The_average_net_worth_for_the_above_average_couple
00:00:00.000 | Hello, everybody.
00:00:01.160 | It's Sam from Financial Samurai.
00:00:03.480 | In this episode, we're going to talk about the average net worth for the above average
00:00:07.880 | married couple.
00:00:08.880 | So if you're single right now, don't worry.
00:00:11.720 | I think there's someone out there for you.
00:00:14.240 | You just have to make it your mission to find someone because from a financial perspective,
00:00:19.040 | I think life is much easier with someone.
00:00:22.800 | Instead of paying the full $2,500 a month in rent, you can split it $1,250 each and
00:00:28.680 | that brings more disposable income into your pocket.
00:00:32.640 | And obviously, besides sharing more of your expenses, life is just more interesting when
00:00:37.320 | you have someone to care about who will go through the journey together.
00:00:41.360 | So what is the definition of above average?
00:00:43.520 | Well, first of all, I don't want any of you guys to get offended if you are considered
00:00:48.520 | average or below average.
00:00:50.920 | It's just math.
00:00:52.040 | Think about the bell curve.
00:00:53.960 | And what we're trying to do is be above average because life is – we only got one shot,
00:00:58.760 | right?
00:00:59.760 | So we might as well try a little bit harder and do a little bit better so we can try to
00:01:03.080 | live a better life and help our finances.
00:01:06.520 | So the above average person is loosely defined as someone who graduated from college.
00:01:11.080 | Only about 35% of the American population has a college degree.
00:01:15.080 | Now if you've got a job right out of high school and you are making above average income
00:01:21.200 | for your city or state, then you're obviously above average.
00:01:25.680 | The above average person works hard, plays well with others, takes full advantage of
00:01:30.600 | their pre-tax retirement accounts, saves additional disposable income so they can generate passive
00:01:36.560 | income and they stay on top of their finances.
00:01:40.160 | The above average person is also quite reasonable.
00:01:45.600 | They don't expect anything from their parents or from the government.
00:01:49.320 | And if they were C students in school, they don't expect to live an A lifestyle.
00:01:54.960 | This is pretty important here, folks, this last line.
00:01:58.120 | If you're a C student and you expect to live an A lifestyle, you're probably going to be
00:02:01.920 | miserable.
00:02:03.040 | And this is what I see happening more and more today.
00:02:06.120 | People want to go straight to the top, straight to the corner office without putting in their
00:02:10.760 | dues.
00:02:12.040 | So now that we've got the definition of what above average is, let's look at the data.
00:02:18.000 | The average net worth, depending on where you look, is somewhere between $150,000 to
00:02:22.800 | $250,000.
00:02:24.800 | But the median net worth in America is closer to about $80,000.
00:02:29.000 | So the average is being brought up by the super wealthy in America who have benefited
00:02:33.600 | the most from the super boom, sonic boom, since 2009, 2010.
00:02:40.040 | The lesson there is you've got to own risk assets such as stocks, real estate and so
00:02:46.360 | forth because over the long term, it's probably going to do well for you.
00:02:51.120 | So now that we know the averages, let's look at what the average net worth for the above
00:02:56.560 | average person should be.
00:02:59.200 | I did a pretty detailed analysis in terms of years worked, average pre-tax savings,
00:03:05.400 | average post-tax savings, and average property equity and combine them into a chart.
00:03:12.120 | And here are some of the numbers.
00:03:13.720 | At 25 years old, the above average person has got about $79,000 in net worth.
00:03:19.840 | At 30, $250,000.
00:03:22.200 | At 35, about $430,000.
00:03:25.440 | At 40, $660,000.
00:03:28.280 | At 45, $914,000.
00:03:31.880 | At 50, $1.24 million.
00:03:34.120 | At 55, $1.7 million.
00:03:37.300 | At 60, about $2.2 million.
00:03:40.000 | And at 65, about $3 million.
00:03:42.640 | So that's what I think the above average person should be able to accumulate in his or her
00:03:49.240 | lifetime.
00:03:50.680 | Steady work, steady savings, building property equity, paying off that mortgage and so forth.
00:03:57.480 | So how does that translate into target net worth amounts by age for the above average
00:04:03.720 | couple?
