American family net worth and income has declined significantly as the housing market and sluggish economy devastated assets and savings.

Spend a decade or two working hard, paying your bills on time, and salting money away in your 401(k) at work. You’ve been hearing for years that this is the one formula that will allow you to achieve what you’ve always wanted – a golden retirement.

Except that for many Americans, the shine is beginning to rub off. And what’s underneath isn’t quite so pretty.

Last week, the Federal Reserve announced that the typical American family’s net worth had dropped back to where it was in the early 1990s. To put it in stark terms, the median family net worth was $126,400 in 2007 and had sunk to $77,300 by 2010. Median family income continued to fall during the same period, from $49,600 in 2007 to $45,800. (All figures have been adjusted for inflation.)

A lot of the decline is due, of course, to falling home prices. Homes typically make up the vast majority of a family’s wealth. If your home equity gets sucked down the drain because local home prices have fallen 35 to 50 percent, it’s going to hurt.

How much? Just 52 percent of Americans managed to save any money in 2010, down from 56.4 percent in 2007. And the debt picture doesn’t look much better, while the total number of households carrying debt fell 2.1 percent, three quarters of all Americans are still paying off something.

If you’re looking for the true picture of the damage caused by the Great Recession, this is it. Households that were solidly middle class have lost their footing and fallen so far back that they might never be able to catch up. Not with 20 million Americans still looking for full-time work, according to the latest employment surveys.

Everyone is trying to paint as rosy a picture as possible about the economy, even as the Federal Reserve announced this week it would continue with yet another shot of Operation Twist, where the Fed buys securities using funds from other Fed investments.

And the news that home prices are rising in many states (up 25 percent Phoenix, for example) look a little worse when you realize that the rise is simply because fewer foreclosures were sold.

Not that pressing through vast quantity of foreclosures is a bad thing. Indeed, if we don’t hammer through the shadow inventory of foreclosures and very real quantities of short sales, we may never get to the place where ordinary Americans, the ones paying their bills on time and salting cash into their 401(k)s, see their home values start to rise once more.

A country whose dreams vanish in a poof of smoke may have a hard time stirring the imagination of its workers. Still, it’s hard to make the case that the country that spawned everything from Coca Cola to Facebook isn’t dreaming.

But the Great Recession and lingering housing crisis are making it very difficult for the median American family to get a good night’s rest.