The_median_net_worth_for_Americans
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai and in this episode we're going to talk about the median net worth of Americans
00:00:05.920 | So this data comes from the Federal Reserve's survey of consumer finances in
00:00:11.680 | 2016 now they only do this survey every I think three years and then it takes another
00:00:17.480 | Couple years for them to come out and say what the results were from the survey
00:00:23.360 | So that's why we're now just really suddenly getting this data
00:00:27.560 | And I think it's really interesting data because it highlights the median net worth for the middle class
00:00:33.160 | The mass affluent which I define as the 80th to 99th percentile and then the top 1%
00:00:41.360 | So let's get straight to the data. The top 1% has a median net worth of
00:00:46.920 | 10.7 million
00:00:49.680 | the mass affluent has a median net worth of
00:00:53.000 | 146 thousand nine hundred fifty thousand and the middle class has a median net worth of only eighty seven thousand one hundred forty
00:01:00.680 | I think it's really important for us to
00:01:03.040 | Compare how we're doing on the road to financial independence because if there's no point of comparison
00:01:10.420 | You don't really know whether you're getting ahead or you're staying the same or you're falling behind
00:01:14.720 | And obviously all of us want to get ahead because we all listen to personal finance podcasts
00:01:21.320 | We read personal finance websites and we want to achieve financial freedom sooner rather than later with our one and only lives
00:01:28.320 | So let's get into the weeds here and look at the median net worth for each of the three classes
00:01:34.600 | And we'll start off with the top 1%
00:01:37.120 | So back in 1995 the median for the top 1% was three point seven million dollars
00:01:45.160 | Therefore the median net worth for the top 1% grew by a hundred eighty seven percent
00:01:49.720 | during the 1996 to 2016 time period
00:01:53.600 | That's not bad
00:01:56.000 | But that's lower than I thought
00:01:58.000 | Given the fierce rhetoric surrounding how rich the rich have gotten over the years, you know
00:02:03.560 | You can't go a day without hearing about some rich person making boku boku bucks
00:02:09.600 | And I think what what what's going on here is that people are confusing the top 1% with the top
00:02:16.640 | 0.1% so it's the zero one point zero point one percent of the folks, you know
00:02:22.320 | Who have tens and tens of millions fifty million hundred million one billion?
00:02:26.540 | Those are the folks who've gotten crazy rich now the top 1% not bad. Okay, ten point seven million is not bad
00:02:34.120 | but
00:02:35.520 | If you look at the growth rate from 1996 to 2016, it's not that high
00:02:42.680 | the compound growth rate is only five point four percent a year for 20 years and
00:02:48.520 | That gels quite closely with the compound annual growth rate of the S&P 500 of five point six percent
00:02:56.480 | between the years 1999 and 2008
00:02:59.760 | So I thought that was quite interesting here to highest volatility
00:03:05.060 | So the median net worth of the top 1% was nine point six million about nine point six million in 2007 and by
00:03:13.440 | 2010 the median net worth had dropped to six point six million. So that's about a 31% decline
00:03:20.400 | Can you imagine losing?
00:03:22.780 | Three million dollars in just three years
00:03:25.440 | I'll be pretty bummed out and that's why I definitely don't want to go through that again
00:03:31.800 | I mean I went through like a 35% drop back in
00:03:35.420 | 2008 to 2010 and that was no fun at all
00:03:40.280 | I mean it spurred me into action by starting this website financial samurai
00:03:43.920 | But other than that, I was kind of I was like bummed out
00:03:47.040 | But you know what? Maybe not so bad because I I did get married in 2008
00:03:51.540 | So, I don't know this is kind of like revisionist history here
00:03:54.760 | But either way nobody wants to lose 30 to 35 percent of the net worth in three years
00:04:00.660 | Because you know, you're gonna have to make like what 70 80 percent just to get back to even and how long is that gonna take?
