Share the Best Interest











Today, we’re going to compare net worth targets by age. How much money should you have as you age? How should average net worth grow? Understanding these ideas belongs on any list of simple financial goals. And I recommend using YNAB** to track your progress.

Digest the 25th, 50th (i.e. average net worth), and 75th percentile data below. In particular, focus on how bleak some of the real savings data looks, and how large swaths of the population fall into these less-than-ideal buckets.

Apologies to my international readers—most of this data is pulled from or targeted towards U.S. readers. I suggest you use Numbeo to scale these values to your locality.

**Note: you and I both get a free month of YNAB if you end up signing yourself (or someone else) up with the link above. No extra cost to anyone involved. You get a 34-day trial, and then an additional free month. That’s two months to figure out if you like it.

The good stuff

Who am I kidding? You didn’t come here to scroll to the end of the article to see the net worth targets. You want the benchmarks now!

So here are five expert viewpoints (which will be explained) of net worth targets by age. This initial plot is the 50th percentile, or median, net worth.

Where are these values coming from?

Fidelity

First, I pulled from Fidelity. Their recommendations are all relative to salary (e.g. “3x your salary by age 40), so I used the median American salary by age to come up with final numbers.

Note: Fidelity defines net worth as retirement savings only, and do not count other assets (e.g. your primary home’s value). The other methods below do include other assets beyond your retirement savings.

DQYDJ

Next, I pulled data from the phenomenal site DQYDJ. DQYDJ originally pulled of their data from the Federal Reserve Board’s Survey of Consumer Finances (which I label “The Fed” on the plot).

DQYDJ plots the Fed’s data in some easy-to-consume formats, which is why I frequent their site. This Fed data is from 2016–the next set of data will come out later this year.

Keep in mind: the stock market is up about 50% since 2016. But for someone who might not have access to the market–or lots of money in the market–that 50% increase might not make a large difference in their net worth.

This DQYDJ/Fed data is real data, not some hypothetical or subjective goal. In my charts today, you’ll see three sets of “subjective targets” and only one set of “here’s what people have actually saved.”

The Balance

Next, the financial aggregation site The Balance follows a similar formula to Fidelity. At particular ages, they say, your average net worth should aim for an ever-growing multiple of your salary.

Financial Samurai

The Financial Samurai, a.k.a. Sam, is a long-time financial blogger with a no-nonsense attitude about saving money. Sam’s lofty targets are for, he says, people who:

Take action rather than complain about an unfair system

Max out their 401k and IRA every year

and IRA every year Save an additional 20% or more after taxes and 401k/IRA contribution

Take calculated risks through investments in various asset classes

Build multiple streams of active and passive income

Work on a side hustle before or after their day job

Focus on the big picture and don’t nitpick with minutiae

Want to achieve financial freedom sooner with their one and only life

Fair enough, Sam! Sam’s targets are going to be far above average.

The Best Interest

And finally, I took my own stab at some average net worth targets by age. I did this based on deciles of American salaries, typical milestones in the average American’s life (various debts, children, growing salaries) and the savings rates that might rise and fall as a result of those life events.

A young couple might be able to save some money –but then having children will put a dent in their savings rates.

–but then having children will put a dent in their savings rates. As the couple’s salaries rise, savings will increase. But if and when they help their children with college, their savings rates might take another dip.

While young, one’s investments might be higher risk (and higher reward). But as you age, your portfolio is likely to trend towards safer investments.

Etc etc.

Inflation Multiplier

I also took inflation into account.

The average 30-year old today might be making $40,000 per year. But the average 60-year old today was making $25000 per year back in 1990–when they were age 30. What are the consequences?

While the average 60-year old today might hope to have $800K (Best Interest opinion), that’s not what a current 30-year old should treat as their target or goal.

If we assume 2.5% annual inflation for the next 30 years (leading to a 2.09x total inflation increase), then a 30-year old today should target $800K * 2.10 = $1.68 million by the time they are 60.

Here are some approximate inflation multipliers based on the number of years you want to project into the future. For example, some age 50 might want to project 20 years into the future if they want to see what their net worth target for age 70 should be.

