Hello everybody, it's Sam from Financial Samurai and in this episode we're going to talk about the median net worth of Americans So this data comes from the Federal Reserve's survey of consumer finances in 2016 now they only do this survey every I think three years and then it takes another Couple years for them to come out and say what the results were from the survey So that's why we're now just really suddenly getting this data And I think it's really interesting data because it highlights the median net worth for the middle class The mass affluent which I define as the 80th to 99th percentile and then the top 1% So let's get straight to the data.

The top 1% has a median net worth of 10.7 million the mass affluent has a median net worth of 146 thousand nine hundred fifty thousand and the middle class has a median net worth of only eighty seven thousand one hundred forty I think it's really important for us to Compare how we're doing on the road to financial independence because if there's no point of comparison You don't really know whether you're getting ahead or you're staying the same or you're falling behind And obviously all of us want to get ahead because we all listen to personal finance podcasts We read personal finance websites and we want to achieve financial freedom sooner rather than later with our one and only lives So let's get into the weeds here and look at the median net worth for each of the three classes And we'll start off with the top 1% So back in 1995 the median for the top 1% was three point seven million dollars Therefore the median net worth for the top 1% grew by a hundred eighty seven percent during the 1996 to 2016 time period That's not bad But that's lower than I thought Given the fierce rhetoric surrounding how rich the rich have gotten over the years, you know You can't go a day without hearing about some rich person making boku boku bucks And I think what what what's going on here is that people are confusing the top 1% with the top 0.1% so it's the zero one point zero point one percent of the folks, you know Who have tens and tens of millions fifty million hundred million one billion?

Those are the folks who've gotten crazy rich now the top 1% not bad. Okay, ten point seven million is not bad but If you look at the growth rate from 1996 to 2016, it's not that high the compound growth rate is only five point four percent a year for 20 years and That gels quite closely with the compound annual growth rate of the S&P 500 of five point six percent between the years 1999 and 2008 So I thought that was quite interesting here to highest volatility So the median net worth of the top 1% was nine point six million about nine point six million in 2007 and by 2010 the median net worth had dropped to six point six million.

So that's about a 31% decline Can you imagine losing? Three million dollars in just three years I'll be pretty bummed out and that's why I definitely don't want to go through that again I mean I went through like a 35% drop back in 2008 to 2010 and that was no fun at all I mean it spurred me into action by starting this website financial samurai But other than that, I was kind of I was like bummed out But you know what?

Maybe not so bad because I I did get married in 2008 So, I don't know this is kind of like revisionist history here But either way nobody wants to lose 30 to 35 percent of the net worth in three years 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?

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 five million dollars your number one priority should be capital preservation, especially after a ten-year bull market a 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 So if you have no dependents then living off that type of income should be no problem for an individual Or a couple and one can assume that most people who have amassed a top 1% net worth If they have children are older and have independent adult children and then finally This net worth figure 10.7 million is pretty much aligned with the estate exemption amount of 11.4 million for 2019 you've got to figure that once the 2019 numbers come out The 10.7 is probably over 11 million and maybe even over 11.4 million now because the markets continue to do better Historically now is absolutely the most tax efficient time to be a top 1% er if you want some motivation This is it the estate tax limit 11.4 million until dollar after that gets taxed about 40% so you should be able to hoard all that amount of money and Give it to your offspring and make them really really spoiled and unmotivated life.

Sounds good to me Okay, let's talk about the median net worth for the mass affluent I think all of you listening right now should be in the mass affluent class because the middle class They don't give two licks about personal finance or maybe they do but they're definitely not spending time Listening and reading about personal finance Caring about your personal finances Motivates you to save more invest more and figure out new ways to boost wealth So keep on listening and keep on reading as much as possible.

Not just my site my podcast But many many other podcasts and websites just keep on listening and take action So the median net worth of the mass affluent class 746 thousand nine hundred fifty dollars Pretty darn good if you ask me That net worth figure using a 4% withdrawal rate or a 4% rate of return Should be able to generate about thirty thousand a year in gross income not bad and then if you add the average Social Security monthly check of $1,461 and the mass affluent has about $47,500 gross to spend a year in retirement And if you have a loved one who also earns the average Social Security monthly check You can add up another what?

$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 2007 the median mass affluent net worth was 661,000 in 2010 the median mass affluent net worth fell to 360,400 for only a 15.3% decline 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 Top 1% so for those who cannot stomach volatility being in the mass affluent class is the way to go 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% Losing on average 15% of your net worth and a bear market isn't unbearably painful Therefore you should probably continue to dollar cost average in a downturn based on existing risk appropriate investments Finally, it's worth the geo-arbitraging if you're in the mass affluent class You've got enough money to make the move, but you're not super super wealthy where you know You can live in the most expensive cities in the world.