00:04:06.980 | Therefore the lesson learned is if you have a top 1% net worth or if you have a net worth of I would say over
00:04:13.760 | five million dollars
00:04:15.440 | your number one priority should be capital preservation, especially after a ten-year bull market a
00:04:20.880 | 10.7 million net worth should be able to spit out between two hundred thousand or four hundred thousand a year with little to no risk
00:04:28.480 | So if you have no dependents then living off that type of income should be no problem for an individual
00:04:34.060 | Or a couple and one can assume that most people who have amassed a top 1% net worth
00:04:39.200 | If they have children are older and have independent adult children
00:04:44.220 | and then finally
00:04:47.180 | This net worth figure 10.7 million is pretty much aligned with the estate exemption amount of 11.4 million for
00:04:56.020 | 2019 you've got to figure that once the
00:04:59.100 | 2019 numbers come out
00:05:01.700 | The 10.7 is probably over 11 million and maybe even over 11.4 million now because the markets continue to do better
00:05:09.740 | Historically now is absolutely the most tax efficient time to be a top 1% er if you want some motivation
00:05:18.620 | This is it the estate tax limit
00:05:21.180 | 11.4 million
00:05:23.920 | until dollar after that gets taxed about 40%
00:05:27.180 | so you should be able to hoard all that amount of money and
00:05:30.740 | Give it to your offspring and make them really really spoiled and unmotivated life. Sounds good to me
00:05:36.620 | Okay, let's talk about the median net worth for the mass affluent
00:05:40.680 | I think all of you listening right now should be in the mass affluent class because the middle class
00:05:46.760 | They don't give two licks about personal finance or maybe they do but they're definitely not spending time
00:05:52.900 | Listening and reading about personal finance
00:05:54.900 | Caring about your personal finances
00:05:57.600 | Motivates you to save more invest more and figure out new ways to boost wealth
00:06:01.560 | So keep on listening and keep on reading as much as possible. Not just my site my podcast
00:06:07.920 | But many many other podcasts and websites just keep on listening and take action
00:06:14.900 | So the median net worth of the mass affluent class
00:06:17.680 | 746 thousand nine hundred fifty dollars
00:06:21.040 | Pretty darn good if you ask me
00:06:23.040 | That net worth figure using a 4% withdrawal rate or a 4% rate of return
00:06:28.800 | Should be able to generate about thirty thousand a year in gross income
00:06:32.720 | not bad and then if you add the average Social Security monthly check of
00:06:37.320 | $1,461 and the mass affluent has about
00:06:42.320 | $47,500 gross to spend a year in retirement
00:06:47.000 | And if you have a loved one who also earns the average Social Security monthly check
00:06:52.760 | You can add up another what?
00:06:55.440 | $12,000 a year so life is pretty good for the mass affluent and also if you look at the volatility of net worth in
00:07:03.440 | 2007 the median mass affluent net worth was
00:07:06.960 | 661,000 in
00:07:10.240 | 2010 the median mass affluent net worth fell to
00:07:14.520 | 360,400 for only a 15.3% decline
00:07:18.720 | So in other words the median net worth for the mass affluent fell by half the percentage amount as the median net worth for the
00:07:25.360 | Top 1% so for those who cannot stomach volatility being in the mass affluent class is the way to go
00:07:32.440 | So if you're currently in this class, that's probably worth still having a bias towards capital growth rather than capital preservation like the top 1%
00:07:42.200 | Losing on average 15% of your net worth and a bear market isn't unbearably painful
00:07:46.760 | Therefore you should probably continue to dollar cost average in a downturn based on existing risk appropriate investments
00:07:53.680 | Finally, it's worth the geo-arbitraging if you're in the mass affluent class
00:07:58.800 | You've got enough money to make the move, but you're not super super wealthy where you know
00:08:04.720 | You can live in the most expensive cities in the world. So think about how much?
00:08:10.600 | $46,000 nine hundred fifty dollars of net worth can buy you in places like Mexico, Thailand, Vietnam
00:08:17.400 | Malaysia, Taiwan and many Eastern European countries your purchasing power probably triples
00:08:22.880 | So in other words, you probably have two million dollars three million four million dollars in purchasing power
00:08:28.500 | It's not gonna get you a lot in San Francisco, New York
00:08:31.880 | but it sure is heck gonna get you a better lifestyle in
00:08:35.480 | Minneapolis or
00:08:38.240 | Kansas City or Des Moines that is if you can stand the weather and you know
00:08:43.320 | Like the people and get used to the new environment
00:08:46.400 | So finally, let's talk about the middle class the best class in the world
00:08:51.080 | We all think we're middle class no matter how much we have or how much we make
00:08:55.160 | Because we want to feel like part of a greater community
00:08:58.280 | Unfortunately, the median net worth of the middle class looks like the EKG of a deceased person
00:09:05.240 | When I was looking at the data and the chart, I didn't even realize the middle class
00:09:09.880 | Existed I thought the middle class was really the mass affluent class because the middle class net worth
00:09:16.720 | Chart over time looked like the x-axis like the horizontal x-axis. No nothing. It wasn't moving at all
00:09:24.760 | So the middle class has a median net worth of eighty seven thousand one hundred forty dollars
00:09:30.000 | And if you are the median age in America of 38, that's okay. You're still got decades
00:09:36.980 | Left to grow your wealth
00:09:38.600 | But if you've got eighty seven thousand dollars of net worth in your 50s and 60s
00:09:42.380 | Life is probably gonna be a little bit more difficult
00:09:45.320 | It is highly likely you will have to work longer become dependent on government programs in addition to Social Security
00:09:52.720 | and what's most concerning about the median net worth for the middle class is that it actually peaked in
