I know that comparison is the thief of joy. But comparisons can also be helpful. They allow us to answer questions like:
- Are you on pace? Are you falling behind the pack?
- What SAT score do I need to get that full ride scholarship?
- How much money can I make if I take pictures of puppies all day and post them on Instagram?
In today’s article, comparisons can help you understand if you’re setting yourself up for long-term success. I want to take a stab at defining milestones for you net worth targets by age. How much money should you have at each age? How should your nest egg grow?
Consider taking the time to digest the 25th, 50th, 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 (after all, that’s how percentiles work) 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 (though I still think the comparisons of real net worth to target net worth will be useful for you.)
The good stuff
Who am I kidding? You don’t want to wait until the end of the article to see the good stuff. You want to look at the data now!
So here are various opinions of net worth targets by age. This initial plot is the 50th percentile, or median, net worth.
Where are these values coming from?
First, I pulled from Fidelity. I invest with Fidelity, and they constantly remind me of their recommended gates for net worth by age. 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.
Next, I pulled data from the phenomenal site DQYDJ. DQYDJ originally pulled of their data from the Federal Reserve 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. So 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.
Keep in mind! 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.”
Next, the financial aggregation site The Balance follows a similar formula to Fidelity. At particular ages, they say, you should aim for an ever-growing multiple of your salary.
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
- 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
So, Sam’s targets are going to be far above average.
And finally, I took my own stab at some 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.
- 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.
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 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, a 40-year old might want to project 20 years into the future if they want to see what their net worth target for age 60 should be.
|Number of years||Inflation multiplier|
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 will likely be starkly different. The average American doctor’s salary 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 targets. They account for the highs and the lows, and they let you know where the middle of that scale lands.
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.
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.
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.
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.
25th Percentile and 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.
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 efforts, or average efforts. But accepting this unfortunate reality is something I hope you’ll consider.
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.
**What counts as net worth? And what doesn’t?
Here’s some real quick housekeeping. What actually counts towards one’s net worth?
In general, the sources I used count the following as contributors to net worth.
- 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, credit card, student loans, etc.
Note: Fidelity’s targets were based solely on retirement account funds.
And what doesn’t count towards net worth?
- The future value of a pension or Social Security
- 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
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.
When someone wonders, “What’s the point of spending money and inordinate amounts of time to write a blog?”–one of my answers is to spread information like this.
I hope you enjoyed today’s Best Interest; thank you for reading.