Number of years Inflation multiplier 5 1.13 10 1.28 15 1.45 20 1.64 25 1.85 30 2.10 35 2.37 40 2.69 45 3.04

Analysis of the median goals

Let’s take another look at those median net worth targets, just for reference. What conclusions can we draw?

Of course, this is just my opinion. But the non-Best Interest target numbers seem low to me.

This is probably an obvious conclusion; my method comes up with higher numbers, so I’m clearly going to be biased into thinking the other goals are low. But why do I think so?

Let’s start by analyzing this data through the lens of the “4% Rule,” which states that you should take your annual spending and save ~25x that much for retirement.

The Best Interest target ($850K) allows for a retirement income of roughly $34000 ($850K/25) per year, or $2800 per month. Financial Samurai’s targets lead to $40000 per year, or $3300 per month. When you add in Social Security benefits, that’s a very reasonable allowance for the average American.

The other methods suggest median net worths of $500000, $300000, and $220000, for a monthly allowance of $1660, $1000, and $730, respectively. With the assistance of Social Security, it’s certainly possible to live off these amounts. But there’s more risk involved.

The average Social Security benefit in 2020 is estimated to be about $1500 per month. Let’s add that to the allowances from the previous paragraph.

Would you feel comfortable living off of $3160, $2500, or $2230 per month? Depending on your area of the country, cost of living, medical expenses, retirement goals, etc., it’s a potentially scary question.

What happens if something goes wrong with your plans? Going back to work at age 80 is not an enticing prospect. Neither is asking your children for a handout.

Are these hyperbolic outcomes? Maybe. But I know they are also sadly possible.

How to compare? Apples to apples?

Does it make sense to set the same goals for both a teacher and a doctor? We know that their net worths (and net worth targets by age) will likely be starkly different.

The average American doctor’s gross income in 2019 was north of $300,000. Meanwhile, the average teacher’s salary was $60,000. Of course, there are millions of people and jobs and salaries that will fall within and without this range. Does it make sense to compare net worth targets when incomes are so different?

In my opinion, yes it does make sense to do this comparison. But it’s only one data point that you should use–not an end-all-be-all. It’s just like a young track athlete comparing their race times to record holders. Of course they’ll be slower than the record holders. But it gives them a target, an understanding of the gap, a percentage difference to record for later purposes.

Besides, the comparisons I presented above are median net worth calculations. They account for the highs and the lows, and they let you know where the middle of that scale lands. Some people are building net worth. Others benefit from large generational wealth transfer. This average net worth analysis accounts for it all.

If you’re making a lower salary but you love to be frugal, then set your targets high! Aim for a net worth that’s a decile or two above your salary decile.

If you’re fresh out of law school, you’ll probably be in a mountain of debt. You might be low on the scale now, but your long-term financial prospects are pretty good. Keep circumstances like that in mind as you review today’s charts. This is where, age, work experience, education level, etc can all play important roles.

Location and Cost of Living

We’ve covered how inflation and income can affect your interpretations of these results. But we should also discuss how your cost of living can affect these results.

Simply put, life in San Francisco or New York City simply costs more than life in Rochester, NY, which costs more than life in rural Kansas. Rent, gas, groceries–all these commodities have different prices around the country.

Therefore, the mean net worth benchmarks we use should change with location.

I’ve used the crowd-sourced site Numbeo to do some of these comparisons. For example, here are some results comparing Rochester to Boston–where Numbeo tells me I’d need about 50% more spending for the same standard of living in Boston.

Numbeo uses New York City as a baseline, giving it a “Cost of Living plus Rent Index” score of 100. The United States as a whole has an index score 56, suggesting that the average American has a cost of living that’s about 44% less than the average NYC resident.

I highly recommend looking up your city or region to compare it to the United States index score of 56. The percentage difference will give you another way to interpret the net worth results.

For example, Philadelphia has an index of 62, which is 10% higher than 56. If a Philly resident is using today’s data for retirement planning, they should consider adding 10% to all of the data points.

