The median net worth for the middle class hasn’t changed for decades. Conversely, the median net worth for the top one percent has performed extraordinarily well during the same time period. Let’s explore the differences further.
Although making a high income is nice, having a high net worth is more important. High incomes come and go. They are also taxed aggressively. In contrast, a properly managed net worth could last forever.
One of the best incentives to get rich today is the record-high estate tax limit of $11.7 million per person in 2021. In other words, Americans can all pass down up to $11.7 million to our heirs tax-free. That’s huge!
We can create a generation of adult kids who end up having zero motivation or self-pride to make something of themselves! Whoo-hoo!
$11.7 million is an incredible amount to pass on tax-free given the estate tax exemption amount was only $1 million in 2003. With Joe Biden as president, there’s a good chance the estate tax threshold will decline.
The holy grail of personal finance is to amass a large enough net worth which spits out enough income to fully fund your desired lifestyle. If you can’t generate enough passive income to do so, sorry, but you are not yet financially independent.
On your journey to the promised land, it’s a good idea to gauge how you compare to others. After all, everything is relative when it comes to money. If we all have a $5 million net worth, being a multi-millionaire wouldn’t improve the quality of our lives at all.
The Median Net Worth Of Americans
Below is a chart from the Survey of Consumer Finances in 2019, the latest data available for 2021. The Federal Reserve only conducts the survey every several years. One can assume the figures are even higher today.
The data shows the median net worth for the middle class, the mass affluent, and the top one percent.
- The Top One Percent has a median net worth of $10,700,000.
- The Mass Affluent (80th – 99th percentile) has a median net worth of $746,950.
- The Middle Class has a median net worth of only $87,140.
Let me share some analysis on each of the three classes below.
The Median Net Worth Of The Top One Percent
Back in 1995, the median for the top one percent was $3,734,607. Therefore, the median net worth for the top one percent grew by 187% during the 1996-2016 time period. This is much lower than I would have thought given the fierce rhetoric surrounding how rich the rich have gotten over the years.
If you stick $3,734,607 into a compound interest rate calculator, you will see that the top one percent net worth figure grows by 5.4% a year for 20 years. However, this 5.4% compound annual growth rate also happens to mimic closely the 5.6% compound annual growth rate of the S&P 500 between 1999 – 2008.
The median net worth of the top one percent is much more volatile than the two other categories. In 2007, the median net worth of the top one percent was $9,578,000. By 2010, however, the median net worth had dropped to $6,658,000, a 30.5% decline.
If I lost $3 million in net worth in just three years, I’d be depressed. Therefore, if you have a top one percent net worth, your #1 priority should be capital preservation, especially after a 10-year bull market. A $10,700,000 net worth should be able to spit out between $200,000 – $300,000 a year with little-to-no risk.
If you have no dependents, then living off $200,000 – $400,000 a year should be no problem for an individual or couple. One can assume that most people who have amassed a top one percent net worth, if they have children, are older and have independent adults.
Aligned With The Estate Exemption Amount
The estate exemption amount of $11.58 million in 2020 is close to the 2016 median net worth for the top one percent of $10.7 million. When we finally get the 2020 data from the Survey of Consumer Finance, the top one percent net worth will likely be at around $11.58 million.
Historically, now is absolutely the most tax-efficient time to be a top one-percenter. Time to get cracking.
The Median Net Worth For The Mass Affluent
Mass Affluent Should Be The New Middle Class
The mass affluent class is where most personal finance readers are or aspire to be. Anybody who cares about their finances enough to read actively and listen to personal finance topics is usually way ahead of the middle class.
Caring about your personal finances motivates you to save more and invest more. You will figure out new ways to boost your wealth. Therefore, achieving a median net worth of $746,950 before becoming eligible for Social Security should be an achievable goal for the majority of readers here.
Using a 4% withdrawal rate, the mass affluent can fund $30,000 a year in gross expenses based on the $746,950 median net worth figure. Add on the average Social Security monthly check of $1,461 ($2,861 max), and the mass affluent has $47,532 gross to spend a year in retirement.
Given the mass affluent is defined as the 80th – 99th percentile income group, it is likely their average Social Security check is closer to $2,500. Therefore, the mass affluent should be able to spend closer to $60,000 gross a year in traditional retirement age.
Much Less Volatile Net Worth
In 2007, the median mass affluent net worth was $661,632. By 2010, the median mass affluent net worth fell to $560,400. This was only a 15.3% decline.
In other words, the median net worth for the mass affluent fell by half the percentage amount as the median net worth for the top one percent. For those who cannot stomach volatility, being in the mass affluent class is the way to go.
If you are currently in the mass affluent class then it’s probably worth still having a bias towards capital growth rather than capital preservation. Personally, I have consistently invested in growth stocks since 1995 to help boost my wealth. Dividend stocks are fine for after you’ve amassed a lot of capital.
Losing on average 15% of your net worth in a bear market isn’t unbearably painful. Continue to dollar-cost average in a downturn based on existing risk-appropriate investments.
It’s Worth Geo-Arbitraging
Relocating to a lower-cost area of the country or the world is a wonderful solution for the mass affluent class. A $746,950 net worth has multi-million dollars worth of buying power if one moves to Mexico, Thailand, Vietnam, Malaysia, Taiwan, or many Eastern European countries.
Although $746,950 won’t get you far in San Francisco, it should provide for a comfortable life in Minneapolis, where the median home price is only $267,000 and the median rent is only $1,591.
With herd immunity in progress, I suspect more of the mass affluent class will be moving to lower cost areas of the country or world.
The Median Net Worth For The Middle Class
Never Recovered From The Crisis
Unfortunately, the median net worth for the middle class looks like the EKG of a deceased person.
Originally, I had thought its dark blue line in the chart was simply the horizontal axis. And I thought the mass affluent light blue line was the middle-class median net worth line. Let’s look at the chart again.
If you have a median net worth of $87,140 for a middle class person and you are the median age of 38 in America, you’ve still got plenty of time to grow your wealth.
However, if you’ve got a $87,140 net worth in your 50s and 60s, life is going to be stressful financially. It is highly likely you will need to work longer. Or you need to become dependent on government programs in addition to Social Security.
What’s most concerning about the median net worth for the middle class is that it actually peaked in 2007 at $118,025. The 26.2% decline in median middle-class net worth by 2016 should be one of the biggest causes for concern for everybody. A revolution is brewing.
It is important to figure out how to convince people you are middle class if you are actually rich.
The Middle Class Got Spooked Out Of Stocks and Real Estate
If you do not hold assets such as real estate and stocks, you cannot benefit from a recovery in asset prices. It looks like the middle class got shaken out during the financial crisis in 2008-2009 and never got back in.
If the middle class had simply held all its assets until 2016, its net worth would have recovered and surpassed its 2007 high.
According to an ongoing Gallup poll, the rate of stock ownership as of 2020 is around 55%, or down significantly before the Global Financial Crisis.
In 2004, the U.S. homeownership rate peaked at 69.5%. The homeownership rate fell to a low of about 62.9% in 2016. But since then, the homeownership rate has steadily climbed higher to roughly 65.5% in 2021.
The reasons are likely:
- It takes seven years for a short-sale or foreclosure to stop punishing your credit report
- Mortgage rates continued to decline
- Real estate is seen as a more stable asset class
- More people are spending more time at home
Life Is Still Pretty Good As A Middle Class
Despite the middle class falling behind the mass affluent class and the top one percent class, being middle class is still a great class. When compared with non-Americans, the American middle class has a more comfortable lifestyle than most people in the world.
Most of us think of ourselves as middle class no matter our level of wealth. The reason is we adapt to what we have. Once we start comparing ourselves to others who have more, that’s when our disdain becomes apparent.
If you are in the middle class and want to break out, these median net worth figures are telling us that owning risk assets like stocks and real estate over the long term will likely help.
The worst thing you can do is rent for life. Don’t spend money on stupid things you don’t need. And please invest in the stock market. Unfortunately, it seems like this is what a significant portion of the U.S. population is doing.
Winner Take All Is Happening
According to the Survey of Consumer Finances, the top one percent owns 28% of all wealth in America. The middle class, on the other hand, only owns 21% of all wealth.
The inflection point where the top one percent begins to own more wealth than the middle class started in 2010. 2010 was also close to the bottom of the last stock market and real estate cycle.
The real estate market is strong on a national level. Meanwhile, the NASDAQ and S&P 500 are back to all-time highs. Meanwhile, there is still mass unemployment. The wealth gap is clearly going to widen during the pandmic.
The Median And Average Net Worth By Age
Let me leave you with one final chart to mull over. The chart shows the median net worth and average net worth amounts by various age ranges. I’ve also included a recommended column to shoot for based on my average net worth for the above average person framework.
The median net worth amounts by age show that Americans are better off than what the median net worth for the middle class indicates. If you’re retiring at 64 with $187,300, you’ll likely be fine so long as Social Security is still around.
The average net worth amounts by age are very telling. It shows the average American household is technically a millionaire by age 55-64. Is it any wonder why everybody wants to come to America. However, thanks to inflation, a million dollars doesn’t go as far as it used to.
The key net worth figure to shoot for is $3,000,000 by 55-64 if you’re just starting out. After all, $3 million is the new $1 million. It may sound hard to achieve, but if you save $25,000 a year on average for 32 years and earn a 7% compound annual return, you will get to $3,000,000.
Have Net Worth Goals
Now that you know the numbers, it’s good for you to have a net worth goal. I recommend everyone to at least have a net worth goal equal to the average net worth in America by age range.
If you’re doing very well, it’s best to spend more of your income and wealth before the government comes for it. Your spending will also help the economy. Paying a 40% death tax rate is terrible.
If you’re doing just OK, it may be worth taking more risk and working extra hours to generate greater wealth. Starting a side-hustle while having a job is absolutely one of the lowest-risk ways to try and make more money.
Even if you do nothing extra to improve your finances, know that life is still pretty great in America. Just try not to compare yourself too much with other people who have way more. Endless comparison is the thief of joy.
Recommendation To Boost Your Net Worth
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I’ve been using Personal Capital for free since 2012, and it has done wonders for my wealth. Get your finances right the first time. There’s no rewind button in life!
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to boost net worth. It is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly 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 way to go.
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 and higher rental yields. These cities potentially have higher growth too due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Related post: Net Worth Composition By Various Levels Of Wealth