Net Worth by Age: When Will You Be Rich?
Everyone has a net worth, but it’s often a confusing number that’s hard to figure out.
Essentially, your net worth is the difference between your assets and your liabilities. To put it simply, it measures the assets and liabilities of a person.
Many people focus on their bank account balance or income as the most important metric, but neither of these is an accurate indicator of what they have – or do not have. The net worth is a more precise measure of your wealth because it includes several factors, including some that are hidden.
The net worth of a person is determined by three simple numbers: everything you own, everything you owe, and the difference between them.
Do you know how much you are worth? People are often curious about how their financial position compares to others. There may also be those who wonder if the size of their bank account relates to the more general picture of America’s wealth.
Having that third number is all it takes to figure out your net worth.
Net worth growth depends on several factors, but one of the most important is your age. So now let’s take a look at the numbers and see how you stack up!
Net Worth: The Difference Between Average and Median Net Worth
It often seems like calculating the net worth of individuals is just a math problem reserved for the world’s wealthiest. The average household’s net worth, however, also increases as the proverbial pie grows large.
When it comes to understanding the net worth of a household, it goes beyond simply calculating assets minus debts. It examines wealth and income across geographies and states, taking into account such factors as age, education, race, ethnicity, homeownership, family size, etc.
The average net worth of a household in the U.S. is $748,000. On the other hand, the median net worth is $121,700.
Are you surprised by that number? Because of the nation’s super-wealthy, the average is distorted. Median net worth shows a very different story, although the average is already exceeding $700,000.
The average net worth in the United States grew by 2% between 2016 and 2019, while a median increase of 17.6% occurred.
Generally, the median is the point in the middle where half of the households have more and half have less. 76% of U.S. wealth is owned by the top 10% of households, while just 1% of wealth belongs to the bottom 50%.
So a more accurate representation of your position might be the median figure. Nonetheless, the overall figures only represent one indicator.
COVID-19 will almost certainly cause median net worth growth to taper off among people in nearly every age category, as people lose jobs, income, and assets.
However, the average net worth has not dropped significantly, as a few billionaires have increased their net worth as a result of the pandemic.
In general, wealth in America has been increasing in recent years with a gradual increase in median and average net worth over the three years around the pandemic. Over the last few years, this steady rise has likely been slightly derailed, but the increasing number of assets and incomes suggests the American economy is doing well.
To accurately determine the average net worth by age, you must remember that high net worth individuals may skew the average. Therefore, rather than relying on the standard, we should use the median. Both are, however, only one measure of wealth.
Here’s what the average net worth by age should look like if you want to know how secure your finances are. Finally, remember that your net worth goals depend on what you hope to achieve financially from an individual standpoint. Consider your unique objectives as you review your net worth by age.
Net Worth By Age
The net worth of an individual tends to increase as they age. In their 20s, most U.S. families start with zero wealth or have debt, then begin growing wealth during their productive years, reduce debt as they retire, and spend their savings in their retirement.
It is common for some assets to accumulate value over time. Likewise, the value of your home minus your mortgage debt tends to increase with time.
For example, 65-74 years old Americans had the highest average net worth of $1.22 million in 2019.
There is a noticeable difference in the median and mean (average) net worth of almost every age group, suggesting outliers skew the average upwards.
Net worth typically increases during one’s lifetime, peaking slightly around the age of 75.
Here’s the typical American’s net worth by age according to research:
Average net worth by age 35
It’s common to not be wealthy in your late 20s and early 30s. Your student debt is still outstanding, and your career is just getting started. Having a net worth of at least half your income by the time you’re 30 is a good starting point.
Average net worth by age 45
As you approach 40, you should have at least two times your current income in net worth. Accordingly, if you earn $80,000 a year, you should have $160,000 in assets.
It does not mean you need to have $160,000 in stocks or cash. Investing in real estate is another way to increase your net worth, whether you want to buy a home to live in or to rent out.
The 35-54 age group experienced the biggest increases in median and average net worth between 2016 and 2019 – respectively, 44% and 42%.
Average net worth by age 55
Net worth is on average $833,200 among those between 45 and 54, while the median is $168,600. It’s suggested that you have four times your salary in net worth by the time you hit 50.
These goals may seem overwhelming, but if you start investing and saving early, you can easily reach them.