75th Percentile Net Worth Targets by Age

One interesting aspect of the 75th percentile net worth targets is that the Fidelity recommendation lines up well with the Fed data. In other words: people who earn more also save a larger proportion of their income, and people who save more are more likely to meet Fidelity’s thresholds. That’s real data lining up with Fidelity’s subjective targets.

These people have higher average gross income. Their current net worth is high. They likely utilize a retirement savings plan. They might be the secret millionaire next door.

If we go back to the 50th percentile chart, we notice that the Fed data lags behind both Fidelity’s targets and the Balance’s targets. In other words: average real-world saving does not meet the average expectations of Fidelity and the Balance.

It takes above-average earning and saving to meet the Fidelity and Balance targets.

That’s not ideal, but it’s reality. In general, systems that require above-average effort in order to obtain ubiquitous goals (e.g. to meet suggested net worth thresholds for retirement) are bad systems.

A good system would only require basic effort, or average effort. But accepting this unfortunate reality is something I hope you’ll consider. You don’t want to find yourself ten years later having not taken action today.

25th Percentile Net Worth Targets by Age

And to make matters worse, check out the 25th percentile chart below.

Here, three of the subjective net worth targets are all in family. Fidelity and my Best Interest targets line up very closely to each other, with the Balance falling 20-30% lower. But how does the real net worth data compare? At retirement age, it’s about 1/4 to 1/6 of where it “should” be.

It’d be nice to reach Financial Samurai’s targets, but—clearly—many people simply do not have the means to maximize their savings accounts to the extent he recommends.

Let’s put a face to this data. It’s 25th percentile, meaning that one out of four people in the U.S. falls on or below this graph.

Dunbar’s Number suggests that the average human can comfortably maintain 150 meaningful relationships–which would suggest that you (yes, you) closely know ~40 people (on average) on or below the 25th percentile plot.

Real people, real lives, real worry. For a 60-year old, to retire on $50K (or less) is likely impossible to do. On DQYDJ, I looked at the 25th percentile net worth for 70 year olds–it’s $56,000. So there isn’t some terrific growth that’s occurring after my chart ends. It’s meager all the way.

That’s a sobering fact.

The Wealth Divide

What might be causing this average net worth disparity? How do people have negative net worth, or lower net worth?

Rising expenses and wage stagnation is an easy cause to point to. The lack of financial education hurts. So does poor financial health—like having a low credit score and paying high interest rates. Student loan debt and credit card debt suck.

Some people are behind from the start. Your first net worth out of college is likely to be negative. Many people wake up 10 years later and find their net worth hasn’t grown. That’s the terrible python-squeezing nature of debt.

Wealthier college graduates don’t have to battle that python. It’s not their fault—that’s just how it is. Without that student loan debt, their average net worth increases rapidly.

After 10 years worked, they’re likely to be loan debt free, potentially owning real estate, collecting passive income or contributing to their retirement account. What do all these have in common? It increases their net worth!

Sure, annual salary matters a ton too. Total value is a function of how much money is coming through the door—just ask the Federal Reserve.

But this wealth divide often starts right at the beginning of people’s careers, and often never closes. It’s there at age 30, age 40, age 50, age 60…ok, you get it.

Why do net worth targets by age matter?

I’m just another personal finance writer, but I think positive net worth benchmarks are an important metric of financial health.

Your current net worth isn’t make or break, but it let’s you know how you compare to your age group. Age 30 millennials should think about their financial future. Age 60 retirees should be aware of their cash, stocks, bonds, mutual funds, etc.

Personal net worth is like your pulse or your blood pressure.

If you’re behind, you want to see significant injections of money, and soon! While something like wealth transfer inheritances usually help, you probably shouldn’t rely on one. Just start investing today. Increase your savings rate. Utilize your 401(k) i.e. pretax income.

Your financial future will grow from your financial present.

**What counts as net worth? And what doesn’t?

Here’s some real quick housekeeping. What actually counts towards one’s net worth? It’s basically assets minus liabilities.

