Average Net Worth By Age: How Do You Compare?

Real Money Talk unspecified-1

Most of us have heard it before — the net worth of CEOs well into the millions, or even billions. Give Jeff Bezos for example, holding a net worth of $156.4 billion. But, did you know that it’s important to keep tabs on your own net worth?

Net worth is a calculation used to uncover your overall financial health. Understanding what your net worth is and how you stack up against others in your age group will help you gauge how much you can spend versus save on an annual basis.

What Is Net Worth?

Net worth is your assets minus your liabilities. In plain terms, it’s the cost of everything you own after subtracting your debts.

It can be dangerous to measure your financial health by what you earn since your income might not be saved or used towards investments. Your net worth will keep you in check, keeping you cognizant of your worth and how much you should be saving until you reach retirement.

How to Calculate Your Net Worth

Calculating your net worth is uncomplicated, but it may take you time to gather all of the information. Take these three steps to uncover the total value of your net worth:

Add up the total value of your assets. This includes the current market value of your investment accounts, retirement savings, home(s), vehicle(s), items of significant value (art, jewelry, furniture, etc.), and the cash value of your checking, savings accounts, and insurance policies.

Add up the total value of your debts. This includes your mortgage(s), car loan(s), student loans, personal loans, credit card debt, and any other form of debt you owe.

Subtract your debts from your assets. The total cost is considered your personal net worth. Your total could result in a positive net worth or a negative net worth. If you’re in the negative net worth category, don’t fret. It’s typical for people who are early in their careers to have a low or negative net worth if they have student loan debt, are new home owners, or are just starting to save for the future.

You may ask yourself — but, what should my net worth be?

Your age plays a significant role in calculating your net worth, especially as you get closer to retirement age. To help you understand how you stack up, we took a look at the average and median net worth of every age group, and share what you should aim for at each milestone.

Average Net Worth by Your 30s

The financial decisions you make in your 30s will lay the foundation for the net worth you can achieve later in life. At this age, it’s important to set a budget for you and your family, and stick to it.

According to the Federal Reserve, the average net worth for families in the U.S. under the age of 35 was $76,200 in 2016. That same year, the median net worth was $11,100, so keep in mind that the average is skewed by a small percentage of affluent Americans. With the average student loan debt at $32,731 per person, it’s no wonder why people might have a lower net worth in their 30s.

If you’re in your 30s, make sure you use these years to set yourself up for success even if your net worth is currently low. If you haven’t already, you may want to consider contributing to your retirement at this point. If your company offers a sponsored retirement plan, such as a 401(k) or 403(b), consider investing enough to reach your company match.

A goal to aim for is to have the equivalent of half of your salary in your retirement account by the time you’re 30, but don’t worry if you’re not there yet. At this time in your life, it’s most common to focus on making progress on paying back your debt, which can lead you towards financial security.

Average Net Worth by Your 40s

By the time that you’re in your 40s, your goal is to have a net worth of two times your annual salary. For example, if your salary is $75,000 in your 30s, you should aim to have a net worth of $150,000 by the time you’re 40 years old.

It’s common for people in their 40s to increase their net worth by investing in real estate and continuing to grow their retirement savings. Owning a home is an asset that could greatly increase your net worth since it can appreciate over time.

The Federal Reserve reported that the average net worth for families between the ages of 35 and 44 in 2016 was $288,700, while the median was reported at $59,800. While the average and median are only guidelines, they should help you understand where you stand against other families in your age group.

Average Net Worth by Your 50s

By the time you’re in your 50s, your wealth should begin to build significantly based on contributions to your retirement accounts, real estate, and other investments. Your goal is for your net worth to be four times your annual salary. For example, if you’re currently making $90,000 per year, your net worth should be at $360,000.

At this point, you should consider becoming more aggressive when it comes to building your net worth. To do this, it’s recommended that you max out your 401(k), which means that you’ll contribute as much as is legally allowed. And, if you haven’t already, this may be a good time to contribute to an IRA, an account that allows you to save for retirement with tax-free growth or on a tax-deferred basis.

If you have children, you may also want to consider contributing to a 529 plan, a tax-advantaged savings plan for education costs, but make sure to prioritize your retirement first. According to the Federal Reserve, the average net worth for Americans between the ages of 45 and 54 is $727,500, while the median is at $124,200.

Average Net Worth by Your 60s

Once you reach your 60s, your goal is to have a net worth of six times your annual salary. For example, if your salary is $110,000, you should aim to have a net worth of $660,000. At this point in your life, your net worth will help you determine how much money you’ll have once you reach retirement age.

According to the Federal Reserve, the average net worth for Americans between the ages of 55 and 64 is $1,167,400, while the median is at $187,300.

To help you reach your goals, you may want to begin thinking about how you can lower your cost of living and capitalize on your investments. If you live in a house, but no longer need all of the space, could you consider downsizing? No need to make any immediate decisions, but with retirement only a few years away, you’ll want to begin looking at how you are going to benefit from your investments.

You’ll also want to consider purchasing disability insurance dependent on your health and genetics. If you’re unable to work during these final years leading up to retirement, disability insurance will replace the income that you lost without decreasing your net worth.

Average Net Worth by Retirement

Did you know that if you want to live on $70,000 per year, you’ll need to save more than $1.7 million by the time you retire?

By the time you’re of retirement age, your goal is go have 80% of your current salary saved for every year after you retire. That’s why it’s so important to start saving early on. According to the Federal Reserve, the average net worth for Americans between the ages of 65 and 74 is $1,066,000, however, the median net worth is $224,000.

Use the resources that you built throughout your life to fund retirement. You’ll also want to consider what age you want to start receiving your Social Security since the longer you delay it, the more your monthly income will be.

How to Increase Your Net Worth

From investments to saving, there are multiple ways to increase your net worth. Once you calculate your current net worth, use these ideas to help set you up for success by the time you retire:

Cut expenses. The less that you’re spending, the more that you’re growing your net worth. See if there are bills or spending habits that you can cut back on. Even if it’s only a few dollars, you’d be surprised by how much that can add to your net worth over the course of several years.

Reduce debt. Your debt is what could be holding you back from growing your wealth, and with high interest rates, it could be taking longer than expected. Making higher monthly payments or consolidating the payments could help reduce your debt quicker.

Pay off your mortgage. Owning a home can become your biggest asset, so paying it off will help exponentially increase your net worth.

Make investments. Don’t just let your money sit. You may want to consider investing part of your monthly income with the goal to reap the benefits when you reach retirement age.

Max out retirement contributions. Take advantage of tax-advantaged retirement plans even in your lower earning years. If you start investing now, your net worth may increase at a much faster pace.

Set goals. It may sound simple, but it’s easy to become passive about investing the future if you don’t have hard goals set in place. Come up with a plan as to how you’re going to grow your net worth over the next 10, 20, or even 30 years and stick to it.

Once you come up with a plan to increase your net worth, check in with yourself and calculate how you’re coming along with your goals on a regular basis. And, before making a big purchase or an investment, keep this number in mind to make sure you’re making the right financial move.

Sources: Federal Reserve Bulletin| Federal Reserve | ValuePenguin | Investopedia | The Balance | SEC.gov | IRS | Forbes

Tags:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.