Everything is relative when it comes to money. If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy given all our costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end. As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth of the above average person!
According to CNN Money, the average net worth for the following ages are: $9,000 for ages 25-34, $52,000 for ages 35-44, $100,000 for ages 45-54, $180,000 for ages 55-64, and $232,000+ for 65+. Seems very low, but that’s because we use averages and a large age range.
The Above Average Person is loosely defined as:
1) A person who went to college and believes that grades do matter.
2) Does not spend more than they make because that would be irrational.
3) Saves for the future because they realize at some point they no longer are willing or able to work.
4) Largely depends on themselves, as opposed to mom and dad and the government.
5) Takes responsibility for their own actions when things go wrong and learns from the situation to make things better.
6) Has an open mind and is willing to look at the merits of both sides of an argument.
7) Welcomes constructive criticism (and is not overly sensitive) from friends, loved ones, and strangers in order to keep improving.
8) Has a healthy amount of self-esteem to be able to lead change and believe in themselves.
9) Understands the mental to physical connection in everything we do so that that a healthy mind corresponds with a healthy body.
10) Enjoys empowering themselves through learning, whether it be through books, personal finance blogs, magazines, seminars, continuing education and so forth.
11) Has little-to-no student loan debt due to scholarships, part-time work, or parents.
Now that we have a rough definition of what “above average” means, we can take a look at the tables I’ve constructed based on the tens of thousands of past comments by you and posts I’ve written to highlight the average net worth of the above average person.
THE ABOVE AVERAGE NET WORTH DECONSTRUCTED
First, we must highlight what the average tax-deferred retirement savings plan is for those in America. We’ll focus on the simple 401K system we have here where one can contribute $17,000 of their pre-tax income every year.
This chart can be used as a rough estimate for those with the RRSP plan in Canada, and retirement plans in Europe and Australia as well. In fact, any country that has any sort of tax-deferred retirement plan and social safety net program for retirement that has a GDP/capita of $30,000 or more can use the below chart as an aspirational guide. Remember, we are talking about the “above average person”.
FINANCIAL SAMURAI TAX DEFERRED (401K) SAVINGS GUIDE
| Age | Years Worked | Low End | High End |
| 22 | 0 | $0 | $0 |
| 23 | 1 | $8,000 | $17,000 |
| 24 | 2 | $25,000 | $35,000 |
| 25 | 3 | $42,000 | $60,000 |
| 30 | 8 | $127,000 | $182,000 |
| 35 | 13 | $215,000 | $331,000 |
| 40 | 18 | $300,000 | $521,000 |
| 45 | 23 | $383,000 | $764,000 |
| 50 | 28 | $468,000 | $1,075,000 |
| 55 | 33 | $553,000 | $1,470,000 |
| 60 | 38 | $638,000 | $1,974,000 |
| 65 | 43 | $723,000 | $2,618,000 |
The assumption here is that the above average person is able to start maxing out their tax-deferred retirement plan every year after the second full year of work, and continue on without fail until 65. The low and high end account for 0% to a relatively conservative 5% constant rate of return. Of course you can lose money and make much more if you are good and lucky.
This chart does not take into consideration any after-tax savings post 401K contribution. To understand what the average after-tax savings rate is post tax-deferred retirement contribution is a gargantuan task because there are too many assumptions that are debatable eg. income and after-tax savings rate post maximum pre-tax retirement contributions. That said, I’ll offer a base case guide anyway.
FINANCIAL SAMURAI AFTER-TAX SAVINGS GUIDE
| Age | Years Worked | Low End | High End |
| 22 | 0 | $0 | $0 |
| 23 | 1 | $5,000 | $10,000 |
| 24 | 2 | $10,000 | $20,000 |
| 25 | 3 | $15,000 | $35,000 |
| 30 | 8 | $50,000 | $85,000 |
| 35 | 13 | $100,000 | $130,000 |
| 40 | 18 | $125,000 | $200,000 |
| 45 | 23 | $150,000 | $250,000 |
| 50 | 28 | $175,000 | $300,000 |
| 55 | 33 | $200,000 | $350,000 |
| 60 | 38 | $225,000 | $400,000 |
| 65 | 43 | $250,000 | $500,000 |
The above chart assumes on the low end that one saves about $5,000 a year in after-tax income and around $10,000-$15,000 a year in after-tax income on the high-end after maxing out their tax-deferred retirement vehicle. I’ve tried to keep things as simple as possible, assuming no inflation and no investment returns. I also believe saving $5,000-$15,000 a year in after-tax income is very realistic for the above average person, and probably very easy for many who earn more than $85,000 per person. Finally, the chart should show you the power of consistency.
THE IMPORTANCE OF REAL ESTATE
A 2010 study showed that the average 2007 net worth of a homeowner is roughly $200,000, or 40X greater than the average renter’s net worth of $5,000. We can debate the merits of this study (done by a real estate association of course) all day long (demographic sampling, housing price changes, etc), but the point is, “above average” people generally all own homes and are wealthier, be it 2X wealthier or 40X wealthier than the average renter.
The return on rent is always -100%. You get a place to live and that’s that. There is never a positive return on an asset after a month, or 30 years of renting. A renter cannot pass on her paid off house to her kids or grandchildren. There is no asset accumulation at all. There is a reason why some 97% of millionaires are property owners.
The value of real estate varies across all the land and the world. It is very hard to make an assumption of what should be inputted as a result. According to the US Census bureau, the median home price in America is $221,800 while the average home price is $272,900. You can’t get anything livable in San Francisco, New York City, Los Angeles, and maybe even Washington DC and Boston for $250,000. But, you sure can in the mid west for $250,000.
