Have you ever wondered how your savings and investments stack up to those of your neighbors? While you may not be concerned with keeping up with the Joneses, it’s natural to be curious about where your retirement nest egg ranks compared to the rest of America.
Let’s see where you stand. But before we delve in, I want to give you an important spoiler: You can be poised for a happy retirement without ranking at the top of this heap. Now, on to the numbers.
There were 10.8 million American millionaire households in 2016, according to a 2017 report from the Spectrem Group. For context, the U.S. had about 125.82 million households in 2016, and 323.4 million people. The following data is household net worth excluding primary residence.
• $1 million to $5 million = 9.4 million households or about 7.4 percent of the HH population
• $5 million to $25 million = 1.3 million households or 1 percent of the HH population
• $25 million+ = 156,000 households or 0.12 percent of the HH population
While this is the highest number of millionaires in history, it’s still rare for someone to amass that much wealth. If you have $1 million or more socked away, you’re part of a small group. Millionaires are wealthier than 9 out of 10 Americans.
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What’s much more common is to be a part of the healthy, thriving American middle class. Ever wonder who exactly makes up the middle class? The experts have a very concrete income-range definition — one that differs from many Americans’ definition of “middle class.”
The Pew Research Center, for example, classifies the middle-income Americans as adults whose annual household income after being adjusted for household size is two-thirds to double the national median. In 2016, this range was about $45,200 to $135,600 annually for a household of three. A single person needed to earn between $26,000 and $78,000 to qualify as middle-income. By this definition, about half of American households are considered middle-class.
Interestingly, 68 percent of Americans consider themselves middle-class, according to a new report from Northwestern Mutual. A little over 50 percent of the survey participants said that earning between $50,000 and $99,999 qualifies a household as middle-class. And according to another 20 percent of those surveyed, middle-class folks earn between $100,000 and $499,999.
There is intriguing insight behind these numbers. Many of us, it seems, identify as middle-class, because we like being associated with traditional middle-class values and traits. Participants in the Northwestern Mutual study said these characteristics include humility, a strong work ethic, thriftiness and home ownership. And it’s also possible that high-earners don’t feel very upper-class these days given the skyrocketing costs of things like housing and college for the kids. A $100,000 salary just ain’t what it used to be, that’s for sure.
Americans in the bottom half of the wealth scale own just under $54,000 in investment assets. The next 40 percent own, on average, $132,000. Consider that we’ve experienced over 200 percent growth in the S&P 500 since 2009, and you can see that investors across the income spectrum have generated significant wealth in just the past decade.
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The real takeaway for me is that external labels are meaningless. It doesn’t matter how some economist wants to classify your household. What matters is that you set yourself up for a happy working life and retirement. So, my advice is to consider the stats, but don’t let them set benchmarks for you.
You don’t have to have millions socked away to be happy. In fact, there is a limit to the relationship between money and happiness during your post-career life.
For my book, "You Can Retire Sooner Than You Think," I compiled data from surveys of hundreds of retirees. During this process, I discovered something interesting about what makes the happiest folks tick – they aren't necessarily loaded with money. In fact, after a certain level of wealth, happiness levels off, resulting in what I call the "Plateau Effect." And the magic number beyond which happiness isn't really affected? A modest (and attainable) $500,000 in savings.
I know $500,000 is a big chunk of change. But just as Rome wasn’t built in a day, you’re probably not going to get to the half-million mark in a handful of years. It takes time, and it takes tenacity and commitment.
If you don't know where to begin, I have a rule of thumb that I believe works well, no matter your income level. I call it "TSL," and it stands for taxes, savings and life.
Using TSL, as a general rule you use the following breakdown, for every dollar you earn in gross salary:
Taxes: 30 percent to the feds and state
Savings: 20 percent to a 401(k) plan, other retirement plan, or to pay down debt
Life: 50 percent for food, housing, fun and everything else
The trick is to essentially learn to live on half of your gross salary — hopefully soon after you start working, so you build a savings habit and the resulting nest egg. If you haven't started saving, my advice to you for the new year is to do it and do it now. And, as always, whether you're new to the retirement planning game or a pro, we're here to help. Who knows? Maybe you can retire sooner than you think and be happy all along the way.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
DISCLOSURE
This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
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