The American Dream is the belief that anyone, regardless of background, can achieve success, prosperity and upward mobility through hard work, determination and initiative. The term was popularized during the great depression in 1931 by James Truslow Adams, as people looked to future hope for a life of freedom and opportunities for the next generation.
Recently an article in USA Today News put a current price tag on the dream. An average lifetime cost was developed for important dream goals.
Funds required:
- Retirement -$1.6 million
- Owning a home – $957,594
- Owning a new car – $900,346
- Raising 2 children and paying for college – $876,092
- Healthcare – $414,208
- Annual Vacations – $180,621
- Pets – $39,381
- Wedding: $38,200
Total lifetime cost: $5.04 million for the average household.
Income Shortfall
The same article shows the lifetime earnings for an average household with workers holding a bachelor’s degree of just $2.8 million, creating a staggering $2.2 million shortfall in income needed to create the American Dream.
The villain in this drama is inflation. Analysts frequently track inflation costs beginning with the year 1971 because of an occurrence during this year that dramatically altered the US and global economies. On August 15, 1971, President Richard Nixon took the US dollar off the gold standard, which resulted in decoupling all world currencies from the solid anchor. With no mooring to bring stability to the money supply, inflation began to rise.
Home Ownership
The traumatic impact of inflation can be demonstrated by looking at just one important category: home ownership. From 1971, to 2025, the average cost of housing has increased by 20 times. I found this number almost unbelievable, until I thought back on my own life experience. My parents purchased a house in 1970 (almost 1971) for $23,500. It was located in the Cincinnati, Ohio area and consisted of four bedrooms, two bathrooms, and two living areas. The cost of that house, $23,500, multiplied by 20 is $470,000, which is just about the average cost of a comparable home today.
On the income side, the average is said to have increased just 10 times since 1971. Again, I recalled that in 1970 my father earned approximately $8,000 annually, including his salary and his military retirement. This income was sufficient to support a family of seven without my mother working. His $8,000 multiplied by 10 equals $80,000, a number which exceeds the $63,000 (average for a single earner household today) and is somewhat less than the $103,000 average for double income homes which are quite common. Using my own family as a standard, I would conclude that in the last 55 years, increases in incomes have lagged far behind increases in expenses.
Counteracting the Gap
What strategies or solutions can we implement to counteract the staggering $2.2 million gap? The most crucial and overarching step requires us each to take personal responsibility. Perhaps there is not a one size fits all strategy, but we can outline the basic elements of a plan that can be fleshed out and personalized to successfully eliminate the shortfall.
Financial literacy is at the top of the list. Understanding factors that drive the economic machinery is no longer optional for those who wish to achieve any portion of the dream. These will need to get educated, help others get educated and pass a legacy of literacy along to future generations.
Planning as a family is an old-fashioned custom that begs to be resurrected. The numbers are stacked against us and becoming more problematic with each generation. Grandparents, parents and their adult children will want to collaborate in monitoring and strategizing for the entire family.
Make adjustments to the elements of the traditional dream. Each of the eight items from the USA Today article must be analyzed carefully in order to reduce the $2.2 million gap, beginning with the high-ticket items.
Retirement
I am not a financial advisor, and I’m not qualified to give financial advice. But I am a retiree who can speak from my own personal experience and from years of studying the subject. I invite everyone to lean in and take from this discussion whatever you find valuable.
As I write these words the third Wednesday of the month is approaching. On this day social security disbursements hit the bank account. Both my husband and I paid into the system for thirty to forty years. At that time returns on our investment were extraordinary, we both enjoyed great paying jobs, and we were diligent in contributing to our retirement plans. As a result, our social security payouts are significantly higher than today’s average check. And yet, we cannot sustain our lifestyle living on social security alone. Without other investments and business projects, we would be living well below our lifetime standard. I don’t personally believe that many people can live well on just social security benefits.
And how secure is social security, anyway? The US Debt clock has pegged the combined Medicare/Medicaid and Social Security debt at $3.5 trillion (as of 2024), with much of it being “unfunded”. These observations are not meant to stir up fear, but rather to spur us on to prepare.
Not Ready to Retire
Here’s the challenge for anyone who is not yet of retirement age. Get a thorough evaluation from a good financial advisor. Plan carefully. Talk with many who are already living life in retirement. Do research into potential economic developments. Find inflation resistant investments and businesses. Adjust your plan regularly.
We will consider the other items on the dreams list in future conversations and we will keep the dream alive. Despite new obstacles in our post 1971 world, anyone—regardless of background—can still achieve success, prosperity and upward mobility, if sound economic strategies are clearly understood and thoughtfully adjusted to address our new challenges.
Stay tuned!
Read more of Gail’s article on Plaid or connect with her on her website.