00:09:59.280 | 2007 at a hundred eighteen thousand twenty five dollars
00:10:02.040 | the twenty six point two percent decline in the median middle class net worth by
00:10:07.700 | 2016 should be one of the biggest causes for concern for everybody if this is not addressed
00:10:14.000 | There's gonna be a resolution. I think there's gonna be riots on the street everywhere, you know, you're seeing them and you know
00:10:20.800 | Certain cities here and there I think a lot's going on in Portland
00:10:26.120 | wherever but it's just gonna spread and there's gonna be a lot of dissatisfaction in this country and I think
00:10:32.740 | People have got to be careful and what has happened. I think
00:10:37.040 | Look, the middle class has not recovered right? And what has happened is that they got spooked out of risk assets like real estate in stocks
00:10:45.280 | During the financial crisis and then they never got back in so stock ownership has fallen off
00:10:51.560 | continuously since
00:10:54.840 | 2007 2007 stock ownership for the average US adult was about
00:10:59.520 | Sixty five point two percent. Now. The ownership rate is about fifty two percent
00:11:04.520 | That's a pretty big decline. And if you look at home ownership rates
00:11:10.020 | It looked like it peaked more on 2004 but in 2007
00:11:15.400 | The number was six to be sixty eight point five percent. And now now we're only at about
00:11:21.640 | sixty three point seven percent
00:11:24.880 | so declining home ownership rates and
00:11:27.280 | declining stock
00:11:29.760 | Ownership rates means that you missed out on the biggest
00:11:33.040 | Rebound the biggest bull market over the past ten years and that's kind of that's kind of sad
00:11:39.760 | So despite the middle class falling behind we can look at the positive we can say look
00:11:45.080 | middle class in America is still much more comfortable than being middle class anywhere else in the world and
00:11:52.000 | That's a good thing. The problem is we just kind of take what we have for granted and we start comparing ourselves to other people
00:11:59.800 | So the worst thing I think you can do is rent for life
00:12:04.360 | Spend money on stupid things you don't need and never invest in the stock market if you do these three things
00:12:11.120 | I am certain that you're gonna probably stay in the middle class
00:12:14.760 | Which by definition now I feel seems like it's a more lower class
00:12:20.640 | Because when you say middle class, I think you think about a good class
00:12:24.200 | You think about being able to own a home being able to own a car being able to send your kids
00:12:29.320 | To school to college and to save for your retirement so that you don't have to work past 60 65
00:12:36.480 | But the way the middle class numbers are showing up right now. It looks pretty dire
00:12:43.360 | So I hope I hope everybody listening to this
00:12:47.160 | Does better than what the numbers show for the middle class winner-take-all is happening the top 1%
00:12:53.760 | Own 28% of all wealth in America while the middle class on the other hand only owns 21% of all wealth
00:13:01.760 | and what's going on is that the inflection point where the top 1% started making more than the middle class was in
00:13:08.440 | 2010 and that's exactly
00:13:10.840 | when
00:13:12.640 | the real estate market and stocks started to rebound
00:13:17.040 | so the lesson learned is
00:13:19.040 | please invest regularly save aggressively in
00:13:23.560 | Risk assets like stocks and real estate over time. Yes, it's gonna be volatile
00:13:29.360 | You're gonna lose money sometimes but if you stick with it over the long time things are gonna probably turn out
00:13:35.320 | Okay, I do want to leave you with some final interesting data points again. This is from the Federal Reserve Consumer Finance Survey
00:13:44.240 | So let's look at the 55 to 64 age group. The median net worth there is a hundred eighty seven thousand three hundred
00:13:51.520 | Which I think is not too bad at all
00:13:55.180 | You're close to retirement if not retired you can collect Social Security
00:14:00.800 | So you're gonna live a pretty good life?
00:14:03.440 | 187,000 is much better than the 87,000 number we talked about because this is by age and that's what is more pertinent
00:14:11.520 | And then if you look at the average number the average 55 to 64 year old household
00:14:17.060 | Has a net worth of one point one
00:14:20.560 | six seven million
00:14:23.400 | Think about that. The average American is a millionaire who would have thought you would think again that you know
00:14:31.200 | The average American was just in poverty or something based on what you hear and listen to in the media
00:14:35.880 | And of course you can think about it as wow
00:14:39.200 | That must mean that a lot. There's a lot of concentration of wealth at the top
00:14:43.960 | That's bringing the averages up. But you know what? Hey average is average and again, you can look at the median at one hundred eighty seven thousand three hundred
00:14:50.640 | For 55 to 64 year olds and think that's okay
00:14:54.400 | And if you bump it up a little to the 65 to 74 year old age group the median rises to two hundred twenty four thousand
00:15:01.900 | So not too bad at all
00:15:05.320 | Personally, I want you guys to shoot for more. I want every single one of you guys to be
00:15:10.000 | multimillionaires by the time you're 55 to 64
00:15:13.420 | I think the key number to shoot for is 3 million because I think 3 million is the new 1 million
00:15:18.240 | Because of inflation we all know that everything has gone up crazy amounts
00:15:22.600 | tuition food housing
00:15:25.840 | That hey, let's be a little bit above average because you're spending the time
00:15:32.280 | Listening learning reading taking action and it's better to end up with a little bit too much than a little bit too little
00:15:39.480 | Thanks so much everyone. And I hope you guys continue to save aggressively and invest smartly
00:15:45.440 | Be careful out there after 10 year bull market and if you like this podcast, please leave a review. I'd love to read it