Net worth by age: How much should you have to retire well

Net Worth by Age: Are you ready for retirement?

The topic of calculating one’s net worth is always an interesting, thought-provoking subject that ignites a furry of emotions.

“My net-worth seems to be higher than the average, why am I still struggling to make ends meet?”

“Oh sharks, my net worth is less than my peers. Can I still afford to retire well?”

The topic of net worth is a pretty sensitive and often taboo subject that most will avoid unless you are a “multi-millionaire with an equally ultra-big ego to boost”.

Despite its sensitivity, calculating one’s net-worth should be an exercise taken by all. We might not wish to talk about it but neither should we be clueless about it.

I will look to breakdown this article into three main segments:

1. A brief discussion as to what net worth is all about and how to calculate one’s net worth
2. A quick look at the average and median net worth of Singaporeans
3. An in-depth discussion of net worth by age. What is that figure for an average person which requires $1,500 in monthly retirement expenses in today’s dollars?

There are many articles making comparisons on determining your net worth by age. Most of these articles are based on the “magic” net worth figure according to a national average or median figure.

For example, the average net worth of American families (head of the household) between the ages of 35 and 44 was $288,300 in 2019. The median figure was reported at $59,800. This is according to the Federal Reserve Board’s triennial Survey of Consumer Finances, based on data collated for 2019 (see table below).

As you might already notice, there is a wide disparity between the average and median figures. We will discuss more of that in the 2^nd segment where I take a quick look at the average and median net worth of Singaporeans, based on the Credit Suisse Global Wealth Report 2019.     

Some sites will also provide a rough gauge as to what your net worth should look like when compared against the peers in your same age group based on a multiple of your income.

My comparison will not be based on your income, instead, it will be based on what your projected future expenses might be.

I think such a comparison is more relevant to the masses. The main problem with projecting your net worth based on a multiple (10x, 20x, etc) of your annual income is that most people have a different lifestyle. What do I mean by that?

Take, for example, a person named John (currently age 65) who last generated an annual income of $100,000 before he retires. On a ball-park figure, some believe that he should have a targeted net worth figure 10X that of his last annual income at age 65 (just before he retires), which equates to $1,000,000.

What if I say that John has a lifestyle that requires him to expense $100,000/annum? Now, is that $1,000,000 in net worth going to be sufficient?

Compare that against Peter, also at age 65, who like John, drew a salary of $100,000/annum before he retires. Similarly, his targeted net worth should be $1,000,000. However, unlike John, Peter is a thriftier man who is expected to require just $30,000/annum (before inflation) in retirement expenses.

Is it a fair statement to say that both men should have the same targeted $1,000,000 net worth figure to “retire well”? No.

While it is always easy to benchmark one’s net worth by age according to the national average or median number or use a multiple of one’s current income etc, a more realistic figure should be based on one’s expected retirement expenses to gauge if he/she is indeed on track to retire well.

That is the objective of our article.

Let’s first take a quick as to what an individual’s net worth is all about and how to calculate that figure.

What is Net Worth?

Knowing your net worth is one of the most important aspects of personal finance. It’s one of the best indicators we have to see if we are on target to meet our goals.

It is a powerful indicator of your financial health.

To calculate your net worth, simply subtract the total value of your debts (aka liabilities) from the total value of your assets.

To put it in layman terms:

Net worth = Assets – Liabilities

If your assets are more than your liabilities, your net worth is positive. Congratulations, you are taking the first step towards retirement success.

If your assets are less than your liabilities, your net worth is negative. This is the time to take a serious look at your finances and see how you can best turn that negative net worth into a positive one.

What does net worth include?

What are your assets and liabilities? Do you estimate how much your house or car might be worth if you sold them? If you still owe the bank money on your house or car, are those assets or liabilities?

Assets     

• Savings in your bank account
• The market value of your investment portfolio
• The market value of your retirement savings in your retirement accounts
• The market value of your house/s, car/s, etc
• The market value of your endowment policies
• Items of significant value such as your jewelry, antiques, etc

Liabilities

• Mortgages on your primary and secondary properties
• Car Loans
• Student loans
• Credit Card loans
• Personal loans
• Back taxes
• Medical fees etc

Your first goal is to ensure that when you subtract your liabilities from your assets, that figure is a positive one.

If that figure is negative (just like the 25 percentile Americans from Age 18-29), your objective is to turn that figure into a positive one by paring down your liabilities (mainly loans) as much as possible.  

Now that you have a rough clue of what net worth is all about and how to calculate that figure, let’s move on to the next segment which is finding the average and median net worth of Singaporeans.

The average and median net worth of Singaporeans

According to Credit Suisse Global Wealth Report for 2019, Singapore is ranked 6^th in the world in terms of average household wealth per adult with an average net worth of USD297,873. Within Asia, it is second only to Hong Kong.

USD297,873 is equivalent to approx. SGD400,000. This seems like a pretty big net worth figure for the average Singaporean. A better figure to represent the AVERAGE Singaporean would be using the median net worth figure. This figure stands at USD96,967 or SGD133,000.

