In this episode of Friends Talk Financial Planning, John and Bridget delve into the topic of net worth by age. They discuss the importance of understanding what net worth entails and share data on the median and 90th percentile net worth figures across different age groups. Join them as they break down the numbers and explore what it takes to be in the top 10% and even the top 1% of net worth in the U.S.
Read the source article for the net worth data: https://ofdollarsanddata.com/average-net-worth-by-age/
Alliance of Comprehensive Planners: https://www.acplanners.org
John's firm website: https://www.trinfin.com
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TRANSCRIPT:
John: Net worth is an interesting thing to think about, and oftentimes we compare ourselves to others and wonder how well we're doing. On today's episode of Friends Talk Financial Planning, we're going to share some data that talks about what the typical American has and what some different percentiles are to give some framework around that idea of how am I doing with my net worth. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. John, before we talk about net worth by age, let's ask people to subscribe. We're trying to get to a thousand subscribers, and you can help us. So hit the subscribe button. All right, so net worth by age.
John: It’s kind of interesting, isn't it?
Bridget: Yeah. Compare and despair.
John: And we talk about that. It's a thing by itself. But then we're always comparing. It's sort of the nature of being human. What kind of vacations do my friends take? This is part of the whole Instagram world. But then I think there is some value in some metrics of asking, “What are the facts?”
Bridget: Exactly.
John: And then we'll maybe talk about some of the feelings that go around that as well. Before we start and get into net worth, I think it might be useful to describe what are we talking about with net worth. In a simple basis, it's what you own minus what you owe. So how much stuff do you have? My house is worth this much and 401(k) and my bank account. And then what do I owe? I've got a mortgage on the house, or maybe you've got student loans or those sorts of things. So my total things that I own, assets in financial jargon, versus what I owe, debts, is my net worth.
Bridget: That's why it’s net.
John: It’s really simple. If I have a house that's worth half a million dollars, and I've got a 401(k) that's worth half a million dollars, and I owe $250,000 in the house, $500,000 plus $500,000 is a million dollars of assets, and then I owe $250,000, so my net worth would be $750,000, just for some simple math on that.
Bridget: Very simple. Good enough for me.
John: Yeah. Great. So why don't we move on. We did some homework here, and we found data on a great website called Of Dollars and Data, and we'll share the link to everything here, but why don't we pull up a couple of charts? Maybe we'll take the median net worth, sort of what we think of as average American, even though technically it's not average.
Bridget: I took a whole semester of statistics, but I can't remember the difference between a median, a mean, and an average. So median is the middle.
John: Right.
Bridget: Half more, half less.
John: And that's why I think of it as the typical person. An example, and I think they talk about it even in this article, is if there were 100 of us sitting in the room and each of us had $100,000 of net worth, our average net worth is $100,000. And our median net worth, meaning the middle person, if you lined up from highest to lowest, would be $100,000. If Elon Musk walked into the room with however many gazillions of dollars he has, suddenly our average net worth would be like $20 million apiece, but our median would still be $100,000. The typical person still has got $100,000, so that's a great way to think about.
Bridget: That's what we're looking at when we say median.
John: Yes. And again, I know it's not exactly the same thing, but I think of it as the middle ground on things—a typical person. And what's the typical person at various age ranges? When you're under 35, you're on that lower level. Just building up the net worth kind of reminds me of the financial life cycle when it comes to our ACP model that Bridget and I both follow. And as you get older, of course, the typical net worth grows, so that by the time you're in your fifties and sixties, you're in the $350,000 to $400,000 range, which is sort of that middle ground.
Bridget: Yeah. And I think that when we talk about young people, a lot of times people under 35 are frustrated that it's taking them a while to get a foothold, but they don't realize that that's just the way it is. It just takes a while. And they're used to comparing themselves up, which is what our evolution tells us to do. Compare myself to people who have more and try to get it. And so, young people have always been comparing themselves to people with more, so it can be frustrating to get a foothold, but that's just the way it is.
John: The other thing that you make me think about with that is you think about as you're starting in that younger range. You've been living at home, ostensibly, and your parents, people in our age range, have gotten to that right side of this bar chart here, where they’ve got some things, and they've got a certain level of existence with vacations etc. And as a younger person, you can kind of feel like, “Oh, that's normal.” And we go, “Wait a minute. No, we started at the beginning.” And you got to realize that, hey, when you're at the beginning that's okay. The other thing I think is really interesting about that idea is take a look at where we are for median net worth, something like $40,000 for those younger folks.
