When it comes to your finances, everything is relative. To get ahead, you must outperform the average. If everybody is up 20% in their investments, have you really gotten richer? You have not. This post will discuss the average net worth for the above average person. Our goal is to outperform the average so we can live better lives.
You’ve got one life to live. You can have the average net worth in America, which is pretty low. Or, you can shoot to have an average net worth for the above average person. Let’s all shoot to be above average with our one and only lives! This is, after all, Financial Samurai.
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. With this level of wealth, all our living costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end.
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 for the above average person!
Average Net Worth By Age In America
According to the latest Federal Reserve’s Triennial Consumer Finance Survey available, the average net worth for the following ages are:
Under 35: $76,200
35-44: $288,700
45-54: $727,500
55-64: $1,167,400
65-74: $1,066,000
75+: $1,067,000
Not bad. But these average net worth numbers are skewed by the super rich who have generated an enormous amount of wealth since the financial crisis.
Although the average net worth for all Americans is roughly $692,100 in 2022, the median net worth is a more pedestrian $97,300 as of 2022. Meanwhile, the median age for Americans is around 36. Therefore, your goal is to try and beat the average net worth by age in America every step of the way. And I firmly believe if you subscribe to the free Financial Samurai newsletter and immerse yourself in personal finance by reading a great personal finance book, you will get there.
Let’s look at the average net worth for above average people. It’s much more rewarding to shoot for stretch goals and achieve the.
The Above Average Person Is Loosely Defined As
1) Someone who went to college and believes grades and a good work ethic do matter. Or someone who graduated from high school and went straight to work in the trades or building your own business.
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) Has a diversified net worth, which includes stocks, bonds, real estate, and alternative investments.
9) Enjoys empowering themselves through learning, whether it be through books, personal finance blogs, magazines, seminars, continuing education and so forth.
10) 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.
11) Does not confuse brains with a bull market.
12) Understand the power of inflation and believes $3 million is the new $1 million
13) Is constantly learning and reading about health, wealth, and relationships. In fact, the above average person reads 10X more than the average person. Check out my new Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. It is the best personal finance book you can read today.
The Above Average Net Worth Deconstructed
Now that we have a rough definition of what “above average” means, we can take a look at the tables I’ve constructed.
The tables are based on the tens of thousands of past comments by you. They are also based on the more than 2,000 posts I’ve written since 2009 to highlight the average net worth of the above average person.
First, we’ll focus on the simple 401(k) retirement savings system. For 2022, one can contribute a maximum of $20,500 in pre-tax dollars. The maximum contribution amount will likely go up by $500 every couple years if history is any guide.
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.” Given not everyone can contribute the maximum 401(k) amount, I’ve used the average contribution of $18,000 instead.
Financial Samurai 401(k) Savings Guide
The average net worth for the above average person takes full advantage of his or her 401(k). The 401(k) is a tax-advantaged account where you contribute pre-tax dollars, which lowers your taxable income and tax bill. The money then compounds without a tax drag.
Only after 59.5, when you can start withdrawing from your 401(k) penalty-free, do you need to pay taxes on the withdrawals. However, by then, your marginal income tax rate should be lower since you’re retired.
Below is the recommended 401k amounts by age.
401(k) Contribution Assumptions
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 will continue on without fail until 65. You can read more about the right contribution order of your investments between tax-advantaged and taxable accounts.
The low and high end account for a conservative 0% return to a more historical 7% – 9% constant rate of return. Of course you can lose money if you are unlucky and make much more if you are good and lucky.
Given the 401(k) maximum contribution limits have increased over time, the left column can also be used as guidance for older savers over 45 years old. The middle column can be used for middle aged savers between 30 – 45. The right column can be used by younger savers under 30 who get to max out at $19,500 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. If you are a 40 year old, it’s best to focus on the Mid End column.
This chart does not take into consideration any after-tax savings post 401K contributions. However, the high end does include 401k company contributions, as this is common for those with seniority and those who work at profitable, generous companies.
For example, for the last five years, my company paid out more than $20,000 a year in profit sharing.
Financial Samurai Post-Tax Savings Guide (Taxable Investments)
The average net worth for the above average person is also bolstered by building a large post-tax investment portfolio. After all, you can’t withdraw from your 401(k) before 59.5 without a 10% penalty. When I say post-tax, I mean taxable investment portfolios such as your online brokerage account.
It also refers to your rental property portfolio you are building. Some of you may simply prefer real estate over stocks. That’s fine. Real estate has historically been a fantastic wealth-creator long term. The combination of rising rents and rising property values is hard to beat.
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.
If you want to achieve financial independence sooner rather than later, it’s your accessible post-tax savings and investments that matters more than your tax-advantageous retirement accounts like your 401(k), IRA, Roth IRA, and so forth. Why? Because your post-tax savings guide is what will spit out passive income to pay for your lifestyle.
Finally, the chart should show you the power of consistency. Every person who wants to be above average financially should target a 20% savings rate after maxing out their 401(k) contribution.
The Importance Of Real Estate
The average net worth for the above average person also owns his or her primary residence and invests in real estate for income and diversification purposes. Inflation is too powerful a force to combat. If you are a renter, you are short inflation and the real estate market, which is no good long-term.
The Federal Reserve study showed that the average net worth of a homeowner is roughly $1,034,000. This is 11X greater than the average renter’s net worth of $91,000. Some studies show the average net worth for homeowners is 40X higher.
We can debate the merits of this study all day long (demographic sampling, housing price changes, etc), but the point is: above average people generally all own homes and are much wealthier than renters.
The return on rent is always negative 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 roughly $320,000 as of 2021.
In fact, due to the coronavirus pandemic, the demand for real estate is surging because we’re all spending much more time at home. Further, mortgage rates remain low, although they’ve ticked up.
Real Estate Investing Arbitrage
You can’t get anything livable in San Francisco, New York City, Los Angeles, Washington DC and Boston for $320,000. But, you sure can in the Midwest where I’m aggressively investing money through real estate crowdfunding platforms like Fundrise. Fundrise invests in single-family and multi-family homes in the heartland. It has over $3.2 billion in assets under management.
Valuations are so much cheaper and the net rental yields are so much higher in non-coastal cities compared to the coastal cities. With companies like Google investing $13 billion in heartland real estate to expand operations, you know other companies and investors will follow.
Further, work from home is here to stay after a long pandemic. Technology has made working from home acceptable.
As a result, there will be a multi-decade migration away from densely populated and more expensive cities to cheaper cities with more space. CrowdStreet specifically focuses on real estate opportunities in 18-hour cities like Charleston, South Carolina vs. 24-hour cities like Los Angeles, California.
