When is a Retiree Considered "Wealthy" ??? | FRB Data

in this video we discuss what is considered to be poor middle class and wealthy at retirement age in this case retirement age is age 65 using the survey of consumer finances from the Federal Reserve board we also discussed the term wealthy and what that means in this case wealthy is defined as being at the 95th percentile in terms of household net worth we'll discuss what percentile means in a little bit more detail shortly because a lot of people actually get that wrong let's discuss something that many of you already know and that's how to build wealth in order to build wealth you need investment you need rate of return and you need time if you have more of one of these you need less of the other two to build wealth those who build great wealth in their lives often utilize two or even three of these levers to build their wealth bucket all right let's go but before we do please make sure you click subscribe and turn on notifications so that you get alerted the next time I post a video there's a lot changing in the personal finance world right now around rules and regulations and I want to make sure that you have all of the latest information what is considered wealthy well to some degree the definition of wealth is in the eye of the beholder if you lived in Loyola California for example the average selling price of a home there is 3.9 million dollars that's just outside of San Francisco by the way but Loyola is the most expensive suburb in the United States 3.9 million dollars is a big number no matter what your income is conversely if you lived in West Virginia the median selling price of a home there is just over 139 000 you could conceivably live on Social Security alone in many cases but we must start somewhere so I'm going to use the net worth percentiles that most people would agree on just so you have the definitions correct we're going to use net worth by household in this discussion not net worth by individual there is a distinction when you see these types of data points out there in the world it's usually net worth by individual but household net worth is probably more appropriate here because frankly at age 65 the household status is probably set at least for a while now let's also make sure you understand the definition of net worth at least as it's used here if you're in say the 50th percentile there are 49 households in a population of 100 households that have a net worth less than your household and 50 that have a net worth more than your household that of course assumes that the hundred households represent the population of the United States as a whole and for completeness being right in the middle is called the median net worth not the mean net worth me means the average if you sum up all 100 households and divide it by 100 that gives you the average this is important because one third of the net worth in this country is owned by the top one percent so if you simply just summed the households together and divided by the number of households to get an average that average is going to be approximately three times higher than what the median number would look like and of course if the top one percent triples the average of all of the households anything below the top one percent would also be skewed artificially high and everybody would think that they have missed the mark let's talk about the people at the top first being in the 90th 95th or 99th percentile would mean that you're well off wealthy or super wealthy respectively most of the time these people were those that saved early they saved often and they saved a lot they often invested outside of their 401K in fact undoubtedly they invested outside of their 401K into things like a Roth IRA Maybe even real estate and other assets they also probably had careers or businesses that generated a fair amount of income and that is how they were able to save so much this isn't Universal of course I know teachers and government workers who fall into the wealthy category the 50th percentile which again means that there is an equal number of households above and below the model household not the average would be considered middle class because it's right in the middle and the bottom twenty percent would be a net worth that most people would consider poor anything below this percentile by the way actually goes into negative net worth territory that's also called insolvent or in harsher terms bankrupt all right let's start off with the 20th percentile the 20th percentile has a net worth of ten thousand dollars they probably don't own a home they unlikely own a car at least if they do it's a fairly depreciated car and they might have a bit of money saved and either a savings account or an old 401k at this net worth level people are somewhat Limited in their options they're focusing what little Capital they do have on things like personal safety and their health when we move into the middle class the 50th percentile the picture changes pretty dramatically in the 50th percentile the net worth household net worth is 281 000 at age 65. for most of the participants this is the equity value of their home plus some savings either in a 401k or a savings account at this level the retiree can engage in social activities buy gifts for friends and family they still need to be careful of course but they do have some operating room now when you jump from the 50th percentile to the 90th percentile you're jumping into the wealthy territory at the 90th percentile this is considered well off and the number the amount that the retiree has their net worth or at least their household net worth is 1.9 million dollars 1.9 million is 6.8 times higher than the middle class number of 281 000. at this level the retiree starts to think about things like bucket list trips inheritance for their kids college for their grandkids Charities that they want to donate to Etc at the 95th percentile most people will consider that percentile wealthy and this is an amount of 3.2 million dollars at this level they take less about day-to-day planning and they start to think more about wealth planning they surround themselves with Professionals in the areas of tax estate planning financial planning for example in addition to everything else that we mentioned they might own both a primary and a winter residents and those in the 99th percentile they have a net worth of 16.7 million dollars they are 59 times more wealthy than those in the middle class this group engages in just about anything they want to engage in they travel extensively they pursue esoteric interests they might own a horse farm or they might own a winery or at least a steak in a winery if you end up in the 99th percentile all is right with the world at least financially if you like this video and you'd like to see more of me please make sure you click subscribe and turn on notifications so that you get alerted the next time I post a video I post once or twice a week also if you like this video check out that video on the average net worth of a 62 year old this is Jeff Schmidt thanks for watching holy Schmidt

Channel: Holy Schmidt!

Views: 371,327

Keywords: wealthy in retirement, wealthy in retirement, what is considered wealthy in retirement, how much to be wealthy in retirement, how much money to retire wealthy, what does retiring rich mean

Id: eb4U4k0cwDk

Length: 7min 11sec (431 seconds)

Published: Mon Jun 19 2023