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Average Net Worth By Age! (2026 Edition)
00:43:58
Money Guy Show | 2026 Net Worth By Age
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- [00:00]
A
It's our favorite time of year. Net worth by age but here's the question, is your net worth above or below average?
- [00:07]
B
Brian, I am so excited because we know just how powerful knowing and tracking your net worth can be to your overall wealth building journey. And you may be wondering how your net worth stacks up to your peers.
- [00:20]
A
So today we're going to walk you through average net worth by age and we'll even go a level deeper and give you some targets for what your net worth should be. And with that, let's jump right in.
- [00:37]
B
So Brian, for those that are new here, let's start at the very beginning. What exactly is net worth? And very simply, the equation for net worth is not a complicated thing. It is what you own minus what you owe. You take the things that you own, you subtract out how much you owe on those things and that gives you your total net worth.
- [00:57]
A
Well, let's go even deeper than that, but let's walk them through what is actually what you own so that people can actually put some flavors to that.
- [01:04]
B
So the very first thing and most people's net worth and they start with on the asset column are the value of your cash account. So this would be like checking account, savings accounts, high yield accounts, money market accounts. You go through those liquid cash accounts and then you get into the investment accounts. These are going to be the after tax accounts like brokerage or tax Deferred, like your 401k, 403b sep IRAs. And then you get to your tax free, these are your Roths or the HSA invested portion of your hsa. And then you get into the illiquid stuff. You get into things like business interests if you're a small business owner, if you have some sort of ownership in a business and you even get into things like real estate, whether it be your primary residence or investment real estate, like commercial or residential real estate.
- [01:50]
A
Now but we are known for, and this is a hot take, is that people kind of get on to us because a lot of people say, well how do I value my primary residence? And we're glad you asked because as you know, I come from a public accounting background and it's one of those things I love that your primary residence likely has just skyrocketed in value if you bought it pre 2020 period time here. But that might actually give you a false sense of security on what you have. So we actually use the lower of cost or market. So you heard me right, we actually value our houses at what we pay for, plus improvements because what that protects you from is you don't get this false sense just because you bought a $500,000 house that's now worth $1 million. You don't think, oh my gosh, I'm a millionaire. No, you're a person that lives in a million dollar house, but you still need to have liquid assets so that you can actually live and live your best life in retirement.
- [02:47]
B
All right, Brian, so that covers the assets, that covers the what you own. Now let's talk about what you owe. And this is the liability side of the ledger. These are things like consumer debt. So maybe you're someone who still has credit card balances or you have personal loans outstanding, or perhaps you have auto loans, or maybe you have things out there like student loans or debt on your residences. Whether it be a primary mortgage balance or a home equity line or a home equity line of credit. Those are the things that would show up on the liabilities column. So if you can list out all of your assets, all of the things that you own, and you can list out all, all the money that you owe, your liabilities, you can know exactly what your net worth is.
- [03:30]
A
So a lot of you, if you're brand new, you can tell. We get excited. This is our favorite time of year. This is game time where we actually get to create our net worth statements. Now, a lot of you, if you've never done this before and you want to join us on this annual tradition, I would encourage you, we have two options for you now. The website we're showing you is the free net worth. It's basically just going to be a template. If you go to moneyguy.com resources, we have a free template so you can get into doing your own net worth worst statement. However, if you want to use the exact same tool that BO is using, that I'm using, and we're using this as a communication tool with our spouses, I want to encourage you to go to learn.moneyguy.com and we actually have a net worth tool that has a dashboard view. It has a lot of abilities for you to kind of see how are your three buckets lining up. It really gives you that standpoint of you're a CEO of an enterprise and you're actually getting to have some usable information.
- [04:22]
B
All right, so step one is understanding what net worth is. Well, a lot of folks, once they kind of get a grasp of what that is, their mind begins to wander and they begin to ask this question, well, all right, what should my net worth be? Where Should I be based on my age and stage of life? And this has become an incredibly popular topic for a lot of financial influencers. So you can go out there and you can search net worth by age, and you'll get all kinds of information out there. And a lot of the information that you see out there is valuable, but we think it can be a little bit better. But to.
