Understanding Net Worth at 40

The median net worth at age 40 is around $135,300, according to the Federal Reserve’s most recent Survey of Consumer Finances (SCF). However, a good net worth at 40 depends entirely on your personal situation, including your income, financial plans, and long-term strategy.

Source: s.yimg.com

Households with more ambitious plans and lifestyles, such as those who want to retire early, will need a considerably higher net worth to achieve their goals. On the other hand, households with more conservative plans, such as those who intend to retire at 70, might not need as much.

Measuring Net Worth

The Federal Reserve studies net worth in cohorts, publishing the net worth of households between the ages of 35-44. This makes it a relatively good indicator of net worth by age 40, the midpoint of that range.

The Federal Reserve defines net worth as all assets minus all liabilities, including financial assets, such as investments and cash, as well as nonfinancial assets, such as vehicles and real estate. Liabilities include both secured debt, such as mortgages and vehicle loans, and unsecured debt, like student loans and credit cards.

At age 40, household net worth is around:

• Median: $135,300 (better reflects the situation of all households)
• Average: $548,070 (better reflects the total wealth in circulation)

Considering Net Worth

It’s essential to consider net worth in the context of your personal financial planning. A financial advisor can help you determine an appropriate strategy for your current net worth and goals.

Before-tax income is another way to measure net worth, reflecting the taxable earnings of all households. However, it will inherently skew downward, as many of the wealthiest households tend to earn much of their money from investments and capital gains.

At age 40, earned income is around:

• Median: $86,470 per year
• Average: $168,720 per year

Total assets is another way to measure existing value among U.S. households, including both financial and nonfinancial assets. However, this does not reflect usable wealth, since converting these assets to cash would require paying any associated debts.

At age 40, the average household holds assets worth around:

• Median: $310,400
• Average: $729,650

Increasing Your Net Worth

There are many strategies to increase your net worth, including:

• Boosting your saving rate and increasing the share of income you save and invest
• Reducing debt and paying down liabilities
• Increasing the share of savings that you invest
• Setting up a long-term plan to boost your savings

A financial advisor can help you build a plan to increase your net worth and achieve your financial goals.