Be sure to focus on the median numbers, not the averages, and pay more attention to how well you're executing your own retirement plan.
What are you worth? Well, your mom might say that you're priceless, and your golden retriever could agree, but there's another way to answer the question: with your net worth. It changes over time, and is determined by debts you take on and assets you accumulate.
If you're wondering how you stack up to others your age, in terms of net worth, keep reading. But keep in mind that millions have accumulated much less wealth than they arguably should have in order to be on track for a comfortable retirement. If your net worth is above average, you might still want to increase it considerably.
Image source: Getty Images.
What is net worth?
If you're familiar with companies' balance sheets, you'll know that they can be boiled down to a simple equation: Assets minus liabilities equal shareholder equity. In other words, those who own shares own whatever the company is worth when you subtract all debts and obligations from all assets.
It's much the same with us individuals and our own net worth. Take all your assets, which include your cash, investments, home equity, the current cash value of your belongings (such as your car, furniture, and jewelry), the cash value of any insurance policies, and any business interests you have, such as a part ownership in a local pizza joint.
Then subtract all your liabilities: your mortgage, any car loans, student loans, credit card balances, alimony or child support owed, and so on. What's left is your net worth.
You might look quite well off if you're living in a huge house on a desirable street and driving a fancy car, but if you have a massive mortgage and car loans, your net worth might be far less than the guy living in the shabbiest house on your street.
How does your net worth compare to others?
Here's a look at both median and average net worth for Americans by age, with data from the Federal Reserve's Survey of Consumer Finances that was published last month:
Age of Head of Household | Median Net Worth | Average Net Worth |
|---|---|---|
Younger than 35 | $39,000 | $183,500 |
35 to 44 | $135,600 | $549,600 |
45 to 54 | $247,200 | $975,800 |
55 to 64 | $364,500 | $1,566,900 |
65 to 74 | $409,900 | $1,794,600 |
75 and older | $335,600 | $1,624,100 |
Source: The Federal Reserve Survey of Consumer Finances, October 2023.
Both median and average figures are included in order to offer a lesson in numbers. You'll often run across average figures for this and that, and it's important to understand their limitations -- and that median figures are often more informative.
Imagine a series of numbers: 1, 2, 3, 4, 15. Add them together and you have 25. Divide by five and you get the average: 5. The median, though, is the middle number, when all the numbers are placed in order. So here the median is 3.
Averages can be skewed when there are extra large or small outlier numbers. If that series had been 1, 2, 3, 4, 30, the average would have been 8 -- a much bigger number than four of the five numbers.
The effect of outliers is extreme in the table above, where the average net worth of someone younger than 35 is almost five times higher than the median. For those 75 or older, the average is also close to five times higher due to some very rich people's net worths skewing the numbers.
The averages are true and accurate, but the median numbers give you a clearer look at what a typical person in each age group is worth. So compare yourself accordingly.
Making sense of comparative net worths
Here are some ways to make use of that table:
- Start by figuring out your own net worth, so that you can see where it falls compared to others in your age cohort.
- If your net worth is greater than the median, great! Though you could still, technically, be behind in your savings. Remember, after all, that your net worth isn't exactly the same as your retirement savings (or any other savings). It might be greatly dependent on your home equity, but you're probably not going to sell your home and then not buy a new home.
- If your net worth lags others your age, that's an even greater wake-up call to start saving and investing in earnest for your future, even if you're still young.
- A low net worth can mean that you're carrying a lot of debt. If possible, pay off as much of your high-rate debt as soon as you can.
Don't focus too much on your net worth. It can be interesting to see what it is and how you compare, and of course you'll ideally want it to grow over time.
But it can be more productive to come up with a solid retirement plan, estimating how much income you'll need in retirement and how you'll get it. Then execute your plan over time, saving sufficiently and investing effectively.