- [04:57]
A
I'm going to be more blunt, okay, this is the money guy echo. I feel like we are the ones that have kind of this net worth by age has kind of built off of. We had some shows that just went somewhat viral and I think people notice, well, heck, if those guys can do it, we can do it too. So we're going to just go ahead and cut through the noise this year is we're going to give you the slide that just the most recent data that came out on what net worth is. Here it is. If you want to see by decade, 20s, what the average net worth is. And then for all of you numbers nerds, we're right there with you. We want to even give you the median because there's a huge separation between what average net worth is versus median, because the really wealthy wealth, they drag that average way up. That's not necessarily usable. So if you bring it down to something more digestible with the median, you can see these numbers are much lower. But here's the problem, and this is why we can completely tell you, give you this information that other channels are going to use to drive their content. We're going to say this ain't enough is because we want you guys to understand it's not just what your net worth is. It's what your investable net worth. Because this is the part that you can actually use. This is your army of dollar bills that works harder than you can with your brain, your back, your hands. So this is what everybody does now. We're going to show you the money. Got difference. Yeah.
- [06:16]
B
There was this study. This data comes from Empower. This is from October of 2025. They're total net worth, including home equity, including on all the assets that you have. And the numbers for those of you that can't see the screen right now, the numbers are not all that impressive. The median net worth for Those in the 20s, $6,700 in the 30s, 24,000 in the 40s, 76,000 in the 50s, 192,000 in the 60s, median net worth, $290,000, including home equity, real estate, all that kind of stuff. Brian's already Alluded. We don't think that that's what you ought to focus on. We think that what you really ought to focus on is stuff that you can actually use to provide for your financial independence. So we want to walk you through our methodology for how we assess where you should be from a financial, from a net worth standpoint. Now, there are a lot of resources out there, and one of the most commonly recognized is Fidelity. Fidelity gives us these benchmarks that they say that you should shoot for. They want you to have one times your annual income in investable assets by the time you get to 33 times, by the time you get to 46 times, by the time you get To 58 times, by the time you get TO 60 and 10 times by the time you get to 65. I think they started off pretty good.
- [07:37]
A
Yeah.
- [07:38]
B
But I think they kind of fell off.
- [07:39]
A
Well, that's what I mean. As soon as I saw the Fidelity and everybody uses this and I was like, wait a minute, can you imagine being a financial planner trying to tell a person they can leave the workforce when they tell you, I have 10 times, like, well, that might be enough. Do you have a pension? Do you have other cash flows coming in? I need to know more. So we're like, this is just not good enough.
- [08:01]
B
Think about the math on that. If you had $100,000 income and you had 10, 10 times that, you'd have a million dollars. At a 4% withdrawal, that's only going to cover about $40,000.
- [08:12]
A
That's exactly right.
- [08:13]
B
There's a big discrepancy between 40,000 and 100,000. It just doesn't seem like it's enough.
- [08:16]
A
We can make it better.
- [08:18]
B
So we said, what if we reverse engineered this? What if we came up with a more accurate representation of what financial independence actually looks like? And here's what we said. We know that the 4% withdrawal rule is commonly held out as a long term sustainable withdrawal rate. Well, if we just reverse engineer that, 4% withdrawal on your portfolio is equivalent to 25 times the retirement income you need to replace. Well, we understand that most of us when we retire, we need to replace our expenses. We get that. But a lot of us early on in our career, we don't know what our retirement expenses are going to be. So we said, instead of thinking about expenses, let's use income as a proxy. We recognize that it's not perfect, but we're going to use it at least to give us an idea of what to strive for. So we said, if our goal Is to replace 80% of our household income in retirement, then 80% of a 25 times multiple would be a 20 times multiple. So the number that we ought to work towards, the number that we want to be Moving towards is 20 times our annual income to be financially independent. So if we like fidelities 1 times by 30 and 3 times by 40, and we know that terminally we want to get to 20 times by age 65, we said, okay, well how do we fill in the gaps? And what we came up with was by the time you hit 50, instead of only having six times your income, we want you to have about six and a half times by the time you get to 60, 13.7 times. And to be financially independent at age 65, we want you to have 20 times your annual income in liquid assets.
- [09:54]
A
So now that you understand the mythology.
- [09:57]
B
The method, the mythology.