Why is there such a significant skew between the average figure of SGD400,000 and the median figure of SGD133,000?

Difference between average and median figure

Let’s use a quick example to illustrate the difference between Average and Median net worth

Assume there are just 5 individuals which represent the entire nation’s population. They are arranged from the smallest net worth to the largest

Individual 1 net worth: $100,000

Individual 2 net worth: $120,000

Individual 3 net worth: $150,000 (Median)

Individual 4 net worth: $170,000

Individual 5 net worth: $1,000,000

The average net worth is calculated by summing up the 5 individuals net worth amount and dividing them by 5, by which we get a figure of $308,000

The median net worth is simply the 3^rd individual net worth amount (the person representing the 50^th percentile) of $150,000

One can observe that due to the substantial net worth disparity between Individual 5 and the other individuals, the average income of the 5 individuals becomes substantially higher, giving the false impression that the average net worth of these 5 individuals is indeed much higher than the norm.

In reality, the skew is due to wealth inequality and hence a more accurate depiction of the “real” average net worth would be using the median net worth which is a figure 50% below that of the average net worth number.

For a nation, the median net worth figure represents the 50^th percentile of its population (one where the net worth of each individual is listed from the smallest to the largest).

In Singapore (population of 5.8m), if you have a median net worth of more than $133,000, you are likely ahead of close to 2.9m of the population.     

This figure is just a “good-to-know” figure or a “feel good” figure, the latter if you have a net worth figure that is substantially ahead of that figure.

However, it doesn’t say much. Again, a young adult age 30 with a net worth of $133,000 is likely to be financially much stronger than a soon-to-be-retiree (say age 64) with the same amount of net worth figure, all else constant.

In Singapore, there is no readily available figure providing you with the breakdown of the average net worth by age, which makes it even more difficult to have a “realistic” comparison of where you (a Singaporean belonging to a certain age group) currently stand compared to your peers in the same age group.

However, as I earlier mentioned, while having such a breakdown (like in the US example) would be informative, such information is not sufficient to determine if one’s net worth is indeed adequate for a comfortable retirement because every individual’s lifestyle and retirement requirement is different.      

This brings us to the next segment, which is determining a realistic net worth by age based on an individual’s forecasted retirement expense requirement.

Net Worth by Age based on retirement expense requirement

Let’s assume a Singaporean named Tom who is currently aged 30. He calculated his current monthly expense to be approx. $2,000/month and he believes his current lifestyle (expenses) is representative of what it will be like when he retires at Age 65 (planned retirement age).

Due to the impact of inflation (assumed 3%), his current $2,000/month expenses will translate to a projected monthly expense of $5,630 in 35 years.

Tom will like to know what his projected net worth should be at each age milestone to determine if he is indeed on track to retire well.

I look to calculate that using the NAOF retirement spreadsheet. However, do note that I exclude the impact of real estate net worth (market value of the house – existing home mortgage) in the calculation and mainly only focus on savings/investments as the MAIN net worth driver.  

Below are the key assumptions used:

Planned Retirement Age: 65 years old

Projected monthly retirement expense (Today’s dollars): $2,000

Projected Inflation Rate: 3%

Projected Market Return before Inflation: 7%

Projected Death: 95 years old (retirement duration of 30 years)

The table below shows the net worth requirement for Tom.

For the 30-year-old Tom, this is his net worth by age projection which will ensure that he has a comfortable retirement, based on his planned retirement age of 65.

Let’s assume another Singaporean Henry, who has a similar age profile to Tom. The key difference is that Henry believes his monthly retirement expenses (in today’s dollars) to be at only $1,500.

The table below shows the net worth requirement for Henry.

Henry’s projected net worth CAN be substantially lower than that of Tom and yet still retire comfortably, based on his projected monthly retirement expenses.

What is a good net worth at Age 30?

In the US, the average net worth for families under the age of 35 was USD76,200 while the median net worth was USD11,100.

For a Singaporean like Henry who is projecting a monthly retirement expense of $1,500 (in today’s dollars), that figure is approx. $42,000 at Age 35.

Your goal at this point in your life is to first ensure that you have a POSITIVE net worth. Make sure that you are not over-leveraged with debt. Student loan is a major problem at this age and one should look to pare down his/her student loan as much as possible during this period.

Look to “pay-yourself-first” by contributing a portion of your income towards investing.

Every day that passes before you start investing is money lost. There is no magic involved in investing, just a secret ingredient by the name of TIME.

The more time you have, the more you allow the power of compound interest to work its magic for you.   

Typically, those who are starting early can also look to invest in the NAOF portfolio. I made a comparison of the NAOF portfolio with other more popular portfolio structures in this article: Unveiling the best portfolio allocation structure.

Or they could be more aggressive by allocating the bulk of their investments in equities, which has historically shown to be the best investment asset class over a long horizon (30 years).

Even a small amount of money invested now will grow exponentially due to the power of compounding interest.

You can start investing using a low-cost brokerage platform such as Tiger Brokers or if you wish to select to use a platform that provