Getting to the top 1% net worth by age is a very impressive goal. But how much money do you need to get there? Overall, to have a top 1% net worth in 2021 requires having at least $10 million. $10 million is also the ideal net worth amount for retirement.
People like to throw around random net worth figures all the time when asked how much is considered rich or how much they would need to never work again. Often, the figures just sound nice, like saying “one meeeeleon dollars” without any mathematical justification.
This post puts some numbers behind ascertaining how much wealth one needs to be in the top 1%. Remember, having a large net worth is better than having a high income. The government goes after income more than it goes after wealth.
For example, you can live in a $8 million mansion. Yet, you can also get Universal Healthcare subsidies if you make less than ~$94,000 a year with a family of four.
Ways To Construction A Top Net Worth Calculation
Based on my older Top 1% Income Earners post, we know that in order to be in the top 1%, you’ve got to earn at least $380,000 in gross income a year. The data comes from the all-knowing IRS back in 2016.
However, in 2021, the top 1% income earner is closer to $470,000 a year due to inflation and a continued bull market until recently. That’s right. Inflation has boosted the income threshold to be a top 1% income earner by 23.7% in just several years!
Based on my Net Worth For The Upper Middle Class post, we learn that the net worth range for the top 15% of all Americans between the ages of 45 – 74 is around $700,000 – $830,000.
Finally, I’ve shown numerous examples as to why earning roughly $200,000 – $250,000 gross a year per person and $300,000 a year per couple is the ideal income for maximum happiness. Being rich is sometimes a state of mind, and I’ll use these income figures in my analysis as well.
Given these data points, I’d like to construct two simple models to demonstrate what I think should be considered a top 1% net worth. All wealth and no income is not ideal. Similarly, all income and no wealth is not ideal either. There needs to be a balance.
The Top 1% Net Worth Amounts By Age
Instead of going through stale Federal Reserve data about wealth and population stats, I’d rather create logical assumptions based on the existing current top 1% income data.
We know the constant variable X (top 1% income). All we have to do is solve for Y (top 1% net worth) based on Z, an agreed upon income multiplier determined by yours truly.
At the age of 35, one should have about 5X gross income as a net worth. At the age of 45, one should have about 13X gross income as a net worth. By the time one turns 60, the net worth figure should be closer to 20X gross income. Don’t believe me?
Read the source: How Much Should My Net Worth Be By Income. Making money means nothing if you have nothing to show for it!
One can therefore conclude that a top 1% income-earning 35 year old should have $2,000,000 in net worth. This coincides with her $400,0000+ a year income if she wants to be in the top 1% net worth echelon.
A 45 year old top 1% income earner should therefore have roughly $6,000,000 in net worth. While a 60 year old should have a net worth of roughly $9,400,000.
Have a look at the chart below. It’s a good snapshot of top 1% net worth starting at age 25. I’ll then share some further analysis after you digest the chart.
More Notes About The Top 1% Net Worth Chart
- Top 1% net worth is relative to our ages. It’s unfair to compare a 60 year old’s net worth with 35 more years to accumulate wealth to a 25 year old’s net worth.
- Younger people in this chart will logically have a tougher time getting to the top 1% income figure of $470,000 compared to older people. At the same time, the multiplier younger people have to hit to get into the top 1% net worth is also lower. I start at age 25 as a result, because so few people will make $470,000 within a couple years out of college.
- If you have around a $235,000 net worth at age 25, you’re in the top 1% probably due to some savvy investments made right out of college. Income alone isn’t going to cut it. You may have just started making a top 1% income of $470,000+ as a highly coveted software engineer or finance whiz. However, thanks to taxes and general living expenses, accumulating $235,000 in net worth by age 25 still isn’t that easy.
- The minimum income multiplier peaks at the traditional retirement age 65 because it’s pointless to accumulate so much more money when you’ve got less than 35 years to live. Social Security is available at 65, adding another million to your net worth if you capitalize its annual payments.
- The minimum income multiplier stays steady at 25 after age 80 in order to maintain a $11+ million net worth figure. In 2021, $11.7 million is the limit per individual one can pass on before the Death Tax kicks in. Therefore, you might as well spend every single last penny above $11.7 million on yourself, loved ones, or charities instead of giving it to an inefficient government.
