It’s that time again. Time to see just exactly where you stand on the heap and, just maybe, take aim at joining the big dogs. If that’s your thing, it’s time to up your game. The big dogs are pulling ahead faster than the rest of us.
Yes, we’re talking about my Wealth Scoreboard, an exercise that takes the data file from the most recent (2013) Survey of Consumer Finances and massages it to give us an idea of how we’re doing relative to everyone else.
No, I didn’t do the heavy lifting on this. We need to thank the research department at the Dallas Federal Reserve bank, who did the work. The basic task is to pick through the database to rank the net worth of households by group, and then divide it again by age group. That way you’ll know the minimum net worth you need to be in the top 10 percent at age 80, or at age 20 to 29. If you’re hoping to be in the top half, top quarter, top tenth, top five percent or top one percent, the Wealth Scoreboard lets you know the entry requirements.
Yes, the numbers are different at different ages. Way different. You can be in the top 10 percent of twenty-somethings with a mere $91,000. But you’ll need ten times as much, $956,000 to be in that group if you’re at least 80.
Even that doesn’t tell the whole story. As life-cycle theory predicts, we accumulate wealth throughout our working careers. Most people reach maximum wealth in their sixties. After that, wealth declines. You’ll need a bit over $1.7 million to be in the top 10 percent in your sixties. But a few years later, after giving money to the kids and charity, you’ll only need $956,000 at 80 and older. (See table)
Can we find other things in the data? You bet.
The most disturbing discovery comes from comparing this table with similar data from the 2010 Survey. Examine the median wealth level by age and you find that net worth has declined somewhat, even though both housing prices and stocks were climbing between 2010 and 2013.
The decline in wealth isn’t consistent as you go up the wealth heap. It’s pretty much a patchwork, with some levels requiring more wealth, some less. In 2010, for instance, you could be in the top one percent with $9.68 million if you were in your seventies. But it would require a hefty $13.24 million in 2013. If you’re in your fifties, however, you need only $1.2 million to be in the top 10 percent in 2013 compared to $1.6 million in 2010. Go figure.
Another measure is to compare net worth to the median sale price of an existing home in the last several years--- about $200,000. Do that and you find that the net worth of the median household is no more than the value of a median priced home. Even among the top 25 percent, net worth is never more than about 3 times the value of the median home. This suggests that our collective wealth is pretty thin. Most people have the bulk of their wealth in home equity. (Talk about scary notions.)
Does this survey measure everything that determines our financial well-being? Sorry, no. Pensions aren’t included, and they can be a big deal--- just ask someone who has one. Social Security benefits aren’t included either, and that’s a really big deal. These things aren’t included in the usual measures of wealth or net worth. But they make a big difference in the amount and security of income households have.
Here’s an example. Suppose you are in your sixties and have a net worth of $1.7 million, an amount that makes you better off than 90 percent of your age-peers. Now, suppose you invest every dime in financial assets. Earning a princely 2 percent in dividends and interest, your retirement income would be no more than $34,000.
That’s better than a stick in the eye. But it’s not the lofty living we imagine for the top 10 percent. That’s also why it’s going to be difficult for retirees at all levels of net worth to avoid showing lower net worth figures when the 2016 survey comes around.
Distribution of Net Worth by Age Group
These figures, all in thousands of 2013 dollars, show the net worth needed to be in each group. They are “threshold” figures, the amount needed to enter each group. For example, if you are in your fifties, you’ll need $1.2 million to enter the top 10 percent and will enter the top 5 percent when your net worth reaches nearly $2.5 million.
|Age Group||Top 1%||Top 5%||Top 10%||Top 25%||Median|
|80 and Over||$ 6,220||$1,594||$ 956||$359||$187|
|40-49||$ 6,339||$1,415||$ 784||$280||$ 68|
|30-39||$ 2,562||$ 664||$ 350||$129||$ 26|
|20-29||$ 594||$ 196||$ 91||$ 31||$ 7|
|Sources: Dallas Federal Reserve Bank, 2013 Survey of Consumer Finances|