What's Happening?
A recent report by Hearts & Wallets emphasizes the significance of choosing the right accounts for savings, particularly for younger and lower-asset households. The report reveals that 132.2 million U.S. households control $88.2 trillion in investable assets, which constitutes 58% of household wealth. The report highlights a 2-to-1 split between taxable and retirement accounts at the national level, with $56.2 trillion in taxable accounts and $32.1 trillion in retirement accounts. Laura Varas, CEO and founder of Hearts & Wallets, stresses the importance of robust advice and investment solutions for both taxable and retirement accounts, noting that real estate equity should also be considered in financial advice. The report indicates a growing awareness among households regarding savings allocation, with 67% of households now saving annually and understanding their allocation across account types.
Why It's Important?
The findings underscore the critical role of savings allocation in achieving financial goals, especially for lower-asset households. Proper allocation can prevent households from being restricted in pursuing objectives like home purchases or college funding due to over-investment in retirement accounts. The report suggests that financial services firms need to enhance their advisory services to address savings allocation comprehensively. This is particularly vital for lower-asset households, which often lack exposure to equity markets and may miss out on growth opportunities. By improving advice on savings allocation, financial advisors can help these households optimize their financial strategies and potentially increase their wealth over time.
What's Next?
Financial advisors and services firms are encouraged to focus more on savings allocation in their advisory processes. Hearts & Wallets suggests that only a small percentage of advice experiences currently address savings allocation fully. As awareness grows, there is an opportunity for the industry to develop more detailed and actionable advice for clients, particularly those with lower assets. This could involve specific recommendations on account types and savings amounts, tailored to individual financial goals and timelines. The report calls for a concerted effort to ensure that advice and investment solutions are equally robust for taxable accounts as they are for retirement accounts.
Beyond the Headlines
The report highlights a broader issue of financial literacy and the need for increased education on savings allocation. As lower-asset households often have limited exposure to equity markets, there is a risk of missing out on potential growth. Addressing this gap through improved financial advice could lead to more equitable wealth distribution and empower more households to achieve their financial goals. Additionally, the report suggests that real estate equity is becoming increasingly important in household wealth, indicating a shift in how wealth is accumulated and managed.
