Understanding Your Net Worth Target for a Secure Retirement
As you approach retirement, your net worth becomes a critical indicator of your financial preparedness. This figure represents the total value of your assets minus your liabilities, providing a snapshot of your accumulated wealth and its potential to support your post-work life. While net worth varies based on factors like income and gender, age plays a significant role, with net worth typically increasing as you get older. Knowing where you stand compared to average net worth figures can help you assess your progress and make necessary adjustments to reach your retirement goals.
Net Worth Basics:
Your net worth is simply the difference between your assets and liabilities. Assets include your retirement accounts, home equity, savings accounts, and investments. Liabilities encompass debts you owe, such as mortgages, credit card balances, student loans, and car loans.
To calculate your net worth, start by adding up the current value of all your assets. Then, total the balances of all your outstanding debts. Finally, subtract your liabilities from your assets to arrive at your net worth.
Tracking your net worth over time reveals your financial progress. A higher net worth signifies a greater wealth base to support your lifestyle. Conversely, a lower net worth suggests a need to reduce debt or increase savings. Regularly checking your net worth, annually or when major life events occur, allows you to make course corrections as needed.
Net Worth and Retirement:
Your net worth holds immense significance for retirement planning. It represents the resources you have accumulated to sustain yourself after you stop working. While retirement brings an end to your income-earning career, living expenses like housing, food, healthcare, and transportation continue. Your net worth can provide income to support your lifestyle through retirement account withdrawals, investment earnings, and proceeds from downsizing.
Several factors, including income, influence net worth. Age also plays a role, as net worth typically climbs with age. Knowing the average net worth at retirement gives you a benchmark to assess your preparedness. Similarly, figures for net worth by age can help you gauge your progress on your retirement plan. If your net worth lags behind your peers, you may need to reevaluate your savings rate or retirement timeline. Conversely, being ahead of the curve confirms you’re on the right track.
Typical Net Worth at Retirement:
According to the Federal Reserve’s Survey of Consumer Finances, here are the median and average net worth figures for near-retiree and retired households:
| Age Range | Median Net Worth | Average Net Worth |
|---|---|---|
| 55-64 | $212,500 | $1,175,900 |
| 65-74 | $266,400 | $1,217,700 |
| 75+ | $254,800 | $977,600 |
The median represents the middle point, meaning half of the households had more and half had less. The median better reflects a typical net worth since averages get skewed upward by high-net-worth outliers.
Net Worth Declines After Age 75:
The Fed figures show that net worth declines after age 75. This could be due to retirees spending their net worth to cover living expenses. Additionally, note that the Fed conducts its survey every three years, and the results of the most recent survey completed in 2022 may present a different picture due to the pandemic’s impact and other factors.
For context, in its How America Saves report, Vanguard provided figures specifically for households with retirement accounts:
| Age Range | Median Account Balance | Average Account Balance |
|---|---|---|
| 55-64 | $71,168 | $207,874 |
| 65+ | $70,620 | $232,710 |
The Vanguard figures indicate that a saver’s gender, as well as age, affects current balances. Men’s average and median balances were 43% higher than women’s balances in 2022, although these differences had narrowed from previous years.
What Your Net Worth Figures Mean:
These averages provide reference points, but your target net worth depends on your unique situation. If your net worth falls short of your peers, it doesn’t necessarily mean you’re behind. For instance, if you expect an inheritance, life insurance settlement, or other windfall at or after retirement, a shortfall in your current net worth may not be a major concern.
However, it could still be a prompt to look closer. If you’re unsure about whether your net worth is likely to be adequate, here are some questions to ask yourself:
- Do I have other income sources like a pension?
- What will my spending needs be?
- How long do I need retirement savings to last?
Get clarity on your income, expenses, and goals before concluding your net worth is insufficient.
On the other hand, if you have a net worth well above average, this may still not be an excuse to coast. Consider if you could retire earlier or budget bigger if you keep building your net worth. Look for opportunities to maximize your assets, like downsizing or optimizing investments.
Boosting Net Worth:
To grow your net worth, focus on boosting assets and reducing debts. Contribute as much as possible to retirement plans at work. Open an IRA if you need additional savings capacity. Pay down high-interest debts first when you have extra cash flow.
Bottom Line:
Your net worth is a scorecard for financial success, so it’s worth monitoring as you near retirement. Compare your net worth to benchmarks, but understand your individual situation, needs, and resources first before concluding you must take action. What is adequate for one retirement saver could be more or less adequate for another. In general, average net worth figures are often regarded as potentially misleading because they include data from high-income groups. Median net worth may be a more useful figure when assessing your readiness for retirement.
Retirement Planning Tips:
- If you’re unsure how your net worth stacks up to what’s needed for retirement, schedule time with a financial advisor. An advisor can objectively assess your net worth, expected retirement income, and spending needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s Retirement Calculator to forecast your net worth when you reach retirement.
Household net worth by age
| Age of head of family | Median net worth | Average net worth |
|---|---|---|
| Less than 35 | $39,000 | $183,500 |
| 35-44 | $135,600 | $549,600 |
| 45-54 | $247,200 | $975,800 |
| 55-64 | $364,500 | $1,566,900 |
| 65-74 | $409,900 | $1,794,600 |
| 75+ | $335,600 | $1,624,100 |
Net worth = assets – liabilities
The Federal Reserve includes a variety of assets in its analysis, such as:
- Money in bank accounts, including money market, savings, and checking accounts
- Prepaid debit cards
- CDs and savings bonds
- Government bonds
- Health savings accounts
- Investment accounts, such as individual taxable investment accounts and 529 college savings plans
- Retirement accounts, including IRAs, 401(k)s and 403(b)s
- Life insurance policies with cash value
- Annuities with equity
- Vehicles including cars, RVs, motorcycles, boats and helicopters
- Real estate, including rental homes and primary/residential homes
Liabilities, also known as debts, are deducted from the total value of assets when determining net worth. In the Feds survey, debts included:
- Mortgages
- Home equity lines of credit or home equity loans
- Credit card balances
- Installment loans, including personal loans, auto loans and student loans
What Should Your Net Worth Be: By Age [2023 Full Breakdown]
FAQ
What is a good net worth at retirement?
|
Age Range
|
Median Net Worth
|
Average Net Worth
|
|
55-64
|
$212,500
|
$1,175,900
|
|
65-74
|
$266,400
|
$1,217,700
|
|
75+
|
$254,800
|
$977,600
|
What is a good net retirement income?
How many people have $1000000 in retirement savings?
What is a good amount of money to retire with comfortably?
What is a good retirement net worth?
Once you’ve hit retirement age, you’re spending and not saving, so this is a decent net worth if you’re in spending mode with the highest spending years in early retirement. If you’re over 75, the average net worth for your age group is $977,600 (median net worth is $254,800).
How much money should you save for retirement?
A loose rule of thumb is to have 10 times your income saved for retirement by this age, so this may be on track is you and a spouse are earning around $110,000 per year. From 65-74 years of age, the average net worth is $1,217,700 (with a median net worth of $266,400).
How much money should I put in my retirement account?
Your best bet is to set up an automatic transfer of at least 6% of your salary into your retirement account. Next, shoot for your first net worth target at age 30. By age 30 your goal is to have an amount equal to half your salary stored in your retirement account. If you’re making $60,000 in your 20s, strive for a $30,000 net worth by age 30.
Does your net worth matter for retirement?
A higher net worth means you have more assets supporting you. A lower net worth suggests you may need to reduce debts or increase savings. Checking your net worth annually or when major life events occur can help you course-correct if needed. Your net worth matters for retirement because it represents what you have accumulated to support yourself.