Finding out a celebrity’s net worth feels like an American pastime.
Whether it’s wondering how much Will Ferrell is worthwhile watching Elf or Anchorman, or Googling LeBron James’s net worthwhile watching the NBA finals – something is captivating about looking up someone’s net worth.
However, for some reason, few of us know what our own net worth is and how that stacks up against the average American.
According to the Federal Reserve and its Survey of Consumer Finances, in 2019, the average American family’s net worth was $746,820.
That was a shockingly big number for me, but it doesn’t tell the whole story, as the median net worth was only $121,760.
How can those be so different?
Below is a super quick example of bringing it to life.
Let’s say there are five households in the United States in a net worth dataset that looks like this:
- American Family 1: $0
- American Family 2: $50,000
- American Family 3: $100,000
- American Family 4: $100,000
- American Family 5: $2,000,000
The average net worth of these American families would be $450,000. To get the average net worth, you add up all of the net worth and divide by five.
However, the median net worth is only $100,000. To get the median net worth, you take the number in the exact middle of the data set, or American Family #3.
In this case, the super-rich, or American Family #5, brings the entire average up. The wealth gap in that example is so big that the average of $450,000 is over 4 times more than most Americans in the data set!
So as we look into the average net worth by age group below and whether you are on track in terms of building your net worth, keep in mind the difference between average and median net worth.
How Do You Calculate Net Worth?
Net worth is calculated by adding up all of your assets and then subtracting out your liabilities.
In simple equation form, it looks like this:
Net Worth = Total Assets – Total Liabilities.
An asset is anything you own that has value. The key is that an asset must be valuable. Some common examples include:
- Savings Accounts
- Checking Accounts
- Investments (like a 401k, IRA, brokerage account)
- Real Estate
An old t-shirt or used car with 200,000 miles is likely not an asset you would include in your net worth calculation.
A liability is anything you owe. Usually, this is some form of debt. Some common examples include:
- Student loan debt
- Credit card debt
- A mortgage
- A car loan
So, to calculate your net worth, you subtract what you owe from what you own.
Bonus: Liquid Net Worth
You might hear someone reference liquid net worth, which is simply how much of your net worth you have access to today.
Money in a bank account, in your wallet, or even in investment accounts is considered to be very liquid. You can access it quickly if needed.
However, your house and any home equity is an illiquid asset. It would count towards your total net worth, but not your liquid net worth.
Why is Net Worth So Important?
I like to think of your net worth as your financial pulse. Your net worth tells you how you are doing financially right now.
To prove its importance, let me ask you one question…
Do you want to retire?
If you answered yes to that, you’d need to know your net worth. If you answered no, well, more power to you, I guess.
Your net worth is an important personal finance measure to help you understand if you are ready for retirement. I think it’s a better measure than just your investment or retirement accounts because it also considers any outstanding debts you have and whether or not you own your home.
You can’t only rely on net worth. For example, it could be a misleading figure if half of your net worth was tied up in a house because then you might not have enough liquid savings to fund your retirement. But it is an important piece of the puzzle that you need to put together to understand if you are on track for retirement.
Average Net Worth by Age: Are You on Track?
Before diving into the average net worth by age in America, I want to preface this by saying that measuring yourself against others is not the best way to know if you are on track.
What’s that old saying parents love to quote?
It goes something like… “If everyone jumped off a bridge, would you?”
The same logic applies here, “if everyone had a net worth of $5 at age 60, would you?”
You should be focused on the milestones you need to hit to accomplish your financial goals. Having a benchmark of how others are doing is a useful comparison but not the ultimate benchmark you should measure yourself against.
Alright, with that out of the way, let’s dive into the numbers from the Fed outlining the average net worth by age for American families:
Average Net Worth when <35
- Average Net Worth: $76,340
- Median Net Worth: $14,000
Honestly, this age range was a little too big to be useful in my eyes.
I could see many young 20-year olds having negative net worth because of overwhelming student loan debt. I’m guessing people in their young 30s are bringing the average up here quite a bit.
Regardless, common guidance is to have about one year of salary saved up by age 30. It’s not a bad goal to shoot for if you’re in your 20s and unsure where to start.