I personally sold a San Francisco rental property for 30X annual gross rent and a 2.5% cap rate in 2017. Then, I reinvested $550,000 of the proceeds in real estate crowdfunding with a target 10% cap rate. It feels good to diversify into no-coastal city real estate and earn income passively.
My total investment is $810,000 in the space. I’ve received over $624,000 in distributions since 2017. It’s been great to diversify my expensive real estate holdings and earn more income passively.
Financial Samurai Home Equity Guide
Let’s now 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 and can attribute this amount into your net worth.
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. 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.
Paying Down Debt Is What Above Average People Do
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.
I assume zero price appreciation on the home. It’s always best to keep things conservative. There are no extra payments to accelerate the payoff either.
Home prices have historically returned just a bit above inflation every year e.g. 3-4%. But given the above average person puts down about 20%, the 3-4% returns suddenly turns into a 15%-20% cash-on-cash per year.
15-20% compares favorably to the average S&P 500 return of roughly 5.6% from 1999-2018 and 8% – 10% since 1926. Although, expect future returns for stocks, bonds, and real estate to be lower.
Add on the tax benefits for mortgage interest deduction and owning a home through a mortgage becomes very beneficial for higher income earners.
The Average Net Worth For The Above Average Person
Below is the end result. It shows the average net worth for the above average person by age and years of work experience. The chart includes the average 401(k) amounts, average taxable investment amounts, and average real estate equity amounts. The table should give you a rough net worth amount to shoot for if you want to be considered above average.
The average net worth for the above average person by age is as follows:
$250,000 by 30
$429,000 by 35
$660,000 by 40
$914,000 by 45
$1,240,250 by 50
$1,684,000 by 55
$2,180,250 by 60
Somewhere in their mid-40s, the above average person becomes a millionaire. In comparison, the average American only becomes a millionaire between 55-64. This is 10-15 years later according to the Federal Reserve.
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.
Buy The Best Selling Personal Finance Book
If you want to achieve financial freedom, purchase a hardcopy of my new Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. The book is jam packed with unique strategies to help you build your fortune while living your best life.
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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. This way you can see where you can optimize your finances.
They’ve also come out with their incredible Retirement Planning Calculator. The calculator uses your linked accounts to run a Monte Carlo simulation to figure out your financial future.
The average net worth for the above average person is all over tracking his or her finances. There’s no rewind button in life. It’s better to end up with a little too much than a little too little.
Invest In Real Estate More Strategically
If you want to have an above average net worth, you should also consider investing in real estate. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Further, inflation is elevated, which means there’s a tailwind for rents and property prices.
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 and eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most investors, I think investing in a diversified real estate fund is the way to go. Fundrise manages over $3 billion in assets under management.
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 with higher rental yields. They also potentially have higher growth as well due to job growth and demographic trends. If you have a lot more capital, you can build your own select commercial real estate portfolio with CrowdStreet.
Both platforms are free to sign up and explore.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. There is a strong demographic shift towards lower cost areas of the country. Technology and the rising trend of working from home will make this trend permanent.
The Average Net Worth For The Above Average Person is a Financial Samurai original post. Thanks to a bull market, the average net worth for investors has skyrocketed. With elevated inflation here, it is vital to keep owning inflationary assets.
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Sam,
Long time reader. Just bought a copy of your book and am thoroughly enjoying. As an Asian American living in a high-cost coastal city (Brooklyn NY), I can relate to so many of your stories and experiences. Wanted to thank you for all your incredible, easy-to-digest content, and valuable teachings.
I am happy to share we (wife and I) are on our way towards financial independence. I am 40 she is 39. Our net worth (give or take some crazy market volatility) is roughly $1.7M. Rough breakdown of asset allocation would be 55/40/5 [stocks including 401k/condo owned free and clear/cash].
It gives me comfort knowing disclosing this type of info in this community is not viewed as bragging, but rather a way to keep yourself honest to your goals and to encourage others to reach theirs.
Love the content and just ordered the book from Amazon. Curious to know if you’ve invested yet into Crowdstreet, and if not yet, why not? I see return content for your Fundrise investments but have not come across actual return info for CS. Thank you, Sam!
Thanks for ordering my book. I think you’ll love it as I go deep into money matters and tackle some of life‘s biggest dilemmas. I hope you will leave a great review when you’re done.
I have invested in CrowdStreet deals before. One worked out well, 40% return over 2 1/2 years for a class a office building refurbishment. Another is doing fine and should exit within the next two years.
I found that I don’t have time to pick individual deals and assemble a portfolio. Therefore, I like investing in Fundrise because they offer private funds and exposure to SunBelt single-family and multi family real estate. That is the asset class I want to gain the most exposure to. As I wrote about investing in the heartland of America since 2016.
The biggest strategy in investing is to invest in long-term trends. And I believe heartland real estate is one of the best long-term trends over the next 20+ years.
Thanks, Sam!
This is a great measuring stick for me, just crossed one-year working full-time after graduating from undergrad. By most accounts in this article, I’m on/above schedule but already feeling a little burned out. The supply chain in the automotive has been unrelenting in the past couple of years and shows no signs of slowing down.
Additionally, I’ve been taking roles that are high-stress/high-visibility due to advice from a lot of leaders at my company. One of your recent articles on prestige chasing has me reconsidering my priorities. At what point in your career did you stop taking on “stretch assignments” or specific jobs just for the clout?
Thanks,
Drake
I’ve been following this site for a few years; I enjoy your work. I’ve been in financial services for my career but over the last 5 years have spent a lot more time in the wealth management field of finance.
I noticed that in many of the wealth / net worth posts you have, there’s not much distinguishment between pre-tax and post-tax planning.
I was recently attending a seminar that a client of ours hosts and the attention placed on how an individual saves and *where* those dollars are saved was incredibly impactful for how best to position for retirement.
For example, if you save predominately in 401k’s for most of your life, you can find yourself paying more in taxes due to required minimum distributions.
If you’ve tackled this subject in a post that I’ve missed, feel free to disregard and/or share a link.
Thanks
Hi Oliver,
You can check out this post for where to invest between tax-advantaged and taxable accounts.
The Right Order Of Contribution Between Your Investment Accounts
I also recommend you pick up a copy of my new book, Buy This, Not That: How to Spend Your Way To Wealth And Freedom. It is the most comprehensive personal finance book on achieving financial freedom and making optimal decisions for some of life’s biggest dilemmas.
Thanks,
Sam
I wish this type of website and information was readily available at my fingertips when I was young. Thank you financialsamurai.com! I’m close to 70 years old, live in California, and I recall when 401(k)s first became available in my mid-20’s of thinking “Oh, I’m too young to worry about retirement.” I didn’t start investing in a 401(K) until around 36 years old or so. Life throws you a bunch of curves, though won’t go into detail with my story. As the saying goes, “best laid plans.” Also, my parents were of the “greatest generation” and lived through the depression. I grew up thrifty but cautious. I was not aggressive enough during the years of investing. I’m still working and have been maxing out by 401K accounts for some time now.