00:04:04.720 | Now, I don't want folks to get fixated by the numbers, although the numbers are important.
00:04:10.400 | I want to kind of talk a little bit more philosophically about how do we combine our finances and have
00:04:17.040 | targets to shoot for.
00:04:18.760 | Now everybody knows that married couples who stay together have a financial advantage over
00:04:22.460 | single people.
00:04:23.960 | We can again share expenses and grow things together.
00:04:28.280 | It's much easier.
00:04:30.280 | And before we get into the exercise of figuring out the net worth of the above average couple,
00:04:34.400 | let's take a moment to define an above average couple.
00:04:37.920 | They stay together for the long term, so they don't divorce because divorce is probably
00:04:43.760 | the biggest detriment to your finances, for couples finances that is.
00:04:48.960 | They discuss long term financial goals such as retirement age, retirement number, succession
00:04:55.360 | planning, like a will and trust and so forth.
00:04:58.840 | They don't keep any financial secrets from each other.
00:05:02.280 | They know their monthly budgets like the back of their hand.
00:05:06.480 | They make sure their net worth risk exposure is aligned with their goals.
00:05:11.020 | They share expenses in a fair way.
00:05:13.820 | They support each other's career and endeavors.
00:05:17.040 | They work together as a team to get things done.
00:05:20.000 | They seek to understand the other side of the story during conflicts and always come
00:05:24.040 | to a compromise.
00:05:26.080 | They plan for the financial expense of children, even if they don't have any.
00:05:31.640 | Each spouse can financially support themselves if the relationship ends.
00:05:36.440 | This is a very important one to me because I do believe financial dependence is the worst.
00:05:42.840 | If you love your spouse, you want to set them free financially.
00:05:47.520 | You want to make them feel as they can do anything they want with their money and your
00:05:53.440 | money.
00:05:54.440 | I know this topic is up for debate and I've written a post about it and we can talk about
00:05:58.480 | it in a future episode.
00:05:59.480 | I'd love to get my wife on and talk about it.
00:06:02.400 | But freedom from each other financially is very important even though you're still together.
00:06:08.440 | So we'll talk later.
00:06:09.720 | And then finally, the above average couple only have children if they've run the numbers
00:06:14.940 | and know that they can afford children.
00:06:17.480 | Now as a parent myself, I do realize now why so many couples who are financially struggling
00:06:24.500 | have so many children.
00:06:26.480 | The answer is you don't realize how much joy children bring to you until you have children.
00:06:33.920 | And then you just want more of it rationally even though your budget can't afford it.
00:06:38.860 | But above average people are quite rational and they think rationally that it's better
00:06:43.260 | to have enough money to take care of your children.
00:06:46.600 | Otherwise maybe bad things will happen in terms of neglect, stress at home, and they
00:06:51.360 | might turn out to be, I don't know, maybe not so happy or really troubled kids or adults
00:06:57.440 | and that wouldn't be really good for society.
00:07:00.340 | So let's move on to various net worth calculation methods for couples.
00:07:05.120 | There are only three methods that I would like to introduce.
00:07:08.140 | One is the equality method.
00:07:10.080 | The second is the government taxation method.
00:07:13.240 | And the final one is the financial samurai method.
00:07:16.540 | So let's go with the equality method.
00:07:18.380 | The equality method basically states that a man and a woman are equal.
00:07:23.280 | Given both sexes are equal, it is only logical to conclude that both spouses study hard at
00:07:29.720 | school, work, save, and invest for the future before and after meeting each other.
00:07:35.620 | One simply has to double the amounts in my above average person net worth chart to get
00:07:40.280 | to the equality net worth figures.
00:07:43.760 | So in other words, by 30, the number should be about 500,000 for the total net worth.
00:07:50.840 | By 35, about 850,000.
00:07:53.920 | By 40, 1.32 million.
00:07:57.480 | By 45, 1.8 million.
00:08:00.260 | By 50, 2.5 million.
00:08:03.060 | By 55, 3.4 million.
00:08:06.080 | By 60, 4.3 million.
00:08:08.280 | And by 65, around 5.7 million.
00:08:12.100 | Now I can hear some of you guys grumble and complain saying those figures are just way
00:08:16.960 | too high.