If your net worth grows by 10% and you've got $40,000, what is your net worth next year? 10% of $40,000, you've gained $4,000 in net worth. It's 10%, but it doesn't feel like you're getting ahead. When you're farther on the right-hand side, you're a little bit older. If your net worth is $400,000 and you earn 10%, it goes up $40,000. That's the compound interest. It's powerful. We all know it. But then when you look at that, those folks in that 65-year-old age range, their earnings in that example are equal to the net worth of somebody who's starting out. It just keeps on rolling, but you got to put in the effort in the beginning to make that work.
So those are some really interesting comments as you or concepts as we see the difference between where you start off and where things go to. I don't know that there's much of a takeaway other than as you take a look at that and pick your age bracket (and it's not a right or wrong), you can ask, “How am I doing?” You might look and go, “Geez, I got to catch up. I might need to take a look at my financial situation.” Or in some cases, you might feel like, “Geez, I'm kind of behind,” but then you look and go, “Hang on a second. I'm doing okay with things. I'm above the middle, compared to everybody in the US that we're talking about.”
Bridget: So next, let's go to the 90th percentile.
John: Yeah. It’s interesting to take a look at where we are compared to the typical person, again, using that word generically. People think they’re above average. We're better drivers and better than everyone else. So one of the other things in this article talked about is what does it take to be in the 90th percentile, or the top 10%, on that same net worth measure? And you can see the numbers here on the screen. They are significantly different. The 35 and under range caught my eye; it’s ten times what it was on that other level, a little bit farther ahead on things.
And of course, the numbers grow as you get older and closer to that retirement age. But on the right-hand side, looking at something $2.5 to 3 million, somewhere in that range. I think this data is from two years ago or three years ago, so reasonably recent. Again, that takes into account some of those people on that higher end, maybe invested in real estate, maybe they started a business and that skews things. But I know that we've got a number of clients for whom it's not about saying, “Hey, I have to inherit this money.”
Maybe there's some inheritance, but diligent saving, being smart with your money and letting it compound interest over time can be enough. We've got a lot of folks that are in that top 10% just from doing smart things on a consistent basis, by just doing regular stuff. We were talking a little bit before we hit record about what is rich and what isn't rich and that sort of thing. And you go, “Hey, you're in the top 10%. Golly, that's pretty good.”
Bridget: Of the US, which is at the top compared to the world.
John: Exactly. And sometimes we have that feeling of, oh, there're the tax loopholes, and yes, there are those sorts of things. The rich folks have this kind of investment. And not to say that there aren't some of those things, but the reality is to be in the top 10% here it's just diligent saving, regular stuff that we all do every day. Doing those basics and being smart about our money can get you in that top area.
Bridget: Yeah. And we're not going to focus on the top 1%, but it's like $25 million. So again, like John's Elon Musk example, it's high; it's significantly higher than the 90th percentile. And it leads me to think that that's more like starting a business, or maybe you've struck it well in real estate. I think about 40% of the people at the top level inherit their billion. It's a different set of things. Most people didn't save it.
John: That's right. When you get to that 1% level, it's typically not a matter of small things.
Bridget: They saved it, but it wasn't a big strategy. It was make a lot, then save it.
John: Right. As I always tend to ask, “How do we use this stuff?” Number one, I think it's just interesting to look at the facts. I've got this feeling about I'm doing well, I'm not doing well, but what are the facts? I think that's a useful exercise. And then the other takeaway for me is just with this discussion about, geez, to be in the top 10%, we've got to do these special things, run a business, or have a real estate empire. Sometimes it feels like we need to do these things. No. I don't know what you call this, but to be regular rich, in the top 10% where you're doing pretty gosh darn well, you don’t have to do that.
It's not necessary to have multiple LLCs and own real estate and do this fancy stuff, like partnerships and venture capital. You don't need to do that to be really, really successful. To be like these folks who fall into that top not 10% is just doing the saving, doing the regular things that we all can do when it comes to filling up our 401(k)s and making sure we have enough liquidity and not overspending and not getting into credit card debt, all those fundamentals that we talk about over the years with things. So that for me is one of the takeaways from this. Regular people can achieve this.
Bridget: Yeah. And my biggest is compare and despair. It is good to know what the facts are. It helps me with my comparisons. It's just human nature. You're looking who's got more? How can I get it? And it can make you feel bad.
John: Yeah. That's awesome. I think that's a great place to wrap things up here. Again, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. Jen and I are both accepting new clients, but if you're interested in an advisor in your area, you can check out acplanners.org. This is the organization we belong to. It's a group of tax-focused, comprehensive, fee-only, fiduciary financial advisors.
John: That's right. And don't forget to hit that subscribe button.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.
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