- The top 1% net worth figures in the chart are for individuals. But, feel free to use the net worth figures as targets to shoot for if you are a married couple as well since you are a unit. Just know that the Death Tax income limit logically doubles to $23.4 million.
Replicating Top 1% Net Worth By Lifestyle And Savings Rate
The definition of “rich” can be someone who no longer has to work for a living, while maintaining a top 1% income earning lifestyle. This is where things get a little tricky, because many people spend $470,000+ differently.
When I was making big bucks, I would always save at least 50% of everything I earned after maxing out my 401k. I knew the income wouldn’t last forever because the job was not sustainable. Given my 50% savings rate, a $470,000+ gross income lifestyle could be matched by someone spending 100% of his $235,000 gross income.
On the other hand, many of my colleagues easily spent 90% – 100% of their $470,000+ gross incomes. One close colleague told me, if he didn’t make at least $500,000 a year, he couldn’t save any money! He required at least $300,000 a year after-taxes to support his family of four. Talk about a high burn rate.
More Definitions Of Rich
The risk-free rate (10-year bond yield) is currently around 1.7%. Therefore, one needs a net worth of roughly $27,700,000 ($470,000 / 1.7%) to be able to generate $470,000 a year in top 1% income!
As a result, I highly recommend people reconsider the 4% Rule and reduce their safe withdrawal rate in retirement. The 4% rule is outdated and dangerous to follow in this permanently low interest rate environment.
$27.7 million can therefore be considered the upper band for the definition of rich in today’s environment using this methodology. Given a top 1% net worth is at least $10 million, $27.7 million can be used as a top 1% net worth for a couple.
Another calculation is using the ideal income for maximum happiness. I think that ideal income is $200,000 per individual and $300,000 per couple. Therefore, using the same 1.7% divisor, we can get $11.7 million and $17.7 million. In other words, a top one percent net worth amount based on happiness can be between $11.7-$17.7 million.
Finally, even if you can’t reach a top 1% net worth amount, you can most certainly feel rich. There are always ways to feel rich even if you can’t get rich.
Data From The Federal Reserve
Take a look at some data from the Survey Of Consumer Finances. The median net worth for the top 1% is $10.7 million, which jives well with my calculations.
Here’s an older chart when the top 1% gross income was roughly $380,000 back in 2010. In just 11 years, a top 1% income amount has grown by almost $100,000!
The chart shows what one needs to accumulate based on a 2.5% risk free rate and various savings rates. The risk free rate will obviously adjust over time. But I don’t think it’ll get over 3% for a long while. The top 1% income levels differ by age.
Getting To The Top 1% Net Worth Is Possible
The sad part about being in the top 1% of net worth is that it’s getting harder and harder to achieve. The reasons are due to inflation and a decline in earnings. Inflation expectations are really picking up post-pandemic. Inflation is why interest rates are also finally ticking higher.
However, overall, interest rats are still very low. It takes more and more capital to achieve the same income as it did 10 years ago. Is there any wonder why capital is flowing to more risky assets like stocks and real estate?
Only the poor or super wealthy say money can’t buy happiness. For most of us middle class citizens, becoming rich is a nice goal to have. Now you’ve got some concrete figures to shoot for by age.
Stocks and real estate really are my two favorite ways to build and earn passive income today. Time to start building!
Invest In Real Estate Like The Top 1%
If you want to get a top 1% net worth, I highly encourage you to invest 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. Further, the wealthiest Americans own tremendous real estate portfolios.
Given interest rates have come way down, the value of rental income has gone way up. The reason is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
My favorite two real estate crowdfunding platforms are:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. Growth is likely higher as well due to strong demographic trends.
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 thanks to technology and the pandemic.
Manage Your Finances In One Place
One of the best way to build your net worth is by signing up with Personal Capital. They are a free online tool that aggregates all your financial accounts in one place. This way, you can see where you can optimize your money. People with a top 1% net worth are vigilant at tracking their money.
Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
The best feature is their Portfolio Fee Analyzer. It runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging! There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.