Average Net Worth at 35-44
- Average Net Worth: $437,770
- Median Net Worth: $91,110
Using the median net worth as a benchmark, seeing it jump from $14,000 to $91,000, is actually really encouraging. A 5x jump over a 10 year time period is pretty awesome.
Plus, $91,000 in itself is not a terrible number to shoot for by 40.
Obviously, it depends on your salary, starting debt, and retirement goals. But assuming the median household income of $68,703, this would be roughly 1.5x your income.
Plus, to get to $91,000 in savings, you’d need to save $2,220 every year from the age of 20 to the age of 40 while making a 7% return on your money. That would be about 3.2% of your income, which is not bad.
But, what if you were paying off debt for the first 10 years and investing the second 10 years. In that very realistic scenario, you’d need to be saving closer to $6,600 a month for 10 years, which would be a 9.6% savings rate.
It’s hard to make a firm judgment here based on averages, but I would aim to save 3x of your income by 40 as a goal.
Average Net Worth at 45-54
- Average Net Worth: $833,790
- Median Net Worth: $168,800
Your 40s and 50s tend to be your peak earning years – you likely have a lot of experience and relevant knowledge in the industry you work in and are getting paid well because of it. Hopefully, you can amp up your savings during this time period as well.
At this time, I would start to shift your focus from comparing your income to your net worth to comparing your living expenses to your net worth.
Ultimately, you’re going to need about 25x your living expenses to retire. So if you’re aiming to retire at 65, getting to about 8x your living expenses by age 50 should put you on the right track.
Average Net Worth at 55-64
- Average Net Worth: $1,176,520
- Median Net Worth: $213,150
By the end of the timeline here, you should be at or near your nest egg needed for retirement!
Again, your target here should be about 25x your living expenses.
According to the Bureau of Labor Statistics, the average spending for a household was about $63,000. I couldn’t find the median spending outlined anywhere, but even compared to the average net worth, it is only 18.7x annual spending. Not 25.
Over $1 million might seem like high net worth, but it may not be enough to retire depending on your spending levels.
Good thing we have a couple of years to go, and having 18x annual spending saved up should actually put you on track to have 25x by the time you reach age 65.
Average Net Worth at 65-74
- Average Net Worth: $1,215,920
- Median Net Worth: $266,070
…well, it looks like by 70, the average American household is still falling a little short.
This would equate to about 19.3x annual spending.
Average Net Worth at 75 or older
- Average Net Worth: $958,450
- Median Net Worth: $254,900
And we have some bonus data for those over 75.
Not too surprising to see the numbers dip here a little, as I guess that as you get older and retire, you stop accumulating money and start digging into your net worth to fund your lifestyle.
How to Increase Your Net Worth
To recap, to hit the 25x living expenses by the time you reach 65, below is how you would have to pace your savings to get there:
- Age 30: 1.13x living expenses
- Age 40: 3.66x living expenses
- Age 50: 8.32x living expenses
- Age 60: 17.49x living expenses
- Age 65: 25.00x living expenses!
This assumes that your savings stay consistent throughout your life, which is a simple and unrealistic assumption, so keep that in mind. It’s likely OK to pace slightly behind this early on, as you should catch up as you age and earn more.
Oh, and this assumes a +7% return on your savings as well!
Plus, if you’re looking to get your net worth on track fast, here are three things you should look into how to help with building net worth:
1. Create a Budget and Save Money
First things first, you need money leftover at the end of the month to build your net worth.
If you’re struggling to save money, the first place to start is to build a budget to figure out how you can stop spending so much money and potentially how you can earn more money.
2. Pay Off Bad Debt and Build an Emergency Fund
From there, the next best thing you can do is to eliminate any liabilities. Specifically, bad liabilities.
This would include things like credit card debt or any personal loans. Essentially, anything with a high-interest rate should be paid down quickly.
3. Start Investing
Last, to retire, you likely need to invest in some fashion.
Whether in a brokerage account, tax-advantaged account, real estate, or another form, the compound growth you get from investments is what creates the hockey stick shape in the chart shown above. It’s how you make your money work for you!