Do you wonder how you are doing financially? It is difficult unless you have something to measure yourself against. In this article, we look at Net Worth by age group and how your peers are doing. You can then compare these to your actual Net Worth if you determined it in “How to Determine Your Net Worth.”
It also shows how much is needed by age to achieve our example retirement goal discussed in “Set a Net Worth Goal.”
Target Net Worth
The “Net Worth Goals and Milestones” article showed compounding can create millionaires out of ordinary people who accumulate wealth using good financial habits. It showed these wealth “Accumulators,” earning the Median U.S. Household Income of $60,000 per year, could retire comfortably at age 65 with $1,500,000.
What are We Comparing Against?
The U.S. Census Bureau measures the Median Net Worth of U.S. Households. A household is one or more people, related or unrelated, living in the same dwelling. The census is taken every 10 years, so the information we’re using today is from the 2010 Census.
The median is the middle point of a range that separates the upper half from the lower half. It’s a better indicator for our purposes because the average gets distorted by extreme numbers in the data (Billionaires).
The Accumulators below represent your target net worth by age compared to where you could be, represented by the Jones next door with the U.S. Median Household Net Worth.
At age 25, regardless of educational level, most people are working. College students may have a negative net worth due to education expenses, while high school graduates may have a positive net worth.
Often, Net Worth at this age is influenced by circumstances beyond your control: family wealth, parental decisions, lack of financial education, etc.
At this point, we’ll assume you have $0 in Net Worth. Yours may differ for better or worse, but the good news is, it doesn’t matter that much.
Age 25 The Starting Point
$0 Net Worth
The prior post showed that Accumulators save 10% of their $60,000 per year Median Household Gross Income, or $30,000 after 5 years of work (5 years x $6,000/year = $30,000). When they invest it and get the average 8% long term stock market return, it earns another $5,200.
That’s a total savings of $35,200 after 5 years.
To consider the different returns people get, we’ll look at the range of data, which shows the accumulation of $30,000 if a 6% annual return was realized and $40,000 if a 10% annual return is realized.
Age 30 Target Net Worth
$30,000 to $40,000+
This is a major accomplishment, requiring the discipline to put 10% of gross income aside for the future. Greater rewards are in store by starting this now.
How does this compare to their peer group, the Jones next door? According to the U.S. Census, those less than 35 years of age have a Median Net Worth of $6,682.
Age 30 Median Net Worth
After only five years, the Accumulators are 5X wealthier than their peer group.
If you are there, that’s a reason to celebrate! The power of compounding just gets stronger with time as returns cumulate and grow.
If you’re more comparable to the Jones, don’t despair. There’s still time to put savings and the magic of compounding to work for you.
At 40, the Accumulators saved $90,000 over 15 years. Their investment returns provided another $72,900 at an average return of 8% per year, raising the total to $162,900. Their money is now working harder and “earned” over a year’s worth of salary.
Age 40 – At Target Net Worth
$140,000 to $190,000+
According to the U.S. Census, the Median Net Worth of the peer group, those between 35 and 44 years of age, is $35,000.
Age 35 to 44 Median Net Worth
The Accumulators are 4.6X wealthier and 10 years ahead of the Jones. Savings and investing is now a habit. Did you ever think you could accumulate that much?
The Accumulator’s plan and discipline is paying off big time. Their savings are at $150,000, plus another $288,600 in returns for a total of $438,600.
They’ve reached a tipping point where the returns are more than what they actually saved over 25 years.
Age 50 – Target Net Worth
$330,000 to $590,000+
And the Jones? The U.S. Census shows those between 45 and 54 years of age have a Median Net Worth of $84,542. The Accumulator’s wealth is 5.2X the Jones, but they didn’t have to work 5X as hard because money is working for them.
Some may be tempted to loosen up a little at this point, perhaps help your children pay off their college loans. These things can be strong emotional pulls. That’s fine if the help provided comes from discretionary funds, not savings or investments for retirement.
The reality is that your children have more time than you to put the power of compounding to work to accumulate their wealth. That’s provided you share what you know about financial planning to get them on the right track early.
The Accumulators are the millionaires next door. They saved a total of $210,000 over 35 years and earned an additional $823,900 in returns for a total of $1,033,900. Their investment returns are 4X the amount actually saved. That’s a reason to celebrate!
Age 60 – Target Net Worth
$670,000 to $1,620,000+
The 55 to 64 age peer group, meanwhile, has a Net Worth of $144,200. They must think about delaying retirement while the Accumulators, on the other hand, are planning what to do with their financial freedom.
The Accumulator’s $240,000 saved earns a cumulative return of $1,310,000 for a total of $1,550,000.
Age 65 – Live Life on Your Own Terms
Net Worth $930,000 to $2,660,000+
It was a challenge at first, but like federal income tax, you learn to live without it. By starting early at age 25, you accumulate 9X the wealth of your peer group.
The Median Household Net Worth for ages 65 to 69 peaks at $194,500 and then **starts to decline**, according to the U.S. Census.
A Perpetual Benefit
It’s important to note the Accumulators will likely never run out of money. They can withdraw 4%, or $62,000 per year ($1,550,000 x .04 = $62,000), to maintain their pre-retirement lifestyle through retirement **without touching the $1,550,000** balance in the accounts!
And, since their investments return 8% per year, the balance continues to increase. That provides the basis for a raise every year if desired. They don’t even need Social Security (if it’s not around by then). And if all goes well, the balance becomes your legacy for whatever good cause you wish.
Unfortunately, Jones can’t retire without other benefits and a reduction in their lifestyle. They have only 3.2 years of income saved and will deplete their entire savings in that time without other sources or continued employment.
How does your Net Worth compare and is it where you want to be? No worries, let’s get to work on that.