- [10:01]
A
Is a T word. I'll use the Brian version. Now that you understand the method that we're using to figure out what your goal is, I want to bring this back to the by age and the first thing. So we're going to work on the mindset and the things you need to be working on. Then we'll close out each section with this kind of calculation to show you where you should be. You see how we've set this up? So now you guys, let's get motivated and let's jump right in. So for your 20 something, the big question you ought to ask yourself, am I doing anything?
- [10:32]
B
We give a lot of grace in the 20s. You know, a lot of times we have these rules, these things you ought to be doing. But a lot of times when it comes to folks just starting out at the very beginning of your journey, we just want you doing something. Am I actively taking a role, even if it's a small one, to put a little bit of today aside for a better tomorrow in the future?
- [10:53]
A
Well, here's what I'll just go ahead and spill the beans. And the tea on this thing is we're about to talk about the three ingredients to wealth and but you need to realize the most powerful one. Like I said, I'm going to ruin it for you. 20 somethings is time. And you guys are billionaires of time. So don't be jealous of those that are 30, 40 or 50 above you because they have more, because they're all jealous of you because you literally are a billionaire of time. If you look at how many seconds, how many minutes you have to build and create something from. If you understand this, if we can backfill in now your knowledge and the wisdom on what time means for you. You will look at things completely differently.
- [11:33]
B
But time alone won't do it. Just being young, just having that one ingredient will not give you the outcome you want. What you have to recognize is that you need another ingredient. You have to know the power of your discipline. You have to recognize you have all this time in the world, but you are going to waste it if you don't have a little bit of discipline to create some margin in your financial life to get those dollars working for you.
- [11:57]
A
Yes. What this basically means you have to live on less than you make. That is if you can understand this key foundational thing, deferred gratification, living on less than you make, that actually leads to the second thing, that's margin. And that margin of living on less than you make actually creates the money that we are hopeful will get put to work and turn into assets that get invested and end up on your net worth.
- [12:19]
B
And the beautiful thing is the earlier you figure this out, the more impactful it can be. We have a great resource if you go out to moneyguy.com resources called what 1% more can do for you. And the idea is if I'm 20, 22, 24, 29, 29, I said that one twice. If I could just save 1% more of my income, what does that mean in terms of how much of my retirement income I'll be able to replace? And it is amazing. Just starting early, just doing something can have a huge impact. We said, okay, well this is sort of like this high level theoretical. What if we put some actual numbers to this? What if we said that, okay, I'm going to graduate at 22 years old and let's say that when I start my career I'm making $50,000 a year and I believe that every year I'm going to get on average a 3% wage growth increase. And we say, okay, I'm going to commit to saving 15% of my income starting at age 22 and I'm going to increase it to by 1% every year. I'm just going to increase by 1%. 1%. 1%. If you just do that over the course of your 20s, from age 22 out to age 30, you will have saved about $97,000. But in that eight year time period, that $97,000 would have turned in to almost $140,000.
- [13:44]
A
But we have to show you look. And it's nice because it looks like from a market value, assuming you didn't have any crazy years of bad volatility. Your money's worth about 40% more than what you put in, which is pretty cool.
- [13:57]
B
Good. It's exciting.
- [13:58]
A
But here's what I want to prepare people, because this is a standard. This is just assuming a standard. And we all know rate of returns don't come in nice little 8% chunk, you know, we will have some volatility built in. This what I worry about. And this is why the rest of this equation is going to be so powerful to you. If you so happen to invest this money and you reach volatility and the market goes down, or you just don't have this type of performance where you put close to 100 and it turns to 140, you have to promise me, even if you hit a hiccup, you got to stay consistent. And this is why the rest of the story matters, is because when people tell me and I worry there's a lot of quit out there, people will get excited, they'll watch our content, they'll start this journey, but then they quit. And now if you do this long enough, and this is especially for you in your 20s, it could probably turn into still some magical stuff. Because even using this example that Bo has laid out, if you got to age 30 and you say, you know what, I work so hard in my 20s, I'm shutting down what I'm putting into these assets. So I'm just going to stop where I was. I put 100 grand in this thing. Essentially. What does this turn into over my entire working career? Guys, I'm here to tell you, using those assumptions and just all we did was extend the time from 30 to age 65, but let compounding growth do its magical thing. That $137,000 just kept working with an 8% annualized rate of return turned into $2.2 million.
