The Average Net Worth For A 40 Year Old In America

Are you wondering what the average net worth is for a 40-year-old American? Look no further! As a 45-year-old father of two who has been writing about achieving financial independence since 2009, I've got the answer.

The average 40-year-old has a net worth of roughly $80,000. But for the aboveaverage 40-year-old, their net worth is closer to $660,000. The difference is so great because the above-average 40-year-old saves and investments consistently out of high school or college. Whereas the average 40-year-old doesn't read personal finance sites like Financial Samurai and just wings it.

Hopefully, your goal is to be an above-average 40-year-old when it comes to building wealth. With above-average wealth, you can live an above-average life! Given we've only got one life to live, we might as well make it great.

Everything Is Relative In Finance

Everything is relative when it comes to money. If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy given all our costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end.

Real millionaires today have net worths of over $3 million, not one million. Inflation makes everything more expensive over time. Therefore, it's vital for all of us to invest often and early if we want to have a high net worth.

As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth of the above average person!

According to CNN Money 2021, 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+.

Seems low, but that's because the age range is large. Most Americans aren't fiscally responsible with their money with only a 5-7% saving rate before the global pandemic hit in 2020.

But the global pandemic proved that if Americans want to save, they can! Look how it shot up to 33% in April 2020. Unfortunately, the personal saving rate has fallen back down to pre-pandemic levels in 2022.

Traits Of The Above-Average 40 Year Old

Before figuring out how much the above-average 40 year old net worth should be, let's first determine what being “above average” means.

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) Maxes out their 401(k) and saves and invests at least another 20% to build a passive income portfolio.

Now that we have a rough definition of what “above average” means, we can take a look at the tables I've constructed. The data is based on the more than 12 years of analysis since Financial Samurai began.

The Above Average Net Worth For A 40-Year-Old American

First, we must highlight what the average tax-deferred retirement savings plan is for those in America. We'll focus on the simple 401(k) system we have here where one can contribute a maximum of $20,500 of their pre-tax income every year in 2022. The figure goes up by about $500 every couple of years.

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.”


401k by age savings potential guide - The Average Net Worth For A 40 Year Old In America

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. He or she continues on maxing out 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 401(k) 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 contribute $18,000 a year at the minimum for the majority of their careers.

For example, when I started contributing to my 401(k) in 1999, the maximum contribution limit was only $10,000. As a 39 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 401(k) contribution or 401(k) 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 Chart - average net worth for a 40 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. It's very easy for many who earn more than $85,000 per person. Finally, the chart should show you the power of consistency.

Real Estate Is Key For Building Greater Wealth

A 2020 study showed that the average net worth of a homeowner is roughly $200,000, or 40X greater than the average renter's net worth of $5,000. Home equity is an important part of the average net worth for a 40 year old.

We can debate the merits of this study all day long. 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, homeowners are wealthier.

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.

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 about $380,000 at the beginning of 2022. It could end up well over $400,000 by 2023.

Where I'm Investing In Real Estate

I'm personally investing heavily in the heartland of America to take advantage of demographic trends towards lower cost areas of the country. The future of work is remote work thanks to technology. The pandemic has only accelerated this trend.

But I'm also heavily investing in big city real estate like San Francisco and New York. I think there's going to be a huge snapback of demand once the pandemic is over. Rents are already creeping back up.

Hence, let's construct an equity value chart of something based on a range of $250,000-$500,000. Let's assume that upon retirement, you have your house paid off. You can attribute this amount into your net worth. Or you can capitalize all the rent you would have paid and create a value fo those savings.


Financial Samurai Home Equity Accumulation Guide Chart - average net worth for a 40 year old

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. They will have also paid down $3,500-$7,500 in principal on a $250,000-$400,000 loan.

I conservatively assume a $250,000 no money down loan for the low end house. This is 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.

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.

One of the best ways to invest in real estate is through Fundrise and CrowdStreet, my favorite real estate crowdfunding platforms that are free to sign up and explore.

I've personally invested $810,000 in real estate crowdfunding to diversify my real estate assets that are heavily concentrated in expensive San Francisco, Lake Tahoe, and Honolulu. The heartland of America is very attractive. And rental yields are much higher as well.

The X Factor For Building Wealth: You!

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!

Financial Samurai Is My X Factor

My X Factor was starting Financial Samurai in 2009 during the last global financial crisis. Thanks to just starting, Financial Samurai gave me the courage to negotiate a severance and leave corporate America for good in 2012.

In a way, writing a severance negotiate strategy book is an X factor. The book now generates $40,000 – $50,000 in passive income.

Financial Samurai is now my greatest asset. It produces a steady stream of cash flow that can't be shut off.

I highly encourage you to start your own website given how cheap and easy it is. Everyone should plant their flag online and get rich off themselves. The pandemic has shown that having an online business that can't be shut down is extremely valuable.

With the supplemental retirement income from Financial Samurai, I'm able to raise my two young children full-time. I also get daily satisfaction I'm helping others achieve financial freedom as well.

Passive Income Is Key For Freedom

The key to building an above average net worth for a 40-year-old is building as many passive income streams as possible. Once you have enough passive income to cover your desired living expenses, then you are truly free.

The above average 40-year-old should have an invest portfolio large enough to cover his or her basic living expenses. These expenses include: food, shelter, transportation, and clothing. A target passive income stream of roughly $50,000 is a good goal by 40.

Below is my latest estimated passive investment income to provide for my stay at home spouse and two kids. For 2022+, I'm focused on building passive income through real estate crowdfunding. With low interest rates and an accommodative Fed, real estate is the way to go.

Favorite Real Estate Investing Platforms

The value of cash flow has gone way up because interest rates have gone way down. My favorite platform is Fundrise, which has private eREITs for diversification and stability. For most people, it's smart to diversify into a stable eREIT.

For those of you who are accredited investors looking to invest in individual commercial real estate projects, check out CrowdStreet. CrowdStreet focuses on opportunities in 18-hour cities where valuations are cheaper and net rental yields are higher. If you have a lot of capital, you can build your own select fund.

Both platforms are free to sign up and explore. I've personally invested $810,000 in real estate crowdfunding so far with a ~14% IRR.

Financial Samurai 2022 Passive Investment Income Streams

The Above Average Net Worth For A 40 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.

The Average Net Worth For The Above Average Person by Financial Samurai - average net worth for a 40

There you have it! Based on my assumptions above, the average net worth of the above average 40 year old is around $660,250. By the time this person is 60, his/her net worth should climb to around $2,180,000.

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.

There is NO REWIND button in life. With a continued low interest rate environment, it's more important than ever to save until it hurts each month. You won't regret it when you no longer want to work!

I full expect all Financial Samurai readers and personal finance enthusiasts to become millionaires by age 60. In other words, the average net worth by the time readers retire should be $1,000,000 or more.

Track Your Wealth Diligently

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 financial tool to help you track and optimize your wealth.

Before Personal Capital, I had to log into eight different systems to track 28 different accounts to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing. I can 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. It 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.

They've also come out with their incredible Retirement Planning Calculator. It 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.

There is no rewind button in life. The average net worth for a 40-year-old will be much higher if you meticulously track your finances. Your 40s is a wonderful decade. But it can come with major responsibilities like caring for aging parents and young children. Your own health might start to decline as well. Stay on top of your finances so you don't have to worry as much!

Retirement Planning Calculator

About the Author:

Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. Financial Samurai was started in 2009. It is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month. You can sign up for his free weekly newsletter here.

The Average Net Worth For A 40 Year Old is a Financial Samurai original post.