The average 35 year old has a net worth of roughly $35,000 according to the latest Consumer Finance study by the Federal Reserve in 2019. It came out in 2020 and there won't be another survey out until 2023 for 2022 figures. Therefore, we can assume the average net worth for a 35 year old may be closer to $40,000 in 2022.
$35,000 – $40,000 as the average net worth for a 35 year old is not a lot. However, for the ABOVE AVERAGE 35 year old who truly cares about financial independence and doesn't want to work forever, their net worth should be closer to $400,000.
In this post, I'll share why the above average 35 year old should have closer to a $400,000 net worth due to a combination of pre-tax retirement savings, post-tax retirement savings, home equity, and an X factor that may trump them all.
35 years old is a critical age. You should be having the time of your life. Your earnings power should be growing. And, you may have a young family or are thinking about settling down.
Right before my 35th birthday, I decided to leave a 13-year career in investing behind to focus on traveling and writing on Financial Samurai. To do so, I had to have a high net worth for a 35 year old.
For another point of reference, according to CNN Money, the average net worth for the following ages are:
- $9,000 for ages 25-34,
- $52,000 for ages 35-44,
- $100,000 for ages 45-54,
- $180,000 for ages 55-64, and
- $232,000+ for 65+.
As you can see, the average net worth for a a 35 – 44-year-old is $52,000. Since 35 is at the bottom of the range, a $35,000 net worth for the average 35 year old is about right
The Above Average Person 35 Year Old
1) Someone who went to college and believes grades and a good work ethic do matter.
2) Does not irrationally spend more than they make.
3) Saves for the future because they realize at some point they no longer are willing or able to work.
4) Takes responsibility for their own actions when things go wrong and learns from the situation to make things better.
5) Takes action by leveraging free tools on the internet to track their net worth, minimize investment fees, manage their budget, and stay on top of their finances in general. Once you know where all your money is, it becomes much easier to optimize your wealth and make it grow.
6) Welcomes constructive criticism and is not overly sensitive from friends, loved ones, and strangers in order to keep improving. Keeping an open mind is critical.
7) Has a healthy amount of self-esteem to be able to lead change and believe in themselves.
8) Enjoys empowering themselves through learning, whether it be through books, personal finance blogs, magazines, seminars, continuing education and so forth.
9) Has little-to-no student loan debt due to scholarships, part-time work, or help from their parents. Our parents have saved and invested through the largest bull market in history. It's understandable that parents want to help their children out.
10) Owns their primary residence and invests further in real estate through ETFs, public REITs, private real estate funds from investors like Fundrise, and individual real estate deals through platforms like CrowdStreet.
Now that we have a rough definition of what “above average” means, we can take a look at the tables I've constructed based on the tens of thousands of past comments by you and posts I've written to highlight the average net worth of the above average person.
The Above Average 35 Year Old Net Worth Calculated
First, we must highlight what the average tax-deferred retirement savings plan is for those in America. We'll focus on the simple 401K system where one can contribute a maximum of $19,500 for 2020. Expect the maximum contribution to go up by $500 every couple of years or so.
This chart can be used as a rough estimate for those with the RRSP plan in Canada, and retirement plans in Europe and Australia as well.
In fact, any country that has any sort of tax-deferred retirement plan and social safety net program for retirement that has a GDP/capita of $30,000 or more can use the below chart as an aspirational guide. Remember, we are talking about the “above average person.”
FINANCIAL SAMURAI TAX DEFERRED (401K) SAVINGS GUIDE FOR A 35 YEAR OLD
The assumption here is that the above average person is able to start maxing out their tax-deferred retirement plan every year after the second full year of work, and continue on without fail until 65. The low and high end account for a conservative 0% return to a more historical 7% – 8% constant rate of return. Of course you can lose money and make much more if you are good and lucky.
Given the 401k maximum contribution limits have increased over time, the three columns from left to right can also be used as guidance for older savers over 45 years old, middle aged savers between 30 – 45, and younger savers under 30 who get to max out at $18,000 a year at the minimum for the majority of their careers.
For example, when I started contributing to my 401k in 1999, the maximum contribution limit was only $10,000. As a 42 year old, I'll focus on the Mid End column as a guidance.
This chart does not take into consideration any after-tax savings post 401K contribution or 401k company matching either to remain conservative. It's always good to end up with too much money than too little.
FINANCIAL SAMURAI POST-TAX SAVINGS GUIDE FOR A 35 YEAR OLD
The above chart assumes on the low end that one saves about $5,000 a year in after-tax income and around $10,000-$15,000 a year in after-tax income on the high-end after maxing out their tax-deferred retirement vehicle.
I've tried to keep things as simple as possible, assuming no inflation and no investment returns. I also believe saving $5,000-$15,000 a year in after-tax income is very realistic for the above average person, and probably very easy for many who earn more than $85,000 per person.
Finally, the chart should show you the power of consistency.
The Importance Of Real Estate
A recent study showed that the average net worth of a homeowner is roughly $250,000, or 44X greater than the average renter's net worth of $5,000. That is a shocking difference due to home price appreciation and forced savings of paying down one's mortgage.
We can debate the merits of this study (done by a real estate association of course) all day long (demographic sampling, housing price changes, etc), but the point is, “above average” people generally all own homes and are wealthier, be it 2X wealthier or 40X wealthier than the average renter.
The return on rent is always -100%. You get a place to live and that's that. There is never a positive return on an asset after a month, or 30 years of renting.