Anyway, I, as a single, divorced individual (no alimony, I had to pay it to my ex for a time), have accumulated almost $755,000K in cash, $1,325,000 in 401Ks and an IRA, as well as have $750,000 in home equity for a rough net worth (not counting other things that can count toward net worth) of $2,830,000. In 2023 I’ll be 70, so I will get SS along with some small pensions since those started to phase out big time when I was in my 30’s.
My purpose is saying all this is:
1) I feel torn with feeling that I “should” be OK if I don’t crazy with spending so “good job” yet I also feel like I missed out on so much more $$ that could have been accumulated because I have been quite conservative in my investments and started later in life with the 401(k)s. I never used a financial planner. I have always been a good saver, but a divorce in my 50’s (I made more $$ than my husband) really put a lot of what was built up at risk and did set me back several hundreds of thousands of dollars.
2) I encourage anyone I come in contact with that while “living for today” is great because life is meant to also enjoy when we can, think about the future, too, and don’t delay with getting a good financial plan going. Start now, if you haven’t. I never used a financial planner and feel if I consulted with a reputable CFP early on, I could have done so much better.
My grandmother name was Joann miss her
I have been thinking about the rent/buy trade-off for many years. Finally I am at the time of my life where I have an opportunity (work, family, location, etc.) to consider buying. In addition to all the variables that often (necessarily) get simplified for general analyses, the thing I find most confounding to me is the concept of property taxes.
Do you have any insight / analysis on this?
For example, if I buy a $500,000 house and benefit from all the equity, leverage, inflation, etc. dynamics – and even pay it down in 30 years – I will still be on the hook for let’s say $12,000+ per year in property taxes, which is like $1,000 per month in rent. When I then add in maintenance and insurance, it seems to be a rather significant missing perpetual fixed expense from these analyses – and yet I wonder if I am missing / overstating the issue?
Completely agree with this question!! And taxes really add up over the lifetime of ownership, mortgage or not!!
However, my own situation still costs me less money versus renting:
Monthly taxes without mortgage: 800
vs. Monthly rent at market rates: 3,500
Of course this still required me getting rid of the mortgage in order to enjoy this savings…..no two ways about it.
I am a landlord. I own 2 single family houses that I rent out. I include the cost of property taxes, mortgage, maintenance and repairs in the monthly rent charged. After all, a landlord is renting their property out in order to make a profit, not a loss.
As a renter you are not avoiding the costs of home ownership (taxes/maintenance). Those costs are built into your rent in addition to a profit margin for the landlord.
In the end, it is always cheaper to buy than rent.
$750,000 is the MINIMUM wage in the NHL BUT MAXIMUM WAGE in the REAL WORKING WORLD!!!
My lifetime gross income for 35 years is almost exactly half of what JOE THORNTON will make in ONE year ($376,000). Only about 75% of that is EARNED INCOME!!
I have received NO INHERITANCE YET but still have a net worth of $600,000!!!
LESSON: Get a good financial planner early and invest primarily in EQUITIES (especially AMERICAN)!!!!!
$10,750+ per year!!!
Do you know anybody who has averaged LESS than 11,000 a year for 35 years and is still worth $600,000 dollars without an inheritance or lottery victory???!!!
I am going to average only a $9,000 gross the next FIVE years and fully expect to be a MILLIONAIRE (still without an INHERITANCE or LOTTERY VICTORY).
COMPOUND INTEREST LATER ON IS BEAUTIFUL!!!
It is time to contact THE GUINNESS BOOK OF WORLD RECORDS!!!
In your blog you have mentioned the average net worth for all age group. Some people may attain this or some not. But I believes that one should save for the future because at some point they are no longer willing work. So start now so that you have enough for your future.
43, saved heavily and finally hit the 1 mil mark at 42 — felt like it took forever. Now at +2 mil. If this is an inflated market, we might need a new inflated above average person spreadsheet.
You doubled your life savings in one year?????!!!!!
I’m shocked too! I was overly cash heavy, deployed it all in March March 2020 during the covid crash.
Sorry. I do NOT understand!!
You deployed it from cash to equities??!!
If you did that, you would have lost A LOT of money for the first month or so before getting it back??!!
I do NOT see that it is at all possible for you to double your life savings in one year UNLESS you received a LARGE INHERITANCE!!!!!
Christopher:
Jealous much??!!
It’s possible, I know because similar happened for me. No inheritance necessary, just a little infusion of extra cash into the right stocks at the right time. Some might call it luck, and I don’t mind. I call it a blessing for which I am very grateful.
I am NOT jealous!! I am just realistic!!
If you look below, I have no reason to be jealous!!
Agree – similar result in equity growth in my portfolio from Q1/20 to Q1/21
Can you double it again from Q1/21 to Q1/22??
I doubt it!!
Let me know in a year!
You MUST have MOSTLY AMERICAN EQUITIES!!!!!????
Know few folks who made 10x via TSLA in 2020. Just lucky—they did see their net worth increase by $1M YOY.
Absolutely true , I more than doubled (110%) my portfolio from March 2020,
My total gross income will be $420,000 for 40 years of work!! THAT IS GROSS. This includes all jobs, EI. insurance, severance payments, self-employed income and CPP. I am still on track for millionaire status by age 65!! I shall not receive any inheritance money or OAS until AFTER age 65. THE KEY: Get a good financial planner early and invest primarily in equities (especially American) to start. I am just as rich as DENNIS RODMAN and almost twice as rich as AMY JO JOHNSON!! Both have earned WAY more than $420,000 in their lifetimes!
DENNIS RODMAN: 27 million gross income and a net worth of $500,000 at age 60. ME: right now: about $370,000 and I will have a net worth of $600,000 at age 60!!!!! My highest paying hourly blue collar wage: $13.50 an hour. That is 75 cents below minimum wage in Ontario today!
I am a real health nut and at one time wore TWO sweatshirts:
1) ME: 1962-21? (This implied longevity)
2) MOXIE MUSIC WATER (This implied NON-MATERIALISM).
Number 2 definitely helped with my financial portfolio!!!
ya but how much fun(eh coke) did you have during the time. you’re comparing apples and oranges my friend. at the end of the day you are both going to be dirt(6feet under).
just kidding by the way…but arrogance is stupidity.
I shall NOT be 6 feet under until the year 21?!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
22nd century, here I come!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I have been reading your site for years but have never commented. Thanks for all of the good information/advice from you, Sam, and your readers.
