Are You Average? The Net Worth Challenge
I don’t know why, but I always like having a sense of where I stand in relation to others. My sense is, that so do our clients as I often get asked how their stuff looks compared to similar individuals we deal with. I guess misery and success both love company in a weird way. Thus, the topic of the day is understanding where you stand from a net worth standpoint compared to others of a similar age.
What is Net Worth?
You know what happens when you assume right? You make an ass out of you and me! Staying on brand, I’m going to quickly refresh us all on what your net worth is. On the basic level, your net worth is the value of your assets minus your debts. For instance, if you had $1,000,000 in investments, a house worth $1,000,000, and a mortgage worth $250,000. In this case your assets would be $2,000,000- your liabilities of $250,000= Net worth of $1,750,000. Get it? Got it! Good.
Let’s now break down the average net worth per age band, as recently reported by the Federal Reserve. I’ll also add my comments on each, keeping in mind it is impossible to generalize everyone, so I’ll focus on our clients from my view.
Less than 35–
If you fall into this category your average net worth is $76,300.
This is a tricky one as it spans a large age span. If you are closer to 35, I’d like to see a six-figure net worth by that time. If you include house equity, cash, and retirement savings as are hitting that mid 30’s I’d like you to really focus on saving by this point. If you’re behind, the good news is that you have plenty of time to catch up. If you are ahead of the game, great -don’t take your foot off the pedal.
From your mid 30’s to the mid 40’s the average US net worth is $436,200. This honestly surprised me a bit.
I’d say if you are a decent earner by your mid 40’s getting a net worth closer to a million dollars is a great thing to aim for. This would suggest you are pretty good at saving, and with plenty of time to let compound interest double your money, hopefully, two more times before you are done working. Again, if on target or short, the great news is still tons of runway to right the ship and get back on track. Also, if you find yourself right on target I wouldn’t be upset with that figure as I think you’ve got a great start.
Now that you are in hitting the prime of your career what is your annual net worth? $833,200 asked and answered!
By your mid 50’s I for sure want to see our clients starting to eclipse that million-dollar mark. In an ideal world, 1.5-2M is a fantastic trend line to be following. The best news if behind these figures, and/or your personal ideal figures is you have some big earning years left to really start to sock away funds. By the end of this age, going into the next age band generally big expenses like college are subsiding, and top-earning years are amongst us to put away some serious coin.
Hitting those retirement years has the average American has $1,175,900 in net worth.
This feels a bit light to me, especially knowing that one’s home is of this value. If we are using a loose rule of thumb, you should be having close to 10x your income saved in retirement accounts by this age. So, if you and your spouse are earning $110,000 a year then this figure is probably about right. Another thing to consider is pensions. If you are someone who is fortunate enough to have a pension your net worth figure can be less. My loose rule of thumb is to take your annual pension amount and multiply it by 20. That figure should give you what the value should be in retirement assets, that you can add to your net worth.
The average net worth for an individual in this age band, more times than not encompasses retirement, is $1,217,700.
Now that you typically have retired seeing a net worth at this level is interesting. I’d follow the same rough rule of thumb from the previous age band. Also, this is the only age band that I’m more concerned the numbers at the beginning (closer to 65) are larger than at the end (closer to 74). I have two rationales for this logic. One is that you are in spend mode and being left with 1.2M by the mid-’70s should give you a decent runway left. The second is that most people highest spend years are early in retirement. By the time they hit their mid-70 spending rates tend to decrease. Thus, if left with 1.2M then you are generally in a decent place.
For those that are over 75 or older your average net worth is $977,600.
This is another really tricky one as it spans a very large time period. Typically speaking, not only is it a large time span, there also isn’t much you are going to do to drastically change this figure. Basically, if you are retired and comfortable with your assets and incomes by this point, you are likely on cruise control. It really comes down to managing cash flow and expenses at this age, much more than sheer net worth figures.
As I stated earlier, I love studies like this as it helps us all stay grounded. I also am a fairly competitive individual and sometimes little things like this help me stay motivated in my personal finances and life. Now, I can’t stress enough that these are very big generalities we are talking about. The actual net worth and assets you should be trending on are different. We should all be targeting to understand what income we need from our assets in retirement. This is how we actually figure out how much money you need to be aiming for at each age. Once we can model that out, we can simply back into what your ideal figures should be, as everyone’s situation is drastically different.
In any event, hope you enjoyed this little nugget of information, and let it motivate you as you will. As always, stay wealthy, healthy, and happy.
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