00:08:19.020 | Now I don't know what country you're living in, but I live in America and men and women
00:08:24.040 | are equal.
00:08:26.000 | And if men and women are not equal in your country, please leave a comment and explain
00:08:30.760 | what the heck is going on because it is 2019 folks, soon to be 2020.
00:08:36.760 | And if people are not equal by now, then I don't know when people are ever going to be
00:08:40.160 | equal.
00:08:41.480 | Now some of you are probably arguing these figures are too low because there are tremendous
00:08:45.360 | financial synergies in a relationship.
00:08:48.440 | Since you can't have synergies before you actually meet, it's better to simply double
00:08:52.420 | the above average net worth per person figures to stay conservative.
00:08:56.520 | Alright now the next method, the government taxation method.
00:09:01.240 | This is quite an interesting one.
00:09:03.240 | Despite tremendous federal income tax improvement after Trump became president, there is still
00:09:08.560 | a marriage penalty tax.
00:09:10.760 | If you take a look at the tax brackets and rates for 2019, which will probably be very
00:09:15.680 | similar in 2020, notice how an individual pays a 37% marginal federal income tax bracket
00:09:22.080 | after they make $510,300.
00:09:26.540 | But if you look at a married couple's column here, a married couple starts paying a 37%
00:09:32.720 | marginal federal income tax above only $612,350.
00:09:39.040 | In other words, 1+1 does not equal 2.
00:09:42.400 | Instead 1+1 equals 1.21.
00:09:47.120 | Because if 1+1=2, married couples should pay the 37% tax rate when their income is above
00:09:54.040 | about $1,020,600.
00:09:58.340 | So what's going on here?
00:10:00.080 | Well, 1) if there are two high income earning couples each making above $510,300, they probably
00:10:07.040 | shouldn't get married.
00:10:08.280 | 2) if you're a couple making above $612,350 combined, you probably shouldn't get married
00:10:15.160 | if you want to, that is, pay more taxes to an inefficient government.
00:10:19.120 | But 3) what is really going on is that the government believes 1+1=1.21 because it is
00:10:25.280 | sexist.
00:10:26.280 | It is holding on to old ways of thinking.
00:10:30.400 | Think about the makeup of the government.
00:10:32.160 | It's largely made up of men.
00:10:34.800 | And men think one way, women think another way.
00:10:38.160 | Things are changing, but it's predominantly made up of men.
00:10:41.200 | The president is a man, congress, senators, they're mostly men.
00:10:46.040 | And therefore, they have this ideology that one spouse should stay at home and take care
00:10:52.320 | of the children.
00:10:53.400 | And that one spouse, if you look at statistics, is usually the woman.
00:10:58.040 | I've been a stay at home dad for 29 months now.
00:11:01.080 | And I will certainly say there are hardly any men out there when I take my boy to the
00:11:05.400 | playground or to the museum or park.
00:11:08.040 | I would say the numbers look like this.
00:11:10.080 | This is here in San Francisco where the cost of living is high and I guess people don't
00:11:13.840 | really want to take care of their kids as much or they can't.
00:11:18.000 | The percentages are about 80% of the caretakers of children that I see between Monday and
00:11:24.800 | Friday are nannies.
00:11:27.280 | About 20% are moms.
00:11:30.960 | About 8% are grandparents, maybe 9%.
00:11:34.840 | And then the rest are dads.
00:11:37.340 | So maybe in this land of change and equality, maybe the government is right after all.
00:11:43.400 | Maybe we're just not equal because I really don't see any dads staying at home taking
00:11:48.400 | care of their children.
00:11:50.000 | But still, conceptually and I think philosophically, one plus one should equal two but the government
00:11:57.800 | has different ideas.
00:11:59.800 | Now of course, there are tremendous benefits of having a stay at home spouse take care
00:12:03.280 | of their kids, right?
00:12:04.280 | You know, your children get more love from the person you trust the most.
00:12:07.780 | The nanny, I swear to goodness, they're probably 80% on their phones and not paying any attention.
00:12:14.020 | Also, okay, daycare costs a lot and there's other great benefits to having one stay at
00:12:20.100 | home spouse.