I am 48 years old and just today came across a “financial snapshot” I wrote almost exactly 9 years ago in 2012 at age 39. My asset classes have not really changed, except for one whole life insurance plan. The rest are the same.
In March 2012, we had a net worth of about $496,000. $60,000 cash, $343,000 in IRA/401ks, about $80,000 home equity, $83,000 in a stock plan and $30,000 in 529s for our two kids (which shouldn’t really count). I still owed about $100,000 in school loans, which were driving me nuts.
In April 2021, by just sticking to it and letting the market do its thing, we now have a net worth of about $2.5 million. $70,000 cash, $1.36 million in IRAs/401k, about $300,000 home equity, $451,000 in stocks (I sold a bunch to finally pay off school loans, so it would be higher–other than that, I am a buy and hold guy), $91,000 cash value in a whole life plan, $230,000 in 529s.
Take out home equity and 529s and we have about $2 million, which I hope will grow to at least $6 million by the time I am 62 and can shut it down with no concerns. I figure if/when the market slows down, it will slow down for everyone so I will be all good.
A friend of mine who was a few years older than me grabbed me by the scruff of the neck at one point and made me sign up for our company’s 401k and open an online stock account (when I kept saying I didn’t have enough money to save yet). Thanks to him, a somewhat early retirement is looking like a really nice possibility. This life thing is long, hopefully, so get involved in investing as soon as you can and keep up with it.
I follow this thread, so noticed your post. I’m on about the same travel as you plus 9 years now 58, and now semi retired. It’s just worth reiterating what you said. Starting early and sticking to it make it work. Will be interested to see if Sam weigh’s in. Enjoy you time and enjoy the ride! The last 9 years have flown by.
Well done Brian! Pretty amazing what trusting the process and compound growth and diligent saving and investing can do right?
I’m pretty confident you will achieve your financial goals by 62.
And in the meantime, enjoy life!
You make my accomplishment look minuscule compared to yours BUT I doubt that you only earned a gross of $10,500 annually for 40 years!!!!!
However, I do not have the responsibility of supporting a family.
If I live to be in my mid 90s, I shall only have 2 million more than you would at age 62.
However, I am fine with that.
Yes!! BUY AND HOLD IS THE WAY TO GO!!!!!!!!!!
UPDATE: My average annual gross income for 35 years (age 25 to age 60) will be $10,750. I expect to be worth $600,000 by age 60. From age 60 to age 65, I expect to average a gross of $9,000,00 a year. MY PLAN: $800,000 by age 62.5 and $1,000.000 by age 65
Again, START EARLY WITH A GOOD FINANCIAL ADVISER and LEARN FROM YOUR ADVISER TO HAVE SOME OF YOUR MONEY IN AN ONLINE ACCOUNT TO ENJOY LOWER MER FEES!!!!!
Sorry. It should be $9,000 a year (NOT $9,000,00).
These calculations look very reasonable. I just made 42 and am above your number, all in my investment portfolio. The argument whether you rent vs own and thus build implied RE equity seems to me very individual. I have looked at this question and for any reason renting for me personally looks always financially beneficial vs the rates of return I had been able to generate on the investment portfolio. May be because I am single and live outside the US
I am 34 next month, and this net worth estimate is spot on. Well done!
I assume that you are well off!!
HAPPY REMEMBRANCE DAY!!!
My goal is to boost my current net worth by 1000% within five to ten years from today!
Great content
IMPOSSIBLE unless you get a HUGE inheritance!!!!
Absolutely not true.
1000% in 5-10 years is unrealistic without a massive influx like an inheritance. Absolutely.
It depends what your baseline is, obviously. If you have 10k net worth, then getting to 100k in 10 years is a totally reasonable goal.
Easy, for many, if you’ve been spending all your money and you start saving you could easily increase 10 x in 5 to 10 years.
Could exit a business. Could also be starting with a really small amount
Go for it, it can be done.
Agreed! Those who think they can and those who think they can not are both correct.
I love bullet point #4 in what defines an “above average” person. Taking responsibility for your actions (or portion) when events go wrong is a critical piece in building success no matter what your objective. When you apply this lesson in all areas of your life, you are implementing part of the foundation to achieve your goals!
We are early in our retirement ages 39 & 44. I would like to check in to gain more perspective, wisdom and knowledge.
I am a veteran receiving ~40k a year with COLA adjustments and healthcare currently not working. My plan is to start working once our children are able to attend day care. My spouse makes ~200k a year currently. Assuming future raises with some rough math final pay would be ~240k at retirement. Our heath care will be supplemented in retirement. My spouse is pension eligible from two jobs, the highest paying job, we are considering 60% of her final pay to set a retirement date at age 60. That would yield us ~130k a year in retirement before taxes, health insurance etc. The second pension would bring ~6k a year. We will also have a rental property that will yield ~15k. To recap we will have 130k+40k+15k+6k=191k of guaranteed income in retirement.
Our primary mortgage will provide at least 1M in equity during retirement. We have no debt other than our mortgages.
My spouse is saving in a pre-tax account and we are both are saving in our Roth IRA’s. We are so far away from retirement it is impossible to say what these account balances will be. We have chosen to send our children to private school until they reach middle school age which prevents us from my spouse maxing out her pre-tax retirement account.
My first question is about SS. We are considering delaying SS until age 70. The research I have done predicts 48k a year pre-tax for my spouse. I did not factor my SS in at the moment because I still have earning years to gain. At age 70 with 191k in taxable income then brining in ~48k in SS.
I do not understand how SS works exactly. How much of the SS will we be gaining with it being taxed at 85%?
My second question is about withdrawal strategies. We will have pre-tax, taxable and Roth IRA’s. For simplicity let’s assume they are all equally funded. Being locked in a high tax bracket due to the pensions. Which accounts should we draw from first? Should we save the pre-tax accounts until age 72 (RMD) or is there a more tax efficient way to manage those accounts?
We are so far away from retirement I am hoping to avoid any pitfalls as early as possible. Wisdom is always welcomed.
Thank you for your time.
Best,
Too Early to Know
I think you are in plenty good shape! Wish I was where you were. How’s it look if you wanted cal it quits at 55?
a fantastic social security calculator is at opensocialsecurity.com
good luck to all and happy holidays
I wold love to talk to you about how to create wealth and specifically a guideline about what price range my house should be if i am looking to buy. I am 47 and have a net worth of 7 million. I would be happy to share strategies. First being how can a person pay $3 for bottled water at Starbucks when they give you free ice water if you ask.
Would Live to Talk John.
Dan
If I could have guessed 30 years ago that you could sell essentially tap water for $24 per gallon while polluting the earth with plastic, I would be worth billions, or Coca Cola.