Hence, let’s construct an equity value chart of something based on a range of $250,000-$500,000, with the assumption that upon retirement, you have your house paid off and can attribute this amount into your net worth, or the capitalized value of all rents you would pay if you did not own.
FINANCIAL SAMURAI HOME EQUITY PROGRESS GUIDE
| Age | Years Owned | Equity Build Progress (Low) | Equity Build Progress (High) |
| 28 | 1 | $3,500 | $7,500 |
| 30 | 3 | $12,000 | $23,000 |
| 35 | 5 | $20,000 | $40,000 |
| 40 | 10 | $45,000 | $95,000 |
| 45 | 15 | $85,000 | $150,000 |
| 50 | 20 | $110,000 | $215,000 |
| 55 | 25 | $150,000 | $300,000 |
| 60 | 30 | $190,000 | $390,000 |
| 65 | 35 | $250,000 | $500,000 |
| Total Home Equity | $250,000 | $500,000 |
I assume that the above average person buys a $250,000-$500,000 piece of property at 27. By the time they turn 28, they will have owned the property for 1 year and have paid down $3,500-$7,500 in principal on a $250,000-$400,000 loan. I conservatively assume a $250,000 no money down loan for the low end house, even though after 5 years of working, the low-end above average person should have around $25,000-$30,000 saved up in cash based on the after-tax savings charts above.
By the time a 27 year old pays off his or her mortgage in 30 years, s/he will be 57 years old with a place to live rent from for the rest of his/her life. That is the true value of the property, the rent saved for the remainder of the owner’s life. It can be calculated as the present value of those future rental payments, or simply the market value of the home. I assume zero price appreciation on the home to keep things conservative and no extra payments to accelerate the payoff either.
THE X FACTOR
So far, we’ve touched upon pre-tax savings, after-tax savings, investment returns of 0 for those savings to remain conservative, and real estate. You need to spend less than you earn for that inevitable day you no longer have an income. You also need to live somewhere, hence, you should own your property if you know you will be there for much longer than 5-10 years.
There’s something missing in all of this, and that something is what I call the X Factor. Above average people seem to always be thinking of new ways to build wealth. There is an optimism about them that no matter what happens, they can always find ways to make more money. It’s hard to quantify what that X Factor is for the average above average person, but it’s there somehow through music, writing, athletics, communication, entrepreneurship, hustling, and so much more.
The great thing about savings and real estate is that the process is highly automatic. If you implement the plan and wake up 10 years later, you will inevitably be worth much more provided you keep your job and your home. Given savings and building equity in your home over the next several decades is largely automatic, the X Factor comes out because you have so much more free time to do something else!
THE AVERAGE NET WORTH OF THE ABOVE AVERAGE PERSON
I have gone ahead and averaged the averages for pre-tax savings, post-tax savings, and real estate equity progress in the spreadsheet below. The pre and post tax savings can be invested however you see fit and is a topic of another post. Another thing to note is taxation, given pre-tax savings have to eventually be withdrawn and taxed. Again, these are rough estimates to give you an idea of the average net worth of the above average person.
| THE AVERAGE NET WORTH OF THE ABOVE AVERAGE PERSON | |||||
| Age | Yrs Worked | Avg Pre-Tax Savings | Avg Post-Tax Savings | Avg Property Equity | Avg Total Net Worth |
| 22 | 0 | $ - | $ - | $ - | $ - |
| 23 | 1 | $ 12,500 | $ 7,500 | $ - | $ 20,000 |
| 24 | 2 | $ 30,000 | $ 15,000 | $ - | $ 45,000 |
| 25 | 3 | $ 45,000 | $ 25,000 | $ - | $ 70,000 |
| 30 | 8 | $ 154,500 | $ 67,500 | $ 17,500 | $ 239,500 |
| 35 | 13 | $ 273,000 | $ 115,000 | $ 30,000 | $ 418,000 |
| 40 | 18 | $ 410,500 | $ 162,500 | $ 70,000 | $ 643,000 |
| 45 | 23 | $ 573,500 | $ 200,000 | $ 117,500 | $ 891,000 |
| 50 | 28 | $ 771,500 | $ 237,500 | $ 162,500 | $ 1,171,500 |
| 55 | 33 | $ 1,011,500 | $ 275,000 | $ 225,000 | $ 1,511,500 |
| 60 | 38 | $ 1,306,000 | $ 312,500 | $ 290,000 | $ 1,908,500 |
| 65 | 43 | $ 1,670,500 | $ 375,000 | $ 375,000 | $ 2,420,500 |
| Source: FinancialSamurai.com 2012 | |||||
There you have it! Based on my assumptions above, the average net worth of the above average 30 year old is around $240,000. By the time this person is 40, his/her net worth should climb to around $650,000 and all the way up to around $2,000,000 million by the age of 60.
Of course some of you above average Financial Samurai readers will have a total net worth much higher than the chart. But then, I’d have to write another post entitled, “The Average Net Worth Of Financial Rockstars!”
Readers, how do you stack up? Please share with us your net worth, age, whether you rent or own, and so forth if you feel comfortable sharing.
Note: The figures in this post are per person, not per couple. However, I realize life changes and people get married, stay at home to be parents and so forth. Hence, if you believe in your marriage, and believe that a marriage can be defined as one unit, then you can use the figures per couple. However, I urge all of you to use the guidelines for a single individual because marriages can also change.
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