Average Net Worth of a 50 Year Old Revealed! (2021 Edition)

it's brian preston the money guy all right so then we move on into the next decade the 50s and in my opinion brian there's sort of a paradigm shift the thing changes in your 50s as opposed to the things you're focused on and thinking about in your 20s and your 30s and your 40s because in your 50s it's about finishing the puzzle it's about getting the final pieces put into place of your financial independence yeah you've been working on this for decades now so it is one of those things where the edges should be built just like you build a puzzle by focusing on the outer edges and then you start letting it kind of build within this is going to be the part where you're there's only a few pieces left and you're going and grabbing them and putting them right in there's a reason we create these type of visuals and we ask fte daniel to do them is i guess this is the part and let's go ahead and hone this into your specific network statement we first want to focus on assets when i think about that is in bo this is where i think you can add a lot of detail coming from a cfa background we talk about that just like we've had target retirement funds in the past by the time you get in your 50s that's probably not doing because you need to be thinking about asset location what do we mean by that you need to be thinking about what types of accounts you hold what types of assets in because realistically in the next 10 15 20 years you're going to start pulling those assets out well how efficiently you can begin pulling those assets out is a direct derivative of how of how efficiently you've begun building those assets so you want to make sure you have the right types of investments and the right types of account buckets so that when you do get to financial independence when you do get to retirement you can begin pulling the levers in the way that leaves you in maximum control and you made a great observation this is a probably about a month ago you said you know what brian you're an accountant a nerdy accountant you said y'all have this inventory pro system that you learn in accounting called lifo yep where it's last in first out i think it is very brilliant that you talked about and you made the analogy that it's very interesting that when you're funding your retirement accounts when we talk about tax deferred tax-free and after tax we kind of pull our assets out in retirement exactly like we put them in meaning that the first thing that goes into your retirement savings is like your roth assets you love that tax-free growth that is going to be the last place you want to pull out of so you'll find as you build you go from tax free then you do the tax deferred so you get that employer match and then kind of the last thing it probably is happening in your 40s and 50s you're thinking about where am i going to get my money from so you start saving those after-tax brokerage account type savings accounts that's going to be one of the first places you probably will pull out of when you retire so focus on those type of things and i think you'll understand this type of planning is so important yeah you ought to be looking you know we're statements saying okay are there some like advanced planning things i ought to be thinking about in my 50s or to set me up for what i will be doing in my 60s should i be looking at funding deferred compensation plans should i be looking at roth conversions should i be looking at age 55 401k rules what are the things i ought to be paying attention to because for a 20 year old those things are way way way in the future for a 50 year old you can see the landing strip you your landing gear might not be down yet but you can see it you can see the airfield you want to make sure you're cruising in for a smooth landing i internalize this personally is that as i'm quickly approaching 50 one of the few things just like you get to an age you start getting discounts on food and other things because you're officially a senior citizen i do think it's something aspirational to know that once as soon as you the year you're going to turn 50 you get catch-up contributions on your ira contributions your 401ks there's all kind of little added things that the government's like hey knock knock you're going to retire in a few years we're going to give you a little special provision so you can save even more money in retirement so don't blow that opportunity as well so not only do we think you ought to focus on the assets portion of your net worth statement because ultimately your assets are what's going to kind of generate the income that you're going to live off of in retirement but the other thing you want to focus on is you want to go back to your footnotes now and now when you look at your footnotes it's less about the risk mitigation footnotes the life insurance the estate documents and that sort of thing and it's more about the source of income footnotes have i been paying into social security my entire career and what will that benefit look like for me do i have a pension are there other sources of income because we don't get to list those on our assets they have to show up somewhere though because they do need to be part of your overall financial planning also this is the part when you're in your 50s you've got to pay attention to risk yeah for sure you've got to because i i'll tell you this is one of the biggest things when we have prospects come in and i see a lot of comments on our youtube channel that talk about what their portfolio is and there's this new movement now where you want to be a hundred percent equity and i get it interest rates so low we're all just you know what do we do with our money to actually grow it i will tell you there does become a balancing act of not only building wealth but keeping wealth so don't don't be so optimistic that you blow past your big win by not understanding that you do need to start thinking about that kind of glide path on your asset allocation that you take a little risk off the table so that that gets a little more complicated because it's so specialized to everybody out there based upon what you have your assets in meaning that are you in tax deferred tax-free after tax what's your risk profile what's your goals it's very customizable that's why this is probably also another thing that's not on the net worth it's more of a footnote are you working with somebody professionally to make sure that you're answering these big decisions now when you get into your 50s especially as you approach your later figure there's a chance you might be reaching that precipice of financial independence you might your net worth statement might be quote unquote complete no don't mishear me we have a lot of retired folks who still do the network statement every year because it's a lot of fun and we would argue you should do the same but this is a good point where maybe you want to start thinking about like an after action review to your wealth building you actually see everything that you've built up and started thinking okay have i stress tested this how do i know that this