Sometime around age 50, the average American can now expect a household net worth exceeding $1 million.
How did so many fifty-somethings become millionaires?
Household wealth swelled at a record pace during the pandemic. Between 2019 and 2022, the median net worth of American families jumped 37% to $192,900, after adjusting for inflation. It’s the largest rise ever recorded by the federal Survey of Consumer Finances, released last fall. Surging home values and rising stock ownership fed the surge.
Some of the new numbers are startling. Average household net worth now tops $500,000 for Americans in their late 30s. For late-forty-somethings, it exceeds $750,000. For fifty-somethings, it reaches seven figures.
If you’re a fifty-something and you’re not worth a cool $1 million, do not despair. Those numbers are averages, and the super-rich drive them wa-a-ay up.
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The “median” American household – picture the middle number in a long list of numbers – achieves a net worth of around $300,000 in the 50-to-59 age range, a far cry from $1 million.
To illustrate how wealth stacks up over the years, here is a decade-by-decade breakdown of net worth in America.
In our twenties, most of us are just starting out. We’re working our first jobs at relatively low pay. We’re digging out of student debt. On the upside, we probably don’t have many other expenses.
“You’re off on your own for the first time,” said Liz Gillette, a certified financial planner in Edgewater, Maryland. “You’ve got liabilities coming in, like your first car, your student loans. And then, you’re just building your way toward saving for retirement.”
For twenty-somethings, “the biggest factor is debt,” said Jonathan Swanburg, a certified financial planner in Houston. “You’ve accumulated a bunch of school debt, and you haven’t had a chance to work, so your net worth is often in the negative. You’re just trying to get out of the hole.”
Thirty-something Americans may be emerging from college debt, buying a first house and starting a family. Their income is probably rising, but so are their expenses: Think diapers.
“Let’s say that they’ve accomplished getting out of most of their debt,” Swanburg said. “They’re starting to put some money into 401(k)s. And that basically starts the process of going into the positive.”
Many thirty-somethings begin to experience the miracle of compounding: Watching the investments they made in their twenties go higher and higher in value, as interest accrues both on the initial investment and on the interest already earned.
Compound interest helps explain how average net worth reaches $500,000 for people in their late thirties.
“Maybe you started investing at 25,” Gillette said. “Now, you’re 35. That money has now had 10 years to grow.”
When we reach our forties, that house we purchased in our thirties builds serious equity, as the balance of mortgage payments shifts from interest to principal. We’re entering our top earning years. If we have children, they’re getting more expensive.
“People probably have gotten married, bought a home, had kids,” said Peter Lazaroff, a certified financial planner in St. Louis. “It’s what I would call full-on adulting.”
Home equity and appreciation help push average net worth toward the upper six figures, along with the aforementioned miracle of compounding.
“If you had a 30-year mortgage,” Swanburg said, “you’re probably halfway done with it.”
Welcome to Millionaires' Row. In their fifties, many Americans attain the mythical status of millionaire, their household assets worth at least $1 million more than their liabilities.
Our house may now be our prize possession, rising in value as we enter the final years of our mortgage. If we started saving for retirement in our twenties, then our 401(k) is a wonder to behold, after reaping 5% to 10% returns for many years.
“By the time you’re in your fifties, most of what’s in your retirement account is compounded interest,” Lazaroff said.
Your children may be in college, one of the biggest expenses you and they will ever incur. But then they’re done, and your nest is empty. You start planning in earnest for retirement.
“There does seem to be something magical about turning 50 and saying, ‘I’d better get myself in gear here,’” Gillette said.
This is the decade when average net worth peaks, a figure close to $2 million for Americans in their late sixties.
Our sixties is when many of us retire and begin drawing down our accumulated wealth.
“You are asking [people] to flip a switch and to suddenly start spending down their money,” Gillette said.
Yet, for affluent households with decades of investments to draw upon, “you’re living off the income,” she said. “You’re not even touching the principal.”
In their seventies, Americans watch their net worth finally begin to decline.
We are probably not working any longer, and we’re gradually depleting our retirement nest egg. Many expenses are dwindling, but others are rising -- especially healthcare.
“You’re in the spend-down phase,” Swanburg said, “drawing down the 401(k) rather than building it up.”
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Wealthier families may still be earning more than they spend: A retirement fund of $1.5 or $2 million can kick off a lot of income. Less affluent families may be relying on Social Security.
If you’re approaching your seventies and you don’t have a seven-figure net worth, you are not doomed to live out your days in poverty, the experts say: Every budget is different.
“How much money you need is entirely dependent on how much you spend,” Swanburg said. “Someone who has less than the average but doesn’t spend very much can be very, very wealthy.”
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