May I ask how you can qualify for a low rate of mortagage without W2 income? Is it possible to refinance and cash out from your investment properties? Have you used Credible yourself or it is your sponsor? Thanks.
I’m not an expert, but the rate may be higher without W2 income, if you can even get a loan. You will have to prove income over several years on your tax returns. Catch 22: for tax purposes, you want to show you are losing money. You can cash out from investment properties, but the rate from cashing out and investment properties is higher, probably 3/4 percent or so. And, your payments will go up on those unless you had a higher rate to begin with. Cashing out is probably not a great idea unless you need all cash to pay cash for distressed or auction properties. Most other sellers don’t care whether you pay cash.
Hey Sam,
Just realized freshly hitting age 29 I’m too cash rich (because I’m trying to buy a house in the Pacific Northwest but have a couple months before hitting 6 years in the workforce). Will be putting 20% down (split 10% each between my partner and I). I will hit your net worth target for age 30 but I’m worried I am somewhat misallocated as 50-60k of my worth will be equity in the home and I’ll be keeping a 10% cash buffer of the home’s value for emergency purposes with the rest in Roth and 401k accounts invested aggressively in equity indexes. I figure I have a long time to work so dollar cost averaging will continue to serve me well. Do you have any suggestions for how to optimize my situation so I can keep hitting these benchmarks? I’m maxing my 401k and Roth IRA and will invest even more in the equity markets once the house is purchased as I will hopefully not need to accumulate that much cash again.
I used to think this was much harder to achieve, as I was a late bloomer and didn’t start my professional career (nursing) until I was 26, and at the time had close to $100k of debt. I’m now 32 with a net worth roughly $550k, so it’s totally doable, and also possible to catch up for late bloomers like myself. I’m lucky that I’m childless and single, so that does decrease my cost of living significantly. With that said, I hustle my ass off and don’t spend frivolously. I work a normal 8-5 M-F job, I rent out rooms on airnbnb, and I rent out cars through touro. I also work an extra job 2-3 Sunday’s per month. All this side hustling has let me save close to 100% of my “real” income for the past few years, which is making me think retiring early, or at least only working part-time because I want to is a serious possibility.
The low end of average net worth doubles between 30 and 35. Not sure how people can save $50k when also having expenses such as young children, weddings, and house buying costs
It’s hard for the average person because the average person only has one source of income, has consumer debt, doesn’t save and invest as aggressively, pays a crazy amount for a wedding, and works 40 hours a week or less.
It’s OK to be average, but we’re shooting for above average here. So different habits must be formed.
Financial Samurai
Good morning
This is my first foray into a discussion forum!
I have been reading your site and “The Balance” on and off for a few years now.
It seems to me that the most important thing about net worth and income management is the correlation to your overall retirement lifestyle after leaving the work force.
I wanted to suggest or inquire about the possibility of someone creating a after retirement income calculation that does the following:
Calculate your total annual garantied retirement income potential based off your different streams of income and thereby deriving your actual net worth versus your perceived net worth.
I would see the following included:
Pensions
Annuities
Social Security
Military retirement
Disability
Medical care/insurance
Life insurance
I currently receive an annual Military Retirement (pension) of $26,000.00.
I equate the governments holdings to fund this pension as an annuity and thereby associate it as a source of my personal net worth.
However, depending on two separate calculations I have recently read it can be worth $450,000 or $1,019,607.00 in net worth.
If health and life circumstances hold to our current plan I expect our household annual retirement income from pensions alone (1 military pension, 2 Federal pensions and 2 Social Security pensions) to be approximately/estimated at $157,000.
Based off the 2 current pension calculations the net worth could range from $2,358,000 to $6,156,862.
Obviously these numbers have a significant disparage when it comes to determining your actual net worth and the leverage you have when discussing investment opportunities.
This does not include any of my other recognized standard assets which can be transferred as an inheritance to others.
CD’s
401K
Cash
Property
With the new normal of extremely low interest rates I think your younger readers might be motivated to serve in the military and government employment if they understood the significance these pensions can have on their final retirement.
I enjoy the online calculations but most of them do not go into details in regards to how pensions should be calculated.
I generally have to use the income calculator to get a futuristic look at real buying potential.
Some of The pensions are indexed to inflation or close to it so the buying power is greater than other assets.
I enjoy your site in regards to finance information (Polar opposite to your Political positions.)!
Regards
Chris
The value of pensions have gone way up bc interest rates have gone way done. https://www.financialsamurai.com/how-do-i-calculate-the-value-of-my-pension/
I’d love to know more about what you think my political views are since this site focus on personal finance. I’ve found the people who bring up politics are most passionate about politics, so feel free to share your views too.
Thx
Sam
Good morning
Your site is mostly about financial matters which is why I appreciate and enjoy it.
The pension equation you posted is the one I was using that determined the high end of the expected net worth. I do believe it is more accurate than the one that uses the $100 monthly income x 18,000 which is the one I used for the low end of the net worth and is likely the one used for traditional Annuities.
The government systems that have to support lifetime benefits can not guarantee them if they use the more risky investment options.
I believe your use of 2.55% is a fair assumption for current market conditions.
I am personally fortunate that the government has to accept the responsibility to amass and maintain well over $6,000,000 plus adjust accordingly with future inflation to fund my projected retirement.
My personal responsibility comes down to funding the additional $2,000,000 plus I want to secure my quality of retirement life in addition to that.
Thanks for the response and interaction!
Chris
Sam
Good Morning
I would love the Opportunity to converse with you in a one on one private relationship.
You perplex me!
But you are intriguing!
Regards
Chris
Our wedding cost $12 for the license, $100 for the Justice of the Peace to say the legal words, and whatever our motel cost for the night. Our only witnesses were the official, his wife, and their dog. We then embarked on our honeymoon, which was a trip across Canada to introduce my wife to my family, meet her family. We then continued on to my next work assignment in California. We have not had children, and rented because the military moved me frequently, and covered most of the rent. Children are great. They are also a luxury expenditure which is optional for each person and couple. Freedom to make one’s own choices is the best asset of all.
Are these numbers per person or per household? Ex: should I be doubling these numbers if I’m married, etc.
Thanks,
It’s by reported income to the IRS. Therefore, there is a mix of individual income and household income. Obviously, it will be harder to make $470,000+ as an individual versus two people. However, the individual perhaps is less encumbered with dependents and may be younger, hence more time and energy.
Related: The Average Net Worth For The Above Average Couple
For me (look below), it is per person.
I am not married.
If I were, I would surely be worth as much as JOYCE DEWITT is from THREE’S COMPANY (4 million dollars ) by age 75!!
How do you treat HSA and contribution to 529?
