Your net worth is like a scorecard of how you're doing financially. Consistently moving in a positive direction means you're making solid progress toward becoming financially independent and toward retirement.
Calculating your net worth is simple. You add up all of your financial assets -- checking accounts, savings accounts, investments, your home value, and any other property. Then, you subtract any financial liabilities -- your mortgage balance, student loans, credit card debt, or anything else you owe.
If you consistently save more than you spend, you'll see your net worth increase over time. Establishing that habit will ensure you don't reach retirement without anything to show for your long career.
Steady progress toward a higher net worth is an accomplishment unto itself. But if you want a big benchmark to aim for, you might want to know the net worth that puts someone in the top 5% of households. A high net worth is often (but not always) tied to a high income, so seeing what the top 5% of earners in each age group brings home could also help you gauge where you stand and how you're doing for your income level.
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Here's the net worth that puts you in the top 5% by age
The Federal Reserve surveys the finances of American households every three years, including every little detail about the types of assets they own, the debt they owe, and various sources of income. The most recent data from the Fed's Survey of Consumer Finances comes from the end of 2022.
If you wanted to be in the top 5% of households at that point, you would need a net worth of $3,795,000. As you might expect, though, you don't need as much to reach the top 5% of younger households. Meanwhile, you would need much more to make it into the top 5% for older households.
Here's how the numbers break down by age group.
| Age Group* | Net Worth of the 95th Percentile |
|---|---|
| 18-29 | $415,700 |
| 30-39 | $1,104,100 |
| 40-49 | $2,551,500 |
| 50-59 | $5,001,600 |
| 60-69 | $6,684,220 |
| 70-plus | $5,860,400 |
*For couples, the reference person is the male in mixed-gender couples and the older individual in same-sex couples. Data source: Federal Reserve. Calculations by author.
As you can see, the wealthiest households dramatically increase their net worth in their forties and fifties. Top-tier net worth doesn't climb as fast in people's sixties, and it actually declines later in life. There's a simple explanation: Households typically spend down or donate their retirement savings in their sixties and beyond.
It makes sense that households in their 40s and 50s are growing their net worth quickly. While they might have more financial responsibilities (a house, kids, and the like), those are generally the highest-earning years of their careers. When you earn a high income, you generally have more money to put toward investments, which is the key to growing your net worth over time.
Here's the income that puts you in the top 5% by age
A high income isn't absolutely necessary to propel you into the top 5% of households by net worth, but it can certainly help. Even if you're earning a high income, it doesn't mean you'll find yourself among the wealthiest people in your age group.
When the Fed conducts its survey, it counts all sorts of sources of income in its calculation: wages, businesses, farms, interest, Social Security, retirement account withdrawals, and basically anything else that will show up on your tax return. So, the income sources of people in their 70s likely include a lot of Social Security and retirement income, while someone in their 20s will get most of their income from regular wages.
With that in mind, here's the income that puts you in the top 5% by age.
| Age Group* | Income of the 95th Percentile |
|---|---|
| 18-29 | $156,732 |
| 30-39 | $292,927 |
| 40-49 | $404,261 |
| 50-59 | $598,825 |
| 60-69 | $496,139 |
| 70-plus | $350,215 |
*For couples, the reference person is the male in mixed-gender couples and the older individual in same-sex couples. Data source: Federal Reserve. Calculations by author.
A big income isn't enough
The percentage of households earning an income high enough to put them in the top 5% while maintaining a net worth in the top 5% varies by age. Just 32% of top earners in their 20s also have a net worth high enough to put them in the top 5%. That number climbs to a little more than half for people in their 30s and 40s, and climbs even higher in households with someone 50 or older.
To be sure, consistently earning a high income makes it a lot easier to achieve a high net worth. But you have to save and invest to get there. The bulk of the wealth in households with high net worth is held in retirement and investment accounts.
There's no shortage of different investment strategies you could use to grow your wealth. An S&P 500 index fund like the Vanguard S&P 500 ETF (VOO -1.04%) is one of the simplest ways to ensure you get your fair share of stock market returns. The fund charges extremely low fees, and it invests in all the stocks included in the S&P 500 index, which is the most-popular benchmark for tracking the overall U.S. stock market.
You might also want to focus more on specific strategies like growth stocks, dividend stocks, or specific sectors of the market where you have a strong understanding of the businesses. Doing so could produce better returns, but it also comes with more risk.
As you approach retirement age, you might want to diversify your portfolio into some less-volatile assets like bonds to preserve the capital you took years to accumulate.
If you consistently earn more than you spend, you can build a substantial net worth with any income. The most important factors for reaching the top 5% of households by net worth are saving and investing, not necessarily how much you earn.
