Households with $5 million-plus in investable assets grabbed over 80% of the COVID market runup, while mass affluent households with $100,000 to $500,000 declined significantly in number over the same time period, according to a new market sizing report by Hearts & Wallets.
In 2019, mass affluent wealth groups in the $100,000-$500,000 range included 25.3 million households who controlled $7.5 trillion. In 2020, these wealth groups dropped to 21.9 million households with $5.6 trillion, resulting in a one-year decline of 3.6 million households and $1.9 trillion fewer investable assets controlled.
What happened?
According to the Hearts & Wallets report, many households in the mass affluent wealth group in 2019 moved into higher wealth groups with boosts from saving and equity exposure during the extraordinary COVID market runup. But fewer households in asset groups below the mass affluent moved up to replenish the mass affluent than in prior years. This lack of upward mobility was mainly because these households could not save enough or had little or no exposure to equities.
“Wealth groups often referred to as mass affluent took a major hit over the past 18 months as the COVID market runup polarized wealth concentration in America,” said Laura Varas, CEO and founder of Hearts & Wallets. “Simplified investment solutions could encourage the mass affluent to engage with the capital markets.”
Rich get richer—and older
Nearly 80% of wealth ($53.8 trillion) is held by about 10% of U.S. households with $1M-plus (11.2 million), as of August 2020. While the $29 trillion increase in retail investable assets over the past 7 years was spread across households with $500,000 and up, over 80% of the COVID market runup of $12.7 trillion, ($10.3 trillion) went to households with $5 million-plus.
These assets are heavily concentrated among ages 55 to 74 because most households with $5 million-plus are in this age group. These older, wealthier households control $40.2 trillion of the $68.3 trillion, or nearly two thirds (59%) of all U.S. retail investable assets. The 1% of U.S. households who are older (ages 55 to 74) and wealthy ($5 million-plus) control 32% of all U.S. retail investable assets.
Inheritance myth and aging challenges
Looking ahead, the fastest-growing age group is 75-plus. Households in this age group will increase by 40% to 20.8 million in 2030, up from 14.9 million in 2020. By 2030, households age 75-plus will be 15% vs. 12% of all households in 2020.
“A common myth is that inheritances will go from Boomers to Millennials, when the reality is the majority of wealth transition will go from the Silent Generation to their Gen X heirs,” said Amber Katris, Hearts & Wallets Subject Matter Expert. “Older households and their families can benefit from support to have difficult conversations about finances and from financial solutions to support aging family members.”
IRAs outpacing DC plans?
The report also found IRAs ($12.1 trillion) make up the biggest component of consumer-controlled retirement assets while it slots defined contribution assets at $9.6 trillion. The data shows IRAs have grown faster than DC assets over the past 5 years (10.6% vs. 8.8%).
Within the one-third of total retail investable assets in consumer-controlled retirement registrations, IRAs are 49%, DC 39% and annuities 12%.
Investable assets compose 61% of total household wealth, according to the study. Other components of wealth include net equity in real estate (19%), future pension benefits (9%) and non-corporate businesses (12%) with real estate growing fastest over the past five years (10.9%), outpacing investable assets (9.6%).
“These polarized demographics may mean rethinking retirement income solutions, suggesting lending solutions to tap liquidity of securities and real estate, and encouraging saving into taxable accounts and more simplified equity offerings for younger generations,” the report says.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
