mythical person.
Why even bring this up? Because when writing articles like this, I think it's important to keep in mind that comparing yourself to the average isn't that useful. I used to title articles such as this "How do you compare?" I've stopped doing that. There are millions of different variables affecting every person's life. Seeing how you compare to the average doesn't take any of these variables into account. It means almost nothing.
So why look at the averages at all?
For the purposes of this article, I think it's worth looking at such averages because of the trends that they show as we age. For some of us, it's difficult to imagine what our financial life might look like in the future. This can make drawing up a simple financial plan very difficult.
One way to help ground our assumptions is to check and see how the rest of our peers' behaviors change over time -- while accepting that the same might not be the case for us. Will we spend more on food in retirement? What about healthcare costs? These are questions worth considering.
If nothing else, looking at the averages gives us a starting point.
The average American's earnings and spending in 2014
Using data from the U.S. Census Bureau, here's how much the average American household earned -- after-taxes -- in 2014, and how the average household spent.
It's important to note that these are means, not medians -- which means that those who earn a lot, and those who have a lot of expenditures (particularly healthcare costs for the elderly) -- pull the numbers up disproportionately. Providing the median would be more precise, but is not provided in this format by the Bureau of Labor Statistics.
But again, the absolute numbers should mean little to you. Instead, it's much more valuable to look at the trends. Particularly, that both earnings and expenditures peak between the ages of 35 and 54. Of equal importance, the mean household isn't able to put away much money at all after the age of 65 -- important motivation to start saving as soon as you can.
Of course, your situation could be different, but this gives you a general idea.
Out of all the things we spend money on, none take up more than housing (33.3% of all expenditures), transportation (17%), food (12.6%), and healthcare (8%). But as we age, our life situations change drastically -- kids are born, grow up, and move out -- as do spending on these categories.
Again, if you're looking to get an idea of how much they change, here's how spending in these four key areas changed over time for households of different ages in 2014.
While this data is prone to the same skewedness as the chart above, there are important trends to note:
- Housing trends dip after the age of 45, as some end up owning their homes outright, and others realize the gains that come with fixed-rate mortgages while inflation continues to rise.
- Transportation costs increase dramatically as the size of the average household grows, but fall just as precipitously when (presumably) children move out.
- Contrary to the popular belief that retirees end up spending more on food because they eat out more, such expenses drop over 35% from age 55 to age 75.
- As expected, healthcare costs continue to rise as you age, only dipping slightly for those over 75.
What does this all mean for you?
This is an impossible question to answer. As I said at the beginning, each individual has unique circumstances -- both financial and otherwise -- and there's no one-size-fits all approach.
Instead, if you're looking to make financial decisions now that will affect your life for decades into the future, I encourage you to consider these trends when making your projections. Doing so could help you make informed decisions that put you in a position of strength -- both before and after retirement time comes along.