There are lots of ways you can gauge your financial health. One of the simplest and most effective is your net worth. To calculate this, add up all your assets and subtract your liabilities. For example, if you have $50,000 in savings, $100,000 in investments, and $20,000 in debt, your net worth is $130,000.
After you calculate your net worth, it's also a good idea to see how it compares to the recommendations for your age. If you're currently at or near age 50, here are the guidelines to be in a strong position with your finances.
What should your net worth be at age 50?
It's recommended to have a net worth of six-times your annual income at age 50. This figure is based on a popular savings chart from Fidelity. It estimates how much you need to retire by age 67, assuming you'll spend about the same amount in retirement that you do now.
However, that recommendation doesn't fit everyone. A wider range that also works is a net worth between five-times and seven-times your annual income at 50, depending on your retirement plans. If you plan to retire earlier than age 67, or if you plan to spend more in retirement, then you'll need more. If you plan to retire later or spend less in retirement, then you could be fine with less money.
Let's say you earn the median U.S. household income of $69,717 (as of 2021). At that salary, the recommended net worth at age 50 would be $418,302, if you're aiming for six-times your income. On the lower end, five-times your income would be $348,585. And on the higher end, seven-times your income would be $488,019.
Most 50-year-olds don't have that much
We've seen the expectation. Now, let's compare that to the reality.
The average net worth of people in their 50s is $1,257,943, according to financial services company Empower. Averages don't always tell the full story, though, and that's the case here. People with ultra-high net worths bring that average up quite a bit.
The median net worth of people in their 50s is $312,890. Since there's such a large difference between the average and the median, the median is a better representation of the typical net worth for a person in their 50s. It's also worth reiterating that this is data from people in their 50s, from 50 to 59. The numbers for just 50-year-olds would presumably be lower.
So, based on median salaries and net worths, it's a safe bet that the average 50-year-old isn't worth six-times their annual income. That's a good goal, but if you haven't reached it, you're not alone.
What to do if your net worth is less than the recommended amount
If you're 50 years old and don't have a net worth that's six-times your income, don't panic. Remember, this is only a general guideline based on very specific circumstances. If you're going to be getting a pension, you probably won't need as much. The same is true if you plan to cut your spending, which you could do by moving to one of the more affordable U.S. cities or even retiring abroad.
Net worth guidelines aren't the be-all and end-all. What's important is that they get you thinking about how much money you're going to need in the future.
If you want to focus on increasing your net worth, here are a few tips on how to do it:
- Work on boosting your income. Your income plays the biggest role in how much money you can save, so make it a priority. Look for ways to increase your income at your current job or to bring in more streams of income.
- Make the most of tax-advantaged retirement accounts. If your employer offers a 401(k) and will match contributions up to a certain amount, contribute enough to get the full match. Consider opening an individual retirement account (IRA) for more tax savings.
- Invest in the stock market. Since you're getting closer to retirement, you'll probably want to also have money in conservative investments, such as bonds. But keep the bulk of your portfolio (60% to 80% is a good range) in stocks. These have more growth potential, with the average stock market return being about 10% per year before inflation.
The key to building your net worth is consistency. Decide how much of your income you can save and invest every month, and stick to that amount. If possible, automate your savings and retirement plan contributions so you don't need to do everything manually. If you're putting money away every month, your net worth will increase more and more.
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