Is HSA a component of pre-tax saving?
Is 529 a component of post-tax saving?
HSA is actually pre-tax AND post-tax if you spend it on healthcare costs. 529 depends on the plan. It’s post-tax for the gains if you spend on education. Some states give pre-tax benefits to their 529 plans as well. Georgia I know does this.
Great post – thanks for the content and direction. I am 25 y/o and working hard to accumulate wealth now so I don’t need to worry about in down the road.
Forunate enough to have a six figure income and live below my means with no debt (GOD BLESS). Current assets as follows:
– $50K in an S&P 500 Vanguard Fund (VTSAX) at the market lows of this COVID-19 dip. Contributing $18K annually to this fund I am expecting to have $150K by 30, $325K by 35, and $1,000,000 by age 45. (assuming 8%-10% return)
– $75K in Roth 401K with a 15% annual contribution and an 11% company match (highest match I’ve ever heard of) (estimated $25K total annual contributions) (currently all equities)
– Actively growing the checking account ($30K estimated now) with plans to buy my house with this and not touch my Vanguard fund.
I feel like I’m on the right track and plan to increase my income over the years (management, director, etc.). I REALLY do not want to work until I am 60 y/o.
Any tips/feedback for accumulating some serious wealth would be appreciated
Thanks!
I think that you have already accumulated SOME SERIOUS WEALTH.
You definitely will not have to work until age 60!
I retired at age 55 after 30 years of barely a five figure annual income but I do consider myself to be NON-MATERIALISTIC.
Look at my comments below.
Good Job! For the money you’re saving for a property, I suggest a Money Market Account with higher interest rates, such as Ally or Capital One 360 Performance Account? It’s liquid but still earns some interest (used to be 2.0% but now around 1.5% because the Fed).
The major cause of “failure” for the above average person is at some point declaring victory and quitting the game. This can be done as early as your age 30 numbers, although many would consider 40 more comfortable. After 40… unless you’re job is genuinely your hobby and passion, there’s little reason for most to keep working just to accumulate at such a rate.
My total life gross income (self employment, employment insurance, pension and regular jobs) from age 25 to age 65 will be about $400,000.
That is right ($10,000 a year).
I still expect to be worth $1,000.000 by age 65.
LESSON: start early with a good financial adviser!!
Inspiring – Great to see someone coming out on top on even if you aren’t raking it in.
Thanks Eric.
For the record, I plan on doubling my net worth every 10 years. THE PLAN:
$125,000 in my mid 30s, $250,000 in my mid 40s, $500.000 in my mid 50s (where I am now and solely leaving on a pension), $1,000,000 in my mid 60s AND ASSUMING I LIVE THIS LONG: $2,000.000- mid 70s $ 4,000.000-mid 80s and $8,000.000-mid 90s.
I can keep doubling in my older years because I am expecting to live off some inheritance money and of course the addition of OAS at age 65.
Sorry folks. I meant “and solely LIVING on a pension”.
Relying on an inheritance is a very risky strategy. Illness and assisted care can be very expensive, so can living much later than anticipated, which can drain any inheritance. Plus, you have no control over how someone spends what you think is your inheritance. Seen it quite a few times. Just be careful. Proceed as though the inheritance will not exist. And if it ends up happening, great!
Thanks for your advice Steve.
In my case, I do not think that I will have a problem.
My Dad was a lawyer/judge and has an excellent pension.
My Mom was a social worker and has a good pension.
I was a musician/carpet and upholstery cleaner/factory worker/flyer inserter and janitor and have an average pension.
AMONG ALL THREE, I AM LAUGHING!!!!!
Great advice, having a good financial advisor is key!
No it’s not. NOT Having a financial advisor and being financially savvy is key.
I think that you can have it both ways.
I applied what I learned from my financial advisor and have my own small online account (buy and hold forever and enjoying smaller common class MERS with my ETFs) in ADDITION to my account with my advisor (buy and hold with occasional tweaking).
I personally don’t have the time to research as intensely as my advisor.
With my current situation, I still plan on being worth $2,000.000 by age 75 ( I should live at least this long) even though I shall only have a lifetime gross income of $500,000 ( a small+) for 50 years.
True. My self-employed hourly income as a self-employed (mostly jazz bassist and guitarist) was above average (15-30 dollars an hour) but it was a VERY minor part of my total income.
JOBS: A 5 dollar an hour carpet and upholstery cleaner and salesman.
A 7 dollar an hour factory worker
A 8+ and hour janitor and flyer inserter.
A 8.50+ 9+ and 10+ an hour flyer inserter
An 11, 13 and 13.50 an hour janitor.
You should note that minimum wage in ONTARIO IS 14 DOLLARS AN HOUR AS OF MAY, 2020!!
Sorry folks. I meant AN 8+ AN hour janitor and flyer inserter.
AN 8.50+, 9+ ect…….
Sorry folks. I meant “an 8,50+, 9+ etc…..”
After reading many of your articles, I am genuinely curious how an average person is supposed MAX out their 401k and some how magically save up for invest in RE and still figure out to pay rent and live some what of a life. Could someone please explain to me how this would even work ? I feel like something needs to be sacrificed, Im not a doctor nor lawyer nor someone that makes over $100k.
Any advice would be appreciated.
You have to start somewhere. Not everything is going to happen at once. Start with maxing out your 401k. As your income, experience, and net worth grows, then start to save more and more in your taxable investment accounts. Then you should consider taking on side jobs to boost your income to save and invest even more.
How old are you and how much do you think? How many hours a week are you working?
If the amount of money you are saving and investing each month doesn’t hurt, you are not saving and investing enough.
You have to get your housing,
Food, and transportation cost to a minimum eg 30% total of gross, so you can save and invest the rest.
If you are interested, you can join my group of folks who wake up at 5 am to work until 7:30 am each morning before work or our children wake up. After one year, you will have worked ~ 1,000 more hours than someone who doesn’t. If you do, I’m SURE you will get beyond the average net worth.
Related: https://www.financialsamurai.com/achieving-financial-independence-on-a-modest-income/
You will find the older you are the less money means. Go spend $100,000.00. You can afford it. You’ll never miss the money. You won’t be able to do it. The money means nothing and yet you will not be able to spend it.
Where do I sign up for 5am to 730am work each morning you mention in your post?
The part that left me genuinely stumped was the assumption that the “above average” 40 year old had 125k saved (on the low end) in addition to maxing out retirement accounts for 20+ years.
Just found the site and have enjoyed some of the articles, but some of them appear to just be humble-brags without much real advice.
I would love to see a breakdown of your budget while saving up for retirement, or even just example budgets for given areas of the country.
