According to the latest Federal Reserve Consumer Finance Survey that’s available to us today in 2020, the median net worth of US households is a mere pedestrian $97,300. Median is the middle point where half the households have more and half have less.
$97,300 isn’t terrible, but you’re certainly not going to be retiring any time soon if that’s all you got at around 38-40 years old, the median age in America. You will likely go the traditional route of working until at least 62 when you can start collecting Social Security.
Please see the chart I put together highlighting the median, average, and recommended American household net worth by age.
Don’t Be Median, Be Average In Net Worth
It’s reassuring to see the median net worth amount for Americans eligible to start receiving Social Security benefits is around $200,000. It could have been much worse with so many reports talking about the median American having less than $10,000.
Without any debt, living off a $2,000+ a month Social Security check + $500 – $800 a month in dividend income from $200,000 in investments is doable in most parts of the country. Please note the current maximum Social Security benefit is $2,788 a month to those who had the maximum taxable earnings for at least 35 working years.
The median American is more than likely going to receive Social Security benefits somewhere between $1,000 – $2,000 a month in stead.
But I don’t recommend anybody have just the median net worth by age. Retirement life will be very simple, and sometimes stressful if healthcare costs continue to go up and accidents happen.
The average net worth by age is much greater because they rich have gotten much richer since the financial crisis. In fact, the average person 55 and over is a millionaire, which is exactly what I expect all personal finance readers to be by the time they turn 55 years old as well. In fact, based on 401(k) alone, we should all be millionaires by 55.
Top 1% Net Worth Levels By Age
If you really want to get motivated, take a look at the chart I created below highlighting the top 1% income by age and multiplying each figure by an ideal income multiplier to figure out what the top 1% net worth is by age.
Yes, these net worth figures will be difficult to achieve, hence why only around 1% of the population can achieve them. But if you focus on building multiple income streams, continuously take calculated career and investment risks, religiously track your net worth, and stay disciplined with your consumption habits, you’ll come closer to these figures than the average American who doesn’t focus on their finances until it’s too late.
Achieving a net worth equal to 20X your average annual income is the level where the true feeling of financial freedom begins to happen. Alternatively, if you can find away to generate enough passive income with your after-tax investments to cover your best life living expenses, you will feel financial freedom as well.
There is no rewind button in life. You might as well accumulate as large a net worth as possible!
Boost Your Net Worth With Real Estate
Although the median net worth of American households is low, I challenge you to beat the median by investing in real estate. The combination of rising rents and rising capital values is a very powerful wealth-builder.
Real estate truly is one of the best ways to build wealth. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate over $100,000 a year in passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
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. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
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 positive demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Recommendation To Build Wealth
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. Run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. What you measure can be optimized.
About the Author:
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing. He spent the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
FinancialSamurai.com was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications all around the web. Sign up for my free newsletter here for more nuanced personal finance content.