is going to be the thing that's going to provide for me for the rest of my life yeah i think a lot of what i call do-it-yourself planners and you know especially i'm looking at you fire folks you use the safe withdrawal rate because that's that's cool you can take your total assets multiply by safe withdrawal rate that's the money you think you can pull out and it's going to last for for decades sure and it sounds good but it's not really stress testing i've got a great analogy on this because it hit me while i was right working on show notes is that i love going to the fair and riding rides okay but there's a big difference between riding a fair ride and riding a roller coaster like disney world yeah those are a little bit different because look the fare rod the roller coaster disney were both fun but one is just a little bit safer something i would really want to rely and put my stake my life on and the fact and that's going to be probably the this is the safer one right it doesn't make sense because there's a lot more going into it they're not packing this thing up and moving it around every few weeks and that's what a safe withdrawal rate is great for back of the napkin type planning but as you actually get into your 50s and you've got to fine-tune this once again focus points towards a financial advisor those monte carlo simulations you're talking about not only are you using linear growth like what a safe withdrawal rate and other things will help you through it's also just stress testing to make sure you're not getting in a bad situation that's why i make that analogy i'd much rather you go ahead and get the retirement plan a disney plus it type retirement plan instead of a roadie type carnival that is going around getting assembled on the back of a napkin this is a time this is way too important to let it be something that yeah it's probably safe because it works most of the time but i want it to be guaranteed to pretty much be safe so i can get to the other side of retirement financial independence way and what you want to make sure of is that you're thinking about this early enough because it's okay if you have a surprise when you're five ten years out from retirement what you don't want to do is you don't say you know what i'll listen that money guy show and i heard them so i think i'm gonna go meet with a financial advisor and they sit down the financial advice i say hey you know what i'm uh retiring this year just want you to check and tell me it's okay because you've actually been in that meeting before i know the story you've been in that meeting before i've had to make people work three to four years additional you would rather know that early on in your 50s or mid 50s instead of figuring that out at 64 when you've already started you know making all your vacation plans planning on your work exit it's much more fun if you're getting to do and this is the kind of the closeout part i have on this section is is if if you've got financial independence meaning we have that meeting i tell you you know what you don't need to be focusing on where you can cut you need to be focusing on how you want to spend your money in financial independence do you want to go hike the appalachian trail do you want to take the family on a vacation those things are so much more fun to plan for but you don't get to that congratulations moment without doing the heavy and heavy lifting much earlier so don't skip steps because it is tough yeah you might have saved a lot of money or can potentially fees and other things but you really if you get to retirement and you find out that you just didn't know what you didn't know or you get to the point you just didn't have everything prepared like you thought that can cause a lot of heartache later so don't fall into that let's talk about liabilities because i think it's interesting i didn't really pick on it a ton this year but there is something that happens i think in 20s 30s 40s i'm one of these people on debts especially like mortgage debt i tell people don't get in a hurry to pay that off because especially an environment like we're in currently where you can get a mortgage rate in the twos why would you want to get in a hurry to pay that off when you might need to be focusing on roth iras and other things but i do think once you cross into your later 40s definitely in your 50s it's once again it's not about wealth maximization it's about keeping well not just getting wealthy it's about keeping wealth and one of the things is taking risk off the table i know for a fact if you look at financial independence encumbrances in a dictionary independence and encumbrances are in two different places so i want you to think about this is me giving you permission in your 50s assuming you've done everything you're supposed to it's perfectly fine to pay off those low interest debts love it all right so let's do a quick wealth spot check now remember i think there's a paradigm shift that happens in the 50s but first let's kind of look at where the average americans are so the average median income for someone in their 50s is about 54 000 a year average median net worth is about 182 000 dollars per year and so if you want to be an average accumulator of wealth you take that income times the age and in this case 55 divide by 10 average accumulator should be about 298 000. well we started thinking you know when you're in your 50s it's really less about your overall net worth and more about what your savings actually looks like more about what your liquid net worth looks like so when you think about a financial mutant we can talk about their income they make a little bit more they make about 92 000 per year if you look at the top 25 or their net worth is around 570 thousand dollars per year at the top 25 but we think you ought to think about income multiples when you think about your annual income in your 50s you ought to be thinking about how many times over do i have my annual income saved and so we just mathematically figured out if we assume a four percent withdrawal rate at retirement and we back that down based on when you're retiring that when you are 55 years old you ought to have 11.6 times your annual income saved up in liquid investments yeah that's a big part of it because i mean you're getting the point is you're on that you can see the landing strip ahead you do want to start focusing on where are my assets in relationship to my living expenses and at 55 it's probably might be a little too soon to where your income and can tell you exactly where your living expenses will be so income is a good indicator and we like 11 to 12 times your income and that is using as you said four to four and a half percent safe withdrawal rate take those things into account this is important things to really measure to see where you stack up and are you prepared to take that step into financial independence

Channel: The Money Guy Show

Views: 24,694

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, Average Net Worth of a 50 Year Old Revealed! (2021 Edition)

Id: cSQIxEJY0g0

Length: 12min 50sec (770 seconds)

Published: Thu Jan 07 2021