- [15:27]
B
What's amazing is this is not someone who mastered investing in their 30s, mastered investing in their 40s, or even took advantage of in their 50s. All they did was do something in their 20s. And they did that from age 22 to age 30. They recognized how powerful that time could be. And just doing that turn them into multimillionaires. What this shows that this person recognized by just getting active today, they understood the power of time. They understood that this resource they have at their disposal could literally life changing. If they knew the power of their discipline, they applied that to create some margin and they let that margin work over time. And it was life changing.
- [16:09]
A
So I want you to lean in on this part, just do something. I kid you not. That's why we have the power of 1%. What is 5%? I know you're going to, if you're in your 20s right now, you're like, you're not in your maximum earning years. You're just starting your first job. There's not a lot of margin. I'm just being honest. We get it, we understand, we've been there. We both come from humble beginnings. That's why you just have to promise yourself you're going to do something. 5% will change your life in the future if you just will do something. And a lot of you guys, I want to encourage you just to start this exercise with me. If you'll go to moneyguy.com resources play around with our wealth multiplier tool because maybe some of you are 28, maybe some of you are 23. Maybe you're a 30 or 40 something who just happens to be watching the 20 section right now. You can go to our website moneyguy.com resources play around with the wealth multiplier and tool and see exactly what this looks like for your specific age.
- [17:05]
B
So how are Americans in their 20s doing? Well, if we look at the average American by the time they get to age 30, we know that the median income for those folks is about $58,500. But if you just look at financial assets for the median 20 or person in their 20s, it is $21,000. So $58,000 income, but only $21,000 investable assets. Well, if you remember our methodology, our target is by the time you get to age 30, we want you to have one times your annual income saved up in investable assets. So if you earn the median income of a 29 year old, that $58,500, we think that your liquid portfolio at the end of your 20 should be 58,500. $500. Brian, we are already at more than double the median financial American. The average American is already behind them.
- [18:00]
A
So there you go. There's the comparison graph for you guys is that, you know, look at your, what you've saved up by the time you reach 29 to 30 years. Are you, the goal for yourself is are you at one times your income? And then if you just want to know how you've compared to your peers around you ask yourself, is that number bigger than 58,500? Okay, now we spot checked ourselves.
- [18:21]
B
All right, Brian, so we said in the 20s was just about doing something, just being active. Well, as we get to our 30s. I think that the question has to change a little bit, has to morph. And now the question that we ask in our 30s is, okay, am I now doing the right things? It's not just doing something. It's making sure I'm taking an active role in my financial.
- [18:41]
A
Well, here's the reality. We know in our 30s that, yeah, maybe you're starting to get a little traction at work, but holy cow, this whole concept that we talk about, the messy middle, is legitimate. You're short on time, you're short on resources, so you have to make sure whatever you are doing is maximized. Because you just don't. You. You don't have the margin to get it wrong anymore is because you're getting a little bit older. But also you just don't have the waste in your. In your resources. And with your resource of time specifically, you've got to get things right asap.
- [19:14]
B
So what do you need to focus on? What are the big takeaways you ought to think as it comes to building your net worth in your 30s? This first one might seem counterintuitive, but in your 30s, in this messy middle. We want you to aim for simplicity. We know that life is naturally going to get complicated. You don't have to seek it out. So the more simplified you can make your life, the more intentional you can be about the financial decisions you're making, the better grasp you're going to have on your overall financial success.
- [19:42]
A
Well, if you think about simplicity, automation is what we're talking about. Make it automatic for the people. Because what this does is it makes the good habit of saving and investing that much easier. It also makes the bad habit of overspending or just letting life take hold that much harder. So be very intentional about setting up those automatic for the people savings goals. So every month you get paid and money goes where it's supposed to be.
- [20:07]
B
And then as you're setting up that intentionality, as you're doing that sort of thing, what we want you to do is we want you to aim for the goal that we think you should be at by 20. By your 30s, we want you to be saving 25% of your gross income. We want you to be putting that to work. In your 20s, it's just about doing something. In your 30s, it's about actually hitting that same spot.