00:12:21.540 | But I still believe the ratio, the math is too low.
00:12:26.060 | The combined income of $612,350 provides only a 20% greater threshold until the top 37%
00:12:33.460 | tax rate kicks in.
00:12:34.460 | It should be higher.
00:12:35.780 | I believe it should be higher.
00:12:38.020 | But if you love the government, are very traditional and believe one spouse should probably stay
00:12:42.160 | at home, then you are a proponent of the government taxation net worth method.
00:12:47.820 | So finally, let me introduce, I think the best way, the financial samurai method to
00:12:52.960 | calculating an above average couple's net worth by age.
00:12:58.060 | The financial samurai net worth method provides a recognition there are financial synergies
00:13:02.220 | for being a couple.
00:13:03.820 | At the same time, the financial samurai method denounces government policies to its core
00:13:08.860 | for its sexist and discriminatory ways.
00:13:12.220 | Besides, the ludicrous 20% increased allowance for married couples, the government only provides
00:13:18.180 | child tax credits, student interest deductions, and IRA contributions to those who make below
00:13:24.820 | a certain amount.
00:13:27.940 | So why is the government deciding so much on who gets to benefit and who doesn't?
00:13:33.700 | Why are we letting the government dictate so much of our lives?
00:13:38.140 | I don't think we should.
00:13:39.140 | It's shameful to discriminate against hardworking Americans who live in a higher cost of living
00:13:43.900 | area.
00:13:44.900 | The government should treat everyone equally and not pick and choose who gets to thrive
00:13:48.740 | and who gets to suffer.
00:13:50.900 | I am also a strong believer that each spouse should save and invest as independent man
00:13:55.940 | or woman because breakups happen all the time so it is imperative we count on ourselves
00:14:02.580 | in the worst case scenario.
00:14:05.060 | At the same time, there is no need to have double the property size presumably because
00:14:09.740 | a couple is sharing a room, a kitchen, a bathroom, a living room, a dining room, a garage, and
00:14:14.020 | a backyard.
00:14:15.420 | So let's take a look at the numbers for the financial samurai method.
00:14:19.340 | At age 30, net worth target $550,000.
00:14:23.660 | 35, $900,000.
00:14:26.100 | Let's call it a million.
00:14:27.100 | 40, $1.35 million.
00:14:29.660 | 45, $1.7 million.
00:14:32.340 | 50, $2.1 million.
00:14:34.700 | 55, $2.7 million.
00:14:37.260 | 60, $3.3 million.
00:14:39.860 | 65, $4.1 million.
00:14:42.680 | In other words, the financial samurai is simply a hybrid method.
00:14:46.800 | We all know that equality is the right thing.
00:14:49.180 | One plus one equals two.
00:14:51.020 | But we also know that the government has tons and tons of data about all of us and our habits
00:14:56.660 | and everything and that they know how to optimize their budget and so there is obviously some
00:15:03.780 | credence to their method as well.
00:15:05.980 | So the financial samurai, we combine them and boom, we got these numbers here.
00:15:10.860 | And I think it's logical to look at these numbers and think, okay, that makes sense.
00:15:16.860 | Please remember that the above average couple net worth targets are based upon my assumptions
00:15:22.440 | for the above average person.
00:15:25.480 | Not the average American who wakes up 10 years later hating his or her job because he or
00:15:30.200 | she forgot to save and invest all during this time.
00:15:34.380 | The average American who cannot come up with $1,000 to pay for an emergency is not the
00:15:39.220 | example you want to follow.
00:15:42.240 | If you haven't achieved my suggested net worth figures yet, don't worry.
00:15:47.200 | Just the fact that you're listening to this podcast means you're serious about supercharging
00:15:51.860 | your finances for a better life.
00:15:54.220 | Now you will have some clear financial goals as a couple.
00:15:57.540 | Give your savings and investments some time to compound.
00:16:01.080 | Not only do couples have roughly a 70% higher combined net worth than single folks, life
00:16:06.680 | is also more enjoyable when spent with someone you love.
00:16:10.360 | Thanks so much everyone.
00:16:11.880 | And if you liked this podcast, please leave a positive review and share your thoughts
00:16:15.440 | in the comments and the post.