So think about how much? $46,000 nine hundred fifty dollars of net worth can buy you in places like Mexico, Thailand, Vietnam Malaysia, Taiwan and many Eastern European countries your purchasing power probably triples So in other words, you probably have two million dollars three million four million dollars in purchasing power It's not gonna get you a lot in San Francisco, New York but it sure is heck gonna get you a better lifestyle in Minneapolis or Kansas City or Des Moines that is if you can stand the weather and you know Like the people and get used to the new environment So finally, let's talk about the middle class the best class in the world We all think we're middle class no matter how much we have or how much we make Because we want to feel like part of a greater community Unfortunately, the median net worth of the middle class looks like the EKG of a deceased person When I was looking at the data and the chart, I didn't even realize the middle class Existed I thought the middle class was really the mass affluent class because the middle class net worth Chart over time looked like the x-axis like the horizontal x-axis.

No nothing. It wasn't moving at all So the middle class has a median net worth of eighty seven thousand one hundred forty dollars And if you are the median age in America of 38, that's okay. You're still got decades Left to grow your wealth But if you've got eighty seven thousand dollars of net worth in your 50s and 60s Life is probably gonna be a little bit more difficult It is highly likely you will have to work longer become dependent on government programs in addition to Social Security and what's most concerning about the median net worth for the middle class is that it actually peaked in 2007 at a hundred eighteen thousand twenty five dollars the twenty six point two percent decline in the median middle class net worth by 2016 should be one of the biggest causes for concern for everybody if this is not addressed 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 Certain cities here and there I think a lot's going on in Portland wherever but it's just gonna spread and there's gonna be a lot of dissatisfaction in this country and I think People have got to be careful and what has happened.

I think 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 During the financial crisis and then they never got back in so stock ownership has fallen off continuously since 2007 2007 stock ownership for the average US adult was about Sixty five point two percent.

Now. The ownership rate is about fifty two percent That's a pretty big decline. And if you look at home ownership rates It looked like it peaked more on 2004 but in 2007 The number was six to be sixty eight point five percent. And now now we're only at about sixty three point seven percent so declining home ownership rates and declining stock Ownership rates means that you missed out on the biggest Rebound the biggest bull market over the past ten years and that's kind of that's kind of sad So despite the middle class falling behind we can look at the positive we can say look middle class in America is still much more comfortable than being middle class anywhere else in the world and 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 So the worst thing I think you can do is rent for life Spend money on stupid things you don't need and never invest in the stock market if you do these three things I am certain that you're gonna probably stay in the middle class Which by definition now I feel seems like it's a more lower class Because when you say middle class, I think you think about a good class You think about being able to own a home being able to own a car being able to send your kids To school to college and to save for your retirement so that you don't have to work past 60 65 But the way the middle class numbers are showing up right now.

It looks pretty dire So I hope I hope everybody listening to this Does better than what the numbers show for the middle class winner-take-all is happening the top 1% Own 28% of all wealth in America while the middle class on the other hand only owns 21% of all wealth and what's going on is that the inflection point where the top 1% started making more than the middle class was in 2010 and that's exactly when the real estate market and stocks started to rebound so the lesson learned is please invest regularly save aggressively in Risk assets like stocks and real estate over time.

Yes, it's gonna be volatile You're gonna lose money sometimes but if you stick with it over the long time things are gonna probably turn out Okay, I do want to leave you with some final interesting data points again. This is from the Federal Reserve Consumer Finance Survey So let's look at the 55 to 64 age group.

The median net worth there is a hundred eighty seven thousand three hundred Which I think is not too bad at all You're close to retirement if not retired you can collect Social Security So you're gonna live a pretty good life? 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 And then if you look at the average number the average 55 to 64 year old household Has a net worth of one point one six seven million Think about that.

The average American is a millionaire who would have thought you would think again that you know The average American was just in poverty or something based on what you hear and listen to in the media And of course you can think about it as wow That must mean that a lot.

There's a lot of concentration of wealth at the top 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 For 55 to 64 year olds and think that's okay 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 So not too bad at all Personally, I want you guys to shoot for more.

I want every single one of you guys to be multimillionaires by the time you're 55 to 64 I think the key number to shoot for is 3 million because I think 3 million is the new 1 million Because of inflation we all know that everything has gone up crazy amounts tuition food housing That hey, let's be a little bit above average because you're spending the time Listening learning reading taking action and it's better to end up with a little bit too much than a little bit too little Thanks so much everyone.

And I hope you guys continue to save aggressively and invest smartly 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