In general, the sources I used count the following as contributors to net worth (fairly liquid net worth contributors).

Bank accounts

Retirement accounts (401k, IRAs, etc)

Investments (stocks, bonds, REITs, etc)

Other saving vehicles (e.g. Health Savings Accounts)

Equity in real estate (e.g. your home value)

Common debts–mortgage debt, credit card debt, student loan debt, etc.

Pension and social security

Note: Fidelity’s targets were based solely on retirement account funds.

And what doesn’t count towards net worth?

The value of common assets (e.g. a car, a computer)

Illiquid or non-transferrable assets (e.g. airline miles)

And what is a maybe? These are assets that are fairly subjective and up to you.

Collectibles, jewelry, art–how liquid are they? And are you sure you’d want to sell them?

Business ownership–again, how liquid is it?

Accrued annual vacation days or PTO, if transferable to cash at future date

Future inheritance–if you’re sure you know what you can count on

How to calculate the value of a pension or Social Security

This involves a little bit of math. First, I’ll ask you to come up with four important numbers. Then I’ll show you two important equations. And then we’re going to work through an example together.

The four important numbers are:

[N] The number of years you estimate you’ll be retired. If you’re retiring at 60, a safe number to use here would be 25 (assuming you live to the above-average age of 85) [ 85 – 60 = 25 ] [M] The number of years until you retire. I’m currently 30. If I retire at 60, then the number I’ll use here is 30. [ 60 – 30 = 30 ] [R] The rate of return of the pension plan or Social Security. Here are some good sources for pension plan historic data and SS historic data. If you want to be safe, use less than 6% for a pension or less than 5% for Social Security. [P] The assumed annual payment once you retire. For Social Security, here’s a convenient calculator. For pensions, each specific fund will likely have it’s own rules. Example: a typical pension pay-out might be equal to 50% of a worker’s average salary during their final three years of work.

Equations for Pension/Social Security Value at Retirement and Discounted Current Value

The two important equations are:

Fund Value at Retirement = P * [(1 – (1+R)^(-N)]/R

…we’ll call this Fund Value at Retirement the FV. Next, we need to take the FV and discount it backwards to today’s Present Value, or the PV.

Present Value = FV/[(1+R)^M]

Example: Calculating the Present Value of a Pension Fund

Wallace is a 35-year old teacher. He’ll likely retire at 60. And he’s going to be conservative in estimating that he’ll live to 82.

We now know that N = 82 – 60 = 22 and that M = 60 – 35 = 25.

Being conservative again, Wallace is going to use R = 7% as the fund’s rate of return.

And finally, Wallace knows that his pension will pay him 55% of his final year’s salary. He’s currently making $55,000 and assumes he’ll get a 2% raise for each of the next 25 years. His final year salary, therefore, will be about $90,000. And 55% of $90,000 is $49,500 per year = P.

We now know N, M, R, and P. Let’s plug them into our equations. I like to use Microsoft Excel to help keep track of my values and (if needed) easily change them to adjust my final values.

Future Value = FV = P * [(1 – (1+R)^(-N)]/R = $49500 * [(1 – (1+7%)^(-22)]/7%

FV = $547,531

Present Value = PV = FV/[(1+R)^M] = $547,531/[(1+7%)^25]

PV = $100,882

So, if Wallace wanted to include his pension value in his current net worth by age calculation, he’d use $100,882.

Retiring for today

We’re at the 95th percentile for this article. I hope any comparisons today did not steal your joy, but instead opened your eyes to the wide gradient of net worth targets by age in the U.S.

Net worth targets by age are not an extrinsic competition. They’re intrinsic: will I be able to set up my loved ones and myself for fulfillment today, tomorrow, and for the rest of our lives? At least that’s how I think of it.

Looking at percentile data simply helps gauge whether you’re on track, making progress, or need to change behavior. So I think it’s important to realize–ideally at a younger age–that many people in this country are struggling against themselves in their intrinsic race. I hope today’s post might help you avoid that struggle.

I hope you enjoyed today’s Best Interest; thank you for reading.

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

-Jesse Cramer