I’m 38 with a net worth of 1.3M. Not everyone can be above average just by saying they are. It’s years of sacrifice and intentional drive. I’ve worked at least 2 jobs most of my adult life between day jobs and a string of startups. Day job success combined with startup acquisitions have helped me climb the corporate ladder quickly – I’m currently an exec making $300K, and I *still* have a startup on the side because an above average person’s (as defined by Sam) drive never goes away.
And the assumption that a 40 year old has worked and saved for 20_ years is silly when his definition of the above average person in question includes them getting a college degree which, in almost all cases, means they had no income (and in fact most accumulated debt) until 22 or 23 years of age minimum.
The charts says the above average 40-year-old has worked for 18 years. 40 – 18 = 22, which is the average age for a college graduate.
your charts are wrong. you didnt ask the lower class. Have you heard of no child left behind? in Charles county Maryland that means cliff notes and answers written on the white board..
Thanks for sharing. I can also write a post about the average net worth for below average people. But I think it will be met with anger and ridicule.
Besides, the goal of this post is to shoot for higher net worth levels.
Gary
I am a 50 year old male whose first hand shake agreement to work was at the age of 11.
I began actual work at 16 and my first job was on a horse farm working 75 hours a week at $4.00 an hour.(no time and half for farm work!)
I was forced to leave my family and home at 17 because the 2 bedroom apartment my mother could get would only allow for two children of the same sex to share a room. (So by default due to a numerical sense my twin 18 year old sisters were the logical choice to stay with my mother.)
I began paying rent to a friends mother half way through my Senior year of high school in order to graduate!
I entered the Marine Corps on September 12, 1988. (Earned app. 700.00 a month after GI bill Contributions and taxes.)
Got married in 1995 with approximately $3,000.00 in our joint holdings. (Best decision I have ever made in my life!).
First major financial decision was to purchase a new home in Fallbrook, California in early 2000 for app. $220,000.00. (Sold it in 2004 for over $500,000.00)
Lessons learned when buying property in Key developments:
1. Buy in a cul-de-sac
2. Buy the largest floor plan in the development.
3. Improve the property to professional level standards, but do the work yourself.
Examples:
Use textured paint inside the residence preferably earth tones no exotic colors.
Install sprinkler system for the yard.
Lay Sod versus seed where applicable.
Build Stone walls with Wrought Iron fencing to see through.
Pour concrete patio (Use colored concrete versus standard gray.)
Do not plant to many shrubs or trees! (Open space outside is your Friend.)
We used the profit to purchase and establish a business (Quizno’s)! (Great Experience but to many hours for the gain and the corporation was unethical in practice.)
Sold out at cost no skin lost!
Decided to seek ongoing federal employment and will be relying on Federal Pensions for retirement. (Maxing out TSP contributions and if we maintain a 6% average return will likely be at approximately $2,200,000.00 by retirement)
Final annual income should be between worst case $220,000 and best case $300,000.
We do not follow a budget at all, parents all passed away before 71 and 3 of them before 55!
I let my wife buy anything she wants and contrary to the normal advice you get from most on this site we have driven a BMW X5 since 2004.
Why strive to make a lot of money just to hide in the shadows until you die worrying about the possibilities of evil people taking it from you!
When buying a car always upscale with the next purchase and never buy because you have too! Buy “silver” scratches are not noticeable and it will always look pristine even after 9 years.
As a Marine it may be a little obnoxious for me to suggest to other people not fear the evil that lurks around every corner!
But having survived poverty bottom 5% percentile and managing to get into the top 7% percentile of household income/net worth I feel pretty confident that this advice holds true to establishing a solid financial base for everyone to attain.
Bottom line pay no one for anything you can google to do for yourself!
Do not gamble!
Do not Lie!
Do not steal!
Do not cheat!
Do not Divorce!
Do not support Trafficking of persons activities such as prostitution, and strip clubs!
Do not drink to excess!
Do not curse your spouse!
Do not believe in others over your own judgment!
Do work an honest days labor for the wage you have accepted!
Do invest in TSP if able!
Do have compassion for those who lack your capabilities!
Do Love your your spouse/significant other beyond even yourself!
If you have a beautiful wife have no/or a limited number of friends!(All men want your beautiful wife whether they are your friend or not!).
Trust yourself more than anyone else but listen anyway!
Hope this is detailed enough for you and others to use for potential success!
Regards
Chris
This advice is 100% legit. I love it! I would like to humble brag that I started at 25 with a duplex that I bought and lived in and then rented out. I ended up renovating about 6 apartment buildings in all (larger than a duplex) and sold them together, 10 years later, for a substantial sum. I also started an international magazine and was getting a decent 6 figure salary (and bonus) and have ownership that I can sell if I need to. My wife started a private practice and gets to keep everything rather than giving it to a nameless/faceless hospital and only works 12 hours per week and spends the rest of the time with the kids, shopping and vacationing. She makes as much as a doctor and works far less than that.
I also bought and maintain 3k acres of oil land with hundreds of producing wells on it. I have a patent on a device that cleans waste water used in fracking that actually improves the environment.
I own a digital marketing company and art dealership.
We even take about 6 nice family vacations a year all because we didn’t want to work for someone else.
We invested and believed in ourselves. I’m above average intelligence but my wife is profoundly gifted (IQ was tested by psychologists via Weschler and Stanford-Binet at age 13). Either way, we are normal people who worked together to achieve more. My best advice is find someone who believes in the ability to create what you want out of life and truly believes it is possible. You will go much further than those who dare to dream or don’t have support. Yes, we’ve had our share of setbacks and dirty players who have scammed us but we’ve always tried our best and did our due diligence and trusted our intuition. When I say intuition…I mean it! We would pray and ask for signs and get them as to what we should do. Even those who scammed us came crawling back and gave us what they owed us plus more.
We never tried to cheat anyone or steal anything…in fact, we were often prey to the single Mom sob stories who ended up selling drugs out of our apartment and sell our appliances before leaving town. We were actually glad that happened because that is when we decided to sell our properties and then found a buyer days later for the whole portfolio.
My wife just turned 40 and we can retire if we wanted but we are having too much fun. We are going to buy some vacation properties to rent in our favorite locations so we can go there when we want.
Good luck to everyone and I hope this story is an inspiration as all of the others surely are!
Ed
Good morning
Congratulations on your life’s success!
Regards
Chris
I thought this wasn’t true and made a point to prove otherwise, because I really want it to be true:
“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.”
Unless expenses are high, this is true!
I’ve attempted to make my own tax withholding estimator to no avail to help me budget and figure this out. In case anyone is interested in seeing how changing your 401K or IRA contributions affect your paycheck, here is the link:
https://apps.irs.gov/app/tax-withholding-estimator-2019/results
As it turns out, a large 401K contribution means the potential of many more exemptions and you can try to break even by using the calculator (not owe or receive a refund). I also consulted a gross paycheck calculator as I wanted several independent sources before coming to a conclusion.