- [20:28]
A
Well, a lot of people will say, where in the world did y' all just boop, 25%. Oh, I got 25. No, this is tied to math. This is tied to mindset. We actually have a great resource for you. If you go to moneyguy.com resources, we have a great resource titled how much should you save? And if you go look at this, it's an awesome visual, but here's what it's showing you. Look for those who start saving their 20s, this is why they can be aspirational and just save something is because they have so much time on their side that it works out. But look at what happens somehow in your mid-30s. If you just now discover this wonderful world of finance in your 30s and you're trying to have a replacement ratio by standard retirement age, you voila, you're going to realize that's the intersection point of where 25% comes from. So if you're trying to figure out how does this relate to me, I'm a 32 year old, or how does this relate to me, I'm 39 years of age. I want to encourage you, go to moneyguy.com resources. You can see exactly how this all plays out now.
- [21:23]
B
I think it's so interesting, Brian. We get a little bit of hate on this, right? And people say, well guys, 25% is too much, it's too aggressive. Why are you encouraging that? And we recognize that money is nothing more than a tool that allows us to accomplish the goals that we have. But the earlier we're able to wield money well, the more flexibility we give ourselves. We thought about, let's look at this from a different perspective. Let's look at this from what happens in the life of most people. Because if you're someone who is 20 years old and you start out and you hit the ground running, you begin saving 25% of your gross income, there's a really good chance that you're going to be financially independent by the time you get to 46. I'm going to say that again. If you can start at 20 and you start saving 25%, financial independence is a reality for you in your mid-40s. But most folks don't do that, Brian. Most folks don't actually start figuring out savings, start figuring out investing until they get into their 30s. Well, if you're a 30 year old and you just are now figuring this out and you start saving 25% of your gross income, then you will likely be able to reach financial independence by the time you get to 59. You are still technically retiring before normal retirement age. But we all know as life moves on, things happen. Sometimes we decide to get married, sometimes we decide to start a family, sometimes we decide to go buy our first home. Sometimes we decide fill in the blank on the things that change and so not always will we be able to save 25%. But the earlier we can do that, the earlier we can create that behavior, the more options and the more flexibility we will give ourselves as those inevitable unknown unknowns of life start coming our way.
- [23:05]
A
What I love about this illustration, this is brand new, freshly minted for this year, is that it shows if you're somebody like who resembles myself. When I was 22 years of age, I was saving everything I could because I thought when I reached age 50, I was going to leave the workforce. I'm still very happy that I had that mindset back then because it gave me the flexibility to own my time that much sooner. Even though at some point I realized, you know what, I actually love what I do for a living. So I don't really want to retire. But I like controlling what I do with my time. And I think that that plays out even for people in their 20s and even their 30s is because guys, you will quickly realize is that owning your time that much sooner is going to put you in control of what's going on around you. But here's what's even better because a lot of people are going to listen to this content and they're going to be like the average American where you didn't figure this out until you're 35, maybe even 45 years of age. It's not game over, it's not too late. That's what I love, is that we show people, look, health is wealth and people are living in much more active for longer periods of time. Now, even if you discover this concept when you're 40 years of age or maybe 39 years of age, you're still going to be able to be financially independent. It just means either you need to save and invest more than 25% or you just, you're going to push out that timeline a little bit longer so lets you kind of choose your own adventure. That's what I like is that you can determine, hey, if I'm going to do something different or I'm going to play catch up, I can either save more or I can change my horizon of when the timing of this happens. This is a very powerful resource to kind of let people see that they do control and the power of what 25% can do.
- [24:45]
B
So where should we be by the time we get to the end of our 30s? We know that the median gross household income for Americans in their 30s is right over $86,000. Yet when we look at the median financial assets of those folks at the end of their 30s, it's only about 36,000. Going back to our methodology, where we think you should be, we want you to have three times your annual income saved up in investable assets by the time you get to the end of this decade. So if you are a median earning American and you make $86,000 a year, we would want your investable portfolio to be just under $260,000. So for the median American, it should be 260. And yet we know that right now, financial assets, it's only 36,000. Again, we're getting further and further behind.
- [25:33]
A
So as a reminder for your own personal situation, take what your annual income is, multiply it by three, and that's where you can see where we hope you will close out your 30s. Now if you then compare that to the 259,000 we're saying for the median income of an American, you can find out are you ahead of the curve, behind the curve, or right where you're supposed to if you're using comparison around of your peers?