A renter cannot pass on her paid off house to her kids or grandchildren. There is no asset accumulation at all. There is a reason why some 97% of millionaires are property owners.
Invest In Real Estate
The value of real estate varies across all the land and the world. It is very hard to make an assumption of what should be inputted as a result. According to the US Census bureau, the median home price in America is $340,000 in 2021. That is a big 9.5% YoY jump from 2020.
You can't get anything livable in San Francisco, New York City, Los Angeles, and maybe even Washington DC and Boston for $34,000. But, you sure can in the MidWest or South.
As a result, I'm aggressively buying real estate in the heartland of America through real estate crowdfunding platforms like Fundrise and CrowdStreet. There is a demographic shift towards lower cost areas of the country we should take advantage of. The pandemic has accelerated the work from home trend.
Hence, let's construct an equity value chart of something based on a range of $250,000-$500,000, with the assumption that upon retirement, you have your house paid off and can attribute this amount into your net worth, or the capitalized value of all rents you would pay if you did not own.
Financial Samurai Home Equity By Age Guide
I assume that the above average person buys a $250,000-$500,000 piece of property at 27. By the time they turn 28, they will have owned the property for 1 year and have paid down $3,500-$7,500 in principal on a $250,000-$400,000 loan. The above average 35 year old understands the benefits of owning real estate.
I conservatively assume a $250,000 no money down loan for the low end house, even though after 5 years of working, the low-end above average person should have around $25,000-$30,000 saved up in cash based on the after-tax savings charts above.
By the time a 27 year old pays off his or her mortgage in 30 years, s/he will be 57 years old with a place to live rent from for the rest of his/her life. That is the true value of the property, the rent saved for the remainder of the owner's life.
It can be calculated as the present value of those future rental payments, or simply the market value of the home. I assume zero price appreciation on the home to keep things conservative and no extra payments to accelerate the payoff either.
Refinance Your Mortgage
Everybody needs to refinance their mortgage today as mortgage rates are still hovering near all-time lows. Check out Credible for some free mortgage rate quotes in minutes. I got a 7/1 ARM at 2.625%.
Home prices have historically returned just a bit above inflation every year e.g. 2-3%. But given the above average person puts down about 20%, the 2-3% returns suddenly turns into a 10%-15% cash-on-cash per year.
10-15% compares favorably to the average S&P 500 return of roughly 8%. Add on the tax benefits for mortgage interest deduction and owning a home through a mortgage becomes very beneficial for higher income earners.
The X Factor For 35 Year Olds
So far, we've touched upon pre-tax savings, after-tax savings, investment returns of 0 for those savings to remain conservative, and real estate. You need to spend less than you earn for that inevitable day you no longer have an income. You also need to live somewhere, hence, you should own your property if you know you will be there for much longer than 5-10 years.
There's something missing in all of this, and that something is what I call the X Factor. Above average people seem to always be thinking of new ways to build wealth. There is an optimism about them that no matter what happens, they can always find ways to make more money.
It's hard to quantify what that X Factor is for the average above average person, but it's there somehow through music, writing, athletics, communication, entrepreneurship, hustling, and so much more.
The great thing about savings and real estate is that the process is highly automatic. If you implement the plan and wake up 10 years later, you will inevitably be worth much more provided you keep your job and your home.
Given savings and building equity in your home over the next several decades is largely automatic, the X Factor comes out because you have so much more free time to do something else!
The Above Average Net Worth For A 35 Year Old
I have gone ahead and averaged the averages for pre-tax savings, post-tax savings, and real estate equity progress in the spreadsheet below. The pre and post tax savings can be invested however you see fit and is a topic of another post.
Another thing to note is taxation, given pre-tax savings have to eventually be withdrawn and taxed. Again, these are rough estimates to give you an idea of the average net worth of the above average person.
There you have it! Based on my assumptions above, the average net worth of the above average 35 year old is around $429,00. By the time this person is 40, his/her net worth should climb to around $660,000 and all the way up to around $2,180,000 million by the age of 60.
The key is to stay disciplined with your savings and investing routine. With a proper asset or net worth allocation, you'll be amazed at how far your net worth will grow over time.
Of course some of you above average Financial Samurai readers will have a total net worth much higher than the chart. But then, I'd have to write another post entitled, “The Average Net Worth Of Financial Rockstars!”
Recommendations To Build More Wealth
If you want to have net worth equal to $400,000+ by 35, I recommend the following two things.
1) Stay on top of your finances.
The best way to build wealth is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts on their Dashboard so you can see where you can optimize.
Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going. You also get your net worth amount sent to your inbox weekly.
One of their best tools is the 401K Fee Analyzer which has helped me save over $1,700 in annual portfolio fees I had no idea I was paying. You just click on the Investment Tab and run your portfolio through their fee analyzer with one click of the button.
They've also come out with their incredible Retirement Planning Calculator that uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes. Definitely check to see how your finances are shaping up as it's free.
Diversify Into Real Estate
Once you've purchased your primary residence you are considered neutral real estate. Since you have to live somewhere, you will simply ride the real estate cycle. To be long real estate you must own investment property in addition to your primary resident.
If you're interested in a hands off approach to real estate investing, consider investing in real estate crowdfunding. Once I had my son in 2017, I decided to sell my PITA rental house and reinvest $550,000 of the proceeds into real estate crowdfunding.
My favorite two real estate crowdfunding platforms are:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
The Average Net Worth For A 35 Year Old may only be $40,000. But for the above average 35 year old, their net worth is closer to $400,000 due to aggressive saving and investing.