Now, I’m not convinced renting is throwing money away. I think it depends on the circumstances. I agree with much of the guidance from this link : affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
Basically, price to rent ratio:
If a house costs $500,000
And rent is $2000 a month
$24,000 annual rent/$500,000
This equates to 20.83 P to R
“If the P/R ratio is greater than 20, hesitate before buying the house.
If the P/R ratio is greater than 25, don’t buy the house unless you have strong non-financial reasons.
If the P/R ratio is greater than 30, run screaming in the other direction.”
In my area, houses cost around 900,000 and my rent is under $2,000. I will stick with rent and invest the difference. While you can buy for less than 900,000 it is the sweet spot where there are great public schools, realistic commutes and decent sized homes. Factors for great resale value.
Unfortunately my income doesn’t enable me to purchase a 900K house at this time (even with a 200K down payment my mortgage would still be close to $4000).
May I ask what general area jt is that you stay in
State? Town? Providence? Zip code? Neighborhood? The closer the better but I dont mean to pry so whatever your comfort level is…
Thank you
52 years old. Considering a buyout from employer that would give me about $484K in taxable savings plus about $960K in 401K. Can start a pension right away at $52K annually. No debt at all including home. Need to have about $90K to spend and would like an additional $25K available on top of that. Am I delusional to think I might be able to take it and retire early? Wife earns $30K and will continue working until probably 60 or so.
My musings / thoughts – the big ticket item is healthcare – can you get on your wife’s plan? Otherwise, you’ll have to factor in a nice 5 figure annual expense for yourself, double it if your wife doesn’t have group insurance….. Big question – do you want to “spend it all” or leave an estate? That will determine how much you can withdraw annually from your retirement accounts. If you start withdrawing 3% from your nest egg, that’s $43K on top of your $52K pension – That gets you to $95K; are you including your wife’s salary into your equation as well? If you haven’t done a detailed income and expense analysis that plots out every year’s income sources and expenses for both of you until death, you need to start there – down to every last dry cleaner ticket, driver’s license fee, and cat food bill. Anyway, sounds like it’s possible, but tight – factor in a cushion – maybe start a side gig or part time at Home Depot…. …and do you have a plan as to what you want to do? Hobbies, travel, golf? I can state from experience that all the house projects get done pretty quickly….. Best of luck – look at it this way; you’re in a good position regardless…. count your blessings….
Very useful.
If you spend your time comparing yourself to the average, many people will be quite content with where they are at.
If you spend your time comparing yourself to where you *could* be (if you put in the effort), then not only are you not competing with others, but you have raised the bar drastically.
Good rough estimates but room for improvement
1. Real estate equity should factor in selling costs as they are substantial @ 5-7%
2. While 30’s are often your peak income growth period, it is generally not viewed as an accumulation post-tax period due to Child care & family costs. Most savings occurs in the 40’s and not your 30s. 30-35 having a savings of 50k while 40-45 only 25k should likely be reversed.
3. Also, is post-tax accounting for market appreciation? anything over a buffer of (10-20k) should be invested and appreciate.
4. There are issues in your rate of change for your retirement. Since retirement is capped the high end earner shouldn’t be receiving a higher percentage than mid or low.. for example, age 40-45. Low increases +50%, mid +45% and high +67% –> High should be much less –> by 40’s everyone should be maxing out, this would imply that the tier’s have a different rate of return
DQYDJ also has a good calculator to see where people stand up to others nationally.
Can you please clarify in your net worth calculation if you are including real estate owned? I assume you are. So in order to calculate the true net worth you would take how much the property is worth and subtract what you owe on the property? For example I own a property worth $370,000 but owe $136,000. So that is $234,000 I can use towards my net worth. Thank you.
Your calculation is correct on using real estate equity as part of your net worth. Probably best to be conservative as well with the equity calculation.
The average net worth was for a household.
In the modification to above average it refers to a “person”.
Do you mean for this to refer to a household as well? Or do you believe a married couple should have double the amount you calculated?
Person. But if the person has a partner, that’s fine too.
Check out: The Average Net Worth For The Above Average Couple
I am 64 years old and retired. I have a pension that pays me, after taxes, currently $3155 a month, and a monthly social security payment that pays me, after taxes, approximately $1600 a
month. If I lived to 85, which I believe I will (if not longer, with my family history and health habits), I believe my pension is worth at least $795,060, and my social security is worth at least $403,200. Should these be counted as part of my net worth? Seems like they should be…
First of all, congrats on retirement – I’m jealous. In regards to net worth, it’s normally calculated as a current snapshot in time and does not include future potential income or benefits. For example, if you applied for a business loan or a commercial property loan, “net worth” is captured as current assets minus current liabilities – they would not allow you to include those future sources of income. So by definition, no. But from your perspective, as long as you are alive and kicking, that’s your minimum net worth over your life span assuming you make it to 85 – if you save some of that income and invest it annually until you pass away your net worth could be considerably more! My 2 cents…..
Thank you for your input, Jeff. As you pointed out, I am kind of looking at it from the perspective of “how much of an investment/nest egg would I have to have currently to give me that kind of monthly income for 21 years? So, for me, it’s sort of a part of my “net worth,” Although I know that, technically, it’s doesn’t meet the classic definition of net worth. I am very lucky to have what I mentioned be a significant part of my retirement income/assets.
Michael, one way to capture the solid (hopefully) SS payments is to spreadsheet out to age 85 (probably age 92 would be best for you), assume a 1% increase annually, and then do a Present Value. Add this to your current net worth. I know this is not in the classical way of figuring NW but it would give you a good marker.
I just saw this. I disagree with the replies above. I would say yes, The present value of the payments you are receiving should definitely be considered as a part of your net worth. I just use my safe withdrawal percentage and use that to come up with a value. The entire point of figuring out net worth is to determine how much you can safely withdraw without running out of money. So if you use the traditional 4% withdrawal rate, 946,500 dollars. 3,155 / .04. Would be the amount your pensions are worth. Your calculations give it a 4.8% withdrawal rate which is fine. I would do the same with social security as you have done. When you have streams of income, it allows you to take on more risk with your other assets. They represent your phantom net worth, and certainly have value.
Just as some people don’t include primary residence in their net worth because you can’t withdraw from a primary residence (unless you downsize) some people may decide not to include the value of pensions or social security. If you take 500,000 dollars and buy an immediate annuity, do you not include the 500,000 dollars in your net worth. Of course you do, you just bought a stream of income that has value to it.