You should consider saving more aggressively now if you haven’t taken advantage of compound interest.
Average net worth by age 65
Among Americans aged 55 to 64, the median net worth is $212,5K, and the average is $1,18M.
Having six times your salary in net worth when you are 60 is ideal. As the 55-64 age group approaches retirement, 12.2% carry student loans with an average balance of $37,600. Since most of us will retire at some point, if we haven’t already retired, we need to have assets that can sustain us for life.
Dept Plays a Role: Average Debt By Age
It is understandable that financial debt contributes a lot to determine your net worth. It varies throughout a person’s life.
Most people reach their peak debt around middle age. Typically, Americans, especially those over 70, tend to pay off their debts once they retire and keep their debt balances low in retirement. For millennials under 30, student loans have been the most common type of debt and as a result, they have the lowest net worth.
Following is the breakdown of average debt balances by age group, according to 2017 data calculated by Insider!
|Age 18-29||Age 30-39||Age 40-49||Age 50-59||Age 60-69||Age 70+|
|Auto Loan Debt||$3,929||$6,151||$6,760||$5,739||$4,209||$1,519|
|Credit Card Debt||$1,366||$3,303||$4,370||$4,480||$3,784||$1,851|
|Student Loan Debt||$9,073||$10,401||$6,488||$3,962||$1,674||$288|
It’s clear to see that people aged 40-49 have the highest debt, but this is mostly due to high mortgage debt and a higher percentage of homeownership in this age group.
Based on this data, it’s notable that low mortgage rates for millennials are caused by low homeownership rates. Americans under 35 years of age owned homes at a rate of 34.4%, while Americans aged 35 to 44 owned homes at a rate of 60.3%.
With a clear understanding of your target net worth by age, you will be better prepared to achieve your financial goals.
It is, however, just one method of calculating wealth. Average net worth by age can be a useful guideline, but it isn’t the only thing to know.
Having a low net worth is not necessarily a sign of failure. Motivate yourself to devise a solid plan to catch up on your finances.
Tips for Growing Your Net Worth
When it comes to building wealth, you have to play the long game. Start today by determining your goals, and take little steps along the way to reach them. Stacking up earlier is easy if you do these things:
- Maximize your retirement savings
Whether you have a group 401(k) through your workplace or a solo 401(k) for self-employed people, saving for retirement is one of the most important steps to building your net worth.
In addition to your 401(k) plan, a Roth IRA could provide you with the opportunity to save beyond your tax-deferred plan. Almost anyone can open a traditional IRA, and it can help you lower your taxes now rather than later.
- Start investing now
Your net worth can also be increased by investing for the long term.
The first thing you need to do is open a brokerage account. Depending on your goals, different brokerage accounts are available.
If you have already maxed out your retirement investment account, an individual brokerage account might be a good choice.
- Get smart with your savings
Saving some cash upfront is usually necessary in order to build your net worth by acquiring big assets, like real estate. No matter what your savings goals are, having the right savings account is crucial.
In the event that your savings account only earns .01% interest, it may be time to move to another account where you can earn a higher interest rate. Having a high-yield savings account can significantly increase your earnings each month, and could help you reach your financial goals faster.
- Make a Budget
Smaller expenses can add up quickly, which we often don’t realize.
For a week, keep a record of your expenses and you will learn how much of your paycheck is slipping away. You don’t need to give up eating out or quitting hobbies entirely, but instead recognize where you’re spending money and make adjustments; a little can go a long way. Be prudent when spending your money, and develop a budget!
- Pay off debt as soon as possible
You can increase your net worth by paying off your debt. It is best to pay off your debt as soon as possible, but making early payments can lead to penalties (like when you pay off a mortgage).
To pay off high-interest debt, taking out a lower rate of interest loan is a tried-and-true method of debt consolidation. It’s imperative that you know how much you owe and that you have a repayment plan in place. Whenever possible, expand your payment schedule and lower your overall debt burden.
According to this analysis, age does make a difference in determining a person’s net worth. However, it’s important to see it’s not the only factor, even though it changes your financial situation down the road because of certain life events.
When it comes to making money decisions on a daily and a large scale, knowing your net worth is important, but it is not as important as knowing how to evaluate other financial statistics.