An unflattering portrait

Meet the typical American family.

It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.

That is the portrait of the median American household as painted by the Federal Reserve Board’s Survey of Consumer Finances. The survey, which does not distinguish between sizes of families, nevertheless offers the most detailed look available of the balance sheet of U.S. households.

The Washington Post asked a half-dozen financial planners to review the Fed data about what different groups of Americans own and what they owe. We asked them what advice they would give someone confronting the financial situation faced by the average American, using median numbers, or the midpoint at which half of the population is above and half is below each indicator.

They don’t like what they see.

“This is awfully sobering,” said Peter Speros, managing director of Sullivan, Bruyette, Speros & Blayney Inc., a wealth-management firm in McLean, Va. “These numbers are just so much worse than I would have thought. It’s a real eye-opener.”

Those at the median are not the only Americans who need help. The planners had advice for the typical family headed by someone who is young, middle-aged, retired, and for the affluent and poor. The bad news: Each of these groups need to do some things differently.

The Young

Households headed by someone under age 35 have one big factor in their favor: time. These families and individuals tend to have piddling savings — a median $14,200 net worth, and only $1,800 in cash savings among those with a bank account.

But because they are young, these numbers don’t represent a crisis. Such families may have 30 or more years until retirement, which is plenty of time to accumulate wealth. Many are already doing some of the right things to solidify their finances, such as buying a home; 41.6 percent owned their primary residence in 2004, up from 39.9 percent in 2001.

Financial advisers would counsel the typical young family to start paring expenses now and saving more. That $1,800 in cash savings amounts to less than three weeks of pay for the average young family, leaving them highly vulnerable to financial catastrophe in event of an illness or other setback.

Moreover, only 40.2 percent have a retirement account, which is the most tax-efficient vehicle through which to begin preparing for the long run. More young people should take advantage, even if it means having to forgo buying a new car or going out to eat.

The Middle-Aged

Households headed by someone age 45 to 54 would appear, at first glance, to be in better shape than their younger counterparts. They make more money, $61,100 a year, and have a six-figure net worth.

Yet their financial situation is more dire than that of young people, financial advisers said. Like young people, those who are in this demographic haven’t saved nearly enough for retirement. Unlike the young, they don’t have much time to make up the deficit.

More than 40 percent of families headed by someone in this age range have no retirement account at all. Of those who do, the median value is $55,500, which planners said is woefully inadequate to fund retirement.

To support themselves at 80 percent of their current income from age 65 for the rest of their lives, this family would need more like $1.5 million in savings at retirement. These families only have 10 to 20 years left to accumulate that kind of cash, which would be a major challenge.

Advisers say a family in that situation should begin maxing out contributions to their 401(k) or similar retirement plan at work, including taking advantage of “catch-up” provisions that allow larger tax-deductible contributions to such plans than younger workers can make.

If they do not sharply increase their savings rates, these middle-aged families will be forced to live a significantly more modest existence during retirement than they do now.

The Retired

Retirees on average are living on very low incomes — a median of $24,400 — but have significantly more money tied up in their homes than other low-income Americans.

For example, 75.8 percent of families headed by a retiree own their home, but only 24.6 percent have any debt on that home.

Those numbers tell some financial advisers one thing: The average retired person should look for ways to convert that equity in his home into cash that might improve his standard of living.

“It seems like people are reducing their lifestyle in order to have more assets left on their death,” said Bard Malovany, of Sagemark Consulting in Annandale, Va. “It doesn’t make a lot of sense.”

They might instead consider a reverse mortgage, through which they could remain in their home while receiving funds, which would then be repaid when the home is eventually sold.

Another option might be for the retiree to sell the home and rent an apartment, thus turning the home into cash and avoiding the hassle and expense of maintaining a house.

Many retirees appear particularly vulnerable to one potential investment mistake, judging from the Fed data, said the financial planners. About 19 percent own stocks directly, and the median value of those portfolios is $45,000. For most people, it makes far more sense to invest in low-fee, diversified mutual funds that own hundreds of stocks than to pick a few and own them directly, advisers said. Yet only 16 percent of retirees owned stock in mutual funds and similar investment pools.

The Poor

The biggest challenge facing lower-income Americans is that they don’t make enough money. That statement may seem so blindingly obvious as to be unhelpful, but financial planners say there are ways to boost the finances of those with a family income of $25,700 a year — short of helping them find more lucrative employment.

By some measures, poor families seem to be less inclined to use debt irresponsibly than most Americans. About 43 percent of low-income families carried a credit card balance, compared with 46 percent of all families. It may be in part because they have worse credit ratings and therefore fewer are offered credit cards.

Among the advice the planners had for the low-income family: Prepare a detailed plan to rein in spending and attempt to use it to build a cash cushion, so when an unexpected expense rolls around, there will be less of a need to turn to a high-interest-rate credit card.

Some financial advisers said too many poor families are investing through cash value life insurance plans. About 19 percent had such a plan, compared with only 7.6 percent who owned a mutual fund. That money might be better placed in more liquid investments, such as helping bolster their cash savings.

The Affluent

Upper-income Americans suffer from some of the same problems as other families but may not know it.

Those near the top of the pay charts, with $104,700 in annual income, have more savings than those in middle-income brackets — a median net worth of $311,100, to be precise, according to the Fed data. But it may not be enough to give them a comfortable retirement. They may, financial planners say, be lulled by their high incomes and comfortable lives into thinking they are better positioned for the long term than they are.