Getting to the top 1% net worth by age is a very impressive goal. But how much money do you need to get there? Overall, to have a top 1% net worth in 2021 requires having at least $10 million. $10 million is also the ideal net worth amount for retirement.

People like to throw around random net worth figures all the time when asked how much is considered rich or how much they would need to never work again. Often, the figures just sound nice, like saying “one meeeeleon dollars” without any mathematical justification.

This post puts some numbers behind ascertaining how much wealth one needs to be in the top 1%. Remember, having a large net worth is better than having a high income. The government goes after income more than it goes after wealth.

For example, you can live in a $8 million mansion. Yet, you can also get Universal Healthcare subsidies if you make less than ~$94,000 a year with a family of four.

Ways To Construction A Top Net Worth Calculation

Based on my older Top 1% Income Earners post, we know that in order to be in the top 1%, you’ve got to earn at least $380,000 in gross income a year. The data comes from the all-knowing IRS back in 2016.

However, in 2021, the top 1% income earner is closer to $470,000 a year due to inflation and a continued bull market until recently. That’s right. Inflation has boosted the income threshold to be a top 1% income earner by 23.7% in just several years!

Based on my Net Worth For The Upper Middle Class post, we learn that the net worth range for the top 15% of all Americans between the ages of 45 – 74 is around $700,000 – $830,000.

Finally, I’ve shown numerous examples as to why earning roughly $200,000 – $250,000 gross a year per person and $300,000 a year per couple is the ideal income for maximum happiness. Being rich is sometimes a state of mind, and I’ll use these income figures in my analysis as well.

Given these data points, I’d like to construct two simple models to demonstrate what I think should be considered a top 1% net worth. All wealth and no income is not ideal. Similarly, all income and no wealth is not ideal either. There needs to be a balance.

Your net worth can be calculated in many different ways. Let’s explore how your net worth is calculated according to wealth managers and socialists. After all, with Joe Biden as President, there’s more hyperbole talk about socialism coming back to America.

One of the common beliefs I’d like to overturn is the idea that one shouldn’t count their primary residence as part of their net worth. This belief is propagated by some in the wealth management industry because wealth managers only earn fees based on your liquid net worth.

Ideally, some wealth managers would also like you to believe that your 401k, IRA, and any tax advantageous retirement account are not part of your net worth either. The reason why is because these retirement accounts cannot be managed by wealth managers so that hey can earn a fee.

Interestingly, the other group of people that believes a primary residence shouldn’t be included in one’s net worth is the socialist who looks to protect the feelings of renters who don’t own any property.

Their logic is: if renters can’t include their place as part of their net worth, neither should anyone who perhaps saved for years to come up with a down payment and took some risk to buy. In the socialist’s mind, it’s OK to discount completely a $200,000 down payment or a 100% increase in home equity.

Let’s analyze a simple example to illustrate my contention that all savings and equity you’ve accumulated in your lifetime should count towards your net worth.

Learn how to build passive income for financial independence. Creating genuine passive income is the holy grail of personal finance. Once you generate enough passive income or semi-passive income, you are more free to do what you want.

Not all passive income is created equal. Some streams take much more initial effort to start, such as saving enough to buy your first rental property. But once you start it’s very difficult not to gain momentum.

Everything passive first takes active energy. The time to put in the effort is when we are young and not ravaged by disease or burdened by family obligations.

I remember being able to snowboard from 9am until 4pm every day for a year. Now, I’m lucky to last from 11am until 2pm without wanting to go to the hot tub and drink a bucket full of beer!

If we can appreciate how lucky we are when we are young, we’ll be able to maximize our vitality and live financially freer when we are older.

With sustainable passive income you can do the following:

• Retire early and travel the world once the pandemic ends.

• Start a business in a field you are passionate about.

• Find a job that pays less, but is more interesting.

• Stay at home to take care of your family without having to worry about money.

• Volunteer for causes you truly care about.

• Be a big brother or big sister.

• Spend more time with your parents.

• Sit in a coffee shop on a 80 degree day in Paris for hours on a Wednesday afternoon.

• Write the next great novel on the balcony of a cruise in the Mediterranean.

• Eat tapas and drink sangria until 1am on a Monday evening.

• Potentially live longer due to much less stress.

• Experience perfect endless summers over and over again.

There is so much you can do once you generate enough passive income to pay for all your living expenses. I highly encourage everyone to at least try. This post will provide you a framework for passive income success. 

The maximum 401k contribution limit for 2021 is $19,500. The amount is unchanged from 2020, u from $19,000 in 2019, and up from $18,500 in 2018.

Given the historical maximum 401k contribution limit tends to go up $500 every two or three years, it is likely the maximum 401k contribution limit for 2022 will rise to a record $20,000.

If you are 50 or older, you can add up to $6,000 extra per year from $5,500. This is the government’s way of allowing older workers with typically higher incomes to catch up.

Always Max Out Your 401k

I always recommend trying to max out your 401k as fast as you can. Once you get into a max habit you’ll rack up some big bucks in no time. Maxing out your 401k is a learned habit that gets easier over time. Given the contributions are pre-tax, you won’t feel as much pain compared to saving with after-tax dollars.

So many people don’t even bother to try maxing out their 401k because they don’t feel like it’s possible. But once they try, they kick themselves for wondering why they didn’t max out their 401k sooner.

Remember, the maximum 401k contribution limit is $19,500. Therefore, using an effective 25% tax rate, the contribution is more like contributing $14,625 after-tax.

Below is a simple chart to see how much you can accumulate in your 401k by age or years worked if you contribute $18,000 a year starting today.

The chart is obviously more helpful for younger folks, given older folks had lower maximum contribution limits in the past. For example, when I first started maxing out my 401k in 2000, the historical 401(k) contribution limit was only $10,500.

I’ve also included my high-end 401k target amount by age based off continued maximum contributions plus a constant 4-8% annual return. My high-end 401k savings target can also be considered your overall total savings target, which includes after tax savings as well.

The numbers are for “ideal” conditions. We all know that life, recessions, and buying things we don’t need get in the way of savings and returns all the time.

Your net worth composition will likely change the wealthier you get. My net worth composition in my 40s looks nothing like it did when I was in my 20s.

If you’re looking for how net worth compositions change by wealth, take a look at the below chart by Visual Capitalist. It highlights how much each asset is as a percentage of net worth from the Federal Reserve of Consumer Finances. If you want to get rich, it’s good to study how the rich allocate their money.

Notice how red (primary residence) quickly shrinks the wealthier you get while blue (business interests) quickly grows. The key to creating great wealth is to therefore build a business or acquire a significant share of equity in a business.