- [25:55]
B
All right, Brian, so we talked about the 20s, was am I due anything? And in your 30s, was, am I doing the right things? As we get to the 40s, it does become a fork in a road. Now the question that you begin asking is, oh, have I done enough?
- [26:09]
A
Yeah, this is why we've created resources like know your number and so forth. We'll get into that in a minute. Is because this one, if you're ahead of the curve, you might be able to take your foot off the accelerator of what you're having to save for the future. But if you're a person that, oh, I didn't even realize this concept of investing until I was in my late 30s or even maybe in my early 40s, I need to play catch up. This will be the great path forward to kind of give you the feedback to know I still have opportunities. I just can't sleep on this component of time anymore.
- [26:42]
B
Yeah, you have to choose which way you're going to go. If you're at that fork, which one is your path. And if you are that person who has been making those decisions and you have been building wealth and you have been moving in the right direction. Now your mindset's going to begin to shift and you're going to be thinking about not only just, okay, am I saving, am I doing the right things, but what are some of the ancillary things or what are some of the outside things I ought to be thinking about? Am I actually optimizing my financial life when I think about how I'm going to use these dollars and what my true financial independent self is going to look like? Have I thought about tax efficiency and have you thought about the structure and how I'm building up my assets?
- [27:22]
A
Well, I think like big picture is the path forward. Am I saving enough? Do I need to play catch up, or can I dial it down? But then when we get into the details, we zoom in on this tax efficiency. This is why it's important. We're always talking about the three bucket strategy. And this is where I love from, coming from a public accounting background, doing taxes for over 16 years, is that we get to think about how do we maximize what each of the different categories that we can save. These investment vehicles where you got tax free, think about all of your Roth accounts. These things are magical. I would even say they're like our favorite saving child is because whatever you put in these magical buckets, typically you don't get a tax deduction on the front end unless it's that awesome health savings account, which is the exception of the rule. But you don't get a deduction on the front end. But these things grow and they're completely tax free if you use them right. So you're going to really want to put really high growth, really, you know, things that you can stick it to the government legally in these type of accounts. Well, tax deferred is doing something completely different. These, you get the tax deduction on the front end and they grow. What's called tax deferred, meaning whatever. The values go up every year. You're not paying income taxes now, but eventually when you pull that money out, the government has their hand out right in front of you and says, okay, how much you got to pay me? We let this thing grow in the background. It's time for you to pay me. So that's why you go put your bonds. You're going to put any type of asset classes that are going to be taxes, ordinary income, no matter how they're structured. That's a good place to put it. And then there's of course the after tax accounts, that's your brokerage accounts and things like that. This is going to be your in between. It's going to be tax favored because we know capital gains, we know dividends, they're tax favored. But they also, it gives you easy access because you can, you can come in and use this money how you see fit. There's no restrictions on funding, there's no restrictions on withdrawals that you see how quickly all these things have personalities. That's why I call them your kids. Yes, you might have a favorite, but they all are very important to this journey. And you want to make sure you understand how these strategies work so you can maximize the opportunity.
- [29:23]
B
And now we get this all the time. People are like, no, no, no, guys, okay, three buckets. I hear you. But that's all academic in nature. Does this really matter? Does this have any impact? And we have been doing this collectively between the two of us for over 50 years now. So we have seen firsthand just how impactful this can be. So let's lay out for you a practical example of how building your three buckets can have a meaningful impact in your financial life. Let's take two retirees, let's take inefficient Ivan and let's take Manny the Mutant. Inefficient. I've it didn't really think about building up his three tax buckets. Everything he just saved in a pre tax 401k and he saved and he saved and he saved and he saved. And that's great. Manny the Mutant on the other hand said, hey, I'm going to follow the financial order of operations. I'm going to build tax free assets. I'm going to build tax deferred assets. I'm going to build after tax assets. They both get to retirement and they have determined in retirement that they need $200,000 of retirement income. It's a support some point in the future they need to be able to live off of $200,000. Well, both of them are going to have Social Security to cover some base level of that. Inefficient Ivan is only going to have his tax deferred bucket. So every dollar that he now wants to pull out is going to be taxed as ordinary income. So that means all of his Social Security is going to be taxed as ordinary income and all of his tax deferred asset distributions are going to be taxed as ordinary income. Manny the Mutant, on the other hand, because he has these tax buckets, he is going to pay ordinary income on his Social Security income and he is going to pay ordinary income on what he pulls out of his tax deferred bucket. But anything that he pulls out of his after tax bucket or if he's living off of interest and dividends, those are all going to be at favorable tax rates or maybe long term Capital gain tax rates, and then anything that comes out of his Roth, there's hsa, it's going to be completely tax free. So if you think about each of their tax returns, Ivan is going to be in the 22% marginal tax bracket. Now, we work in a progressive tax system, so when you actually look at the effective tax that Ivan is paying, it's about 12.8%. Well, on $200,000 of income, that's a total tax bill of about $25,500. That means that Ivan gets to spend about $174,000 a year. Now, let's look at Manny, though, because Manny actually had the tax buckets working for him. He is not in the 22% tax bracket. He's in the 12% tax bracket. His effective rate, because of the way that capital gains are taxed and because of those lower ordinary income brackets, is only 2%. Manny, on $200,000 of income, only pays $4,000 in taxes. So that means that Manny can spend in retirement $196,000 a year. Just by thinking about the tax buckets, Manny is able to spend $20,000 a year more than Ivan because he planned a little bit ahead.
- [32:20]
A
If I'm watching this content or listening out there in podcast form, I'm like, that sounds great, but how in the heck. This sounds complicated. These different tax buckets, how do I maximize this? I wouldn't even know where to start. If I'm new to this wonderful world of finance, don't you guys worry? That's exactly why when I hold up the financial order of operations, we built this plan into the system for you. You don't have to try to do this and figure it out. If you will just follow the financial order of operations, it will naturally create the three bucket strategy for you because it's going to maximize what each of these accounts does well so that you get that many the mutant opportunity to minimize taxes in a legal way.
- [32:59]
B
All right, so let's talk about where you should be. At the end of your 40s, we know that the median gross household income is about $92,000 for those at the end of the 40s. And yet the median financial assets is only about $60,000. So we're not even at one times household income. Now, we said that generally we align with Fidelity for the end of your 30s. By the end of your 40s, it changes a little bit. Instead of having six times, which is what Fidelity says, we think that you should have 6.4 times your annual income and investable assets. So if you're a median household making 92,000, and you'd multiply that times 6.4, your portfolio by the end of your 40 should be about $588,000. If you were a median income earner.
- [33:46]
A
I've been adding a little color for what this means for everybody individually. Once again, take your income, multiply it by 6.4, and that's where you should be. And if you want to know how that compares to the median of your peers, it's 588,000. But there's one other data point I wanted to add because I think the 40s are kind of special. This is the decade where you see most millionaires cross into seven figure status. And it is typically somewhere between that 47 and 49 years of age after they've been in saving and investing for 28 years. So if you want to have kind of put one more little sweetener, because look, if you're training for something, you want to be the best, you know, you can queue up that, you know, Karate Kid fighting montage in the concert, you know, where they're in the tournament and they're playing that song in the background. That's the same data points I'm trying to give you so you can maximize the moment.
- [34:38]
B
All right, Brian, so we've talked about 20s, 30s, 40s. Now let's talk about the 50s. And in the 50s, now the question becomes, okay, what am I doing next? I've been building, building, building, building, accumulating, accumulating, accumulating. What does the next phase, next stage of my financial life look like?
- [34:55]
A
Well, yeah, this is where, I mean, look, we've done a lot of work in the beginning just building up assets and trying to do everything about how do you be the best saver possible? It's going to change Once you start actually thinking about how you're going to consume or use these resources. One of the first things you're going to notice is the way you even invest. Because I think a lot of people, here's the word of caution, and I have this conversation a lot. I love index funds, and everybody knows that you're index investing, but they think that they're going to go from. It took them a while to go from 0 to 100 as they're saving and investing. And they somehow think when they cross retirement, they're going to go from 100 to zero immediately.
- [35:35]
B
Yep, day one.
- [35:35]
A
It just doesn't work that way. I was like, it took you a while to build up these assets. You're probably going to also want to have a glide path back down from an asset allocation standpoint, because you're not going to be able to land this plane instantaneously to go from aggressive growth assets to now having a mix of conservative all at once. Because what happens if the world is blowing up around you? Because when it rains, it pours, you will lose your job, the economy will be getting its teeth kicked in and the markets will be down 20 to 40% and you'll be unable to sell any of your investment real estate all at the same time. So you better plan accordingly so that you can make sure that you don't get caught in that desperate situation from somebody who goes from, I want to be 100% invested down to now, I'm going to have conservative assets. Why not do this in an incremental way so you don't have to put yourself in a pickle of a situation.
- [36:30]
B
And generally speaking, when you are in the early accumulation phase, the financial order of operations works for like 99% of people. If you just follow the foo. If you answer the questions right, you get to the right spot. But by the time you get to financial independence, by the time you get to this stage, it does become very specialized. Your glide path based on your unique goals, your unique risk tolerance, your unique time horizon, your other income, your other accounts is going to be very unique and specialized to you. So you want to make sure you've thought through it accordingly. And one of the ways that you can think through, okay, where am I today? Where do I need to be? Is we have a tool called the know your number course. If you go to learn.moneyguy.com this helps you to find what that finish line is. Okay, what's the number that I need to be able to live the life that I want to live on my terms? And how close am I to that number? Well, depending on my proximity to that number, I ought to be thinking about, okay, well, how am I investing? Am I still investing like a 22 year old, even though I should be at or near retirement? Or am I someone who have to work for another 10, 12, 15 years in order to get to where I want to be? In your 50s, this is where you begin answering those questions and really defining some clarity into what the next stage and stance looks like.
- [37:47]
A
Well, it's twofold because we love index target retirement funds, but definitely in your 50s. If you're assuming you're a millionaire, I mean probably multimillionaire, you're getting close to it. You're the CEO of a very successful enterprise, a seven figure enterprise. We probably need something beyond just target retirement funds index target retirement funds. The other thing is, is even if you're a cowboy, maybe you did really well or a cowgirl, and you've done really good maximizing risk to create success for yourself, you still have what's called risk capacity, meaning that even though you might have the tolerance to handle a lot of risk, you know, when the sheet music stops, you could not have the time to take the time to recover from this. So that's why we got to always tell people, don't sleep on this. This is why we create tools like know your number. So you can actually know you're ahead of the curve, behind the curve, or right where you're supposed to be. This is also a great time and we'll talk about this to take the relationship to the next level. But before we even get into that, but we ought to give people what's the spot check because I think this is going to be interesting because we're so different from the Fidelity number. We're so different from what the typical public is doing. Where are people at in their 50s?
- [38:55]
B
Yeah. If you look at the median American, we know that the median gross household income for those in their 50s is $82,000. And yet the median financial assets for those folks is only about 74,000. So if you are an average American, you are likely pretty far behind because we would say, based on our methodology, we want you to have, by the end of your 50s, 13.7 times your annual income saved up in investable wealth. So if you are a median income earner here in America making $82,000 a year, that means that by the time you get to the end of your 50s, you should have a portfolio of a little over $1.1 million.
- [39:35]
A
This makes. My point is, like I said, when you're at this age, you've been doing this for going on three decades. At this point, you've reached blown past the bowling point. You're now at the point where you are the CEO of a seven figure enterprise and you've never done this before. You don't know where your blind spots are. You don't even know what $1.1 million really means for you in the future. Guys, this is why we leave the porch light on. This is exactly why I can give you all the free advice in the world to help you create success. But you do this right and your simple financial life that you have spent decades building becomes really complex. Really quickly and this is what we're here for, guys. This is the perfect time of year. It's beginning of a brand new year. We love letting you guys see money is nothing but a tool. But it's a magical tool that we want to maximize the moment so you can live your best life. You can make the most memories out there and create something really special so you own your time and you know that you got the peace of mind to sleep well at night. So go check us out. MoneyGuy.com Become a client and this is something that I love because it's the abundance cycle fulfilled. We can give you all the free advice and then turn you into clients down the road because you remember who planted the seeds of knowledge that got you exactly where you are. I'm your host, Brian, joined by Bo.
- [40:53]
B
Moneyguy Team out the Money Guy show is hosted by Bryan Preston and Bo Hanson. Brian and Beau are partners with Abound Wealth Management. Abound Wealth Management is a registered investment investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment or legal advice. All investments involve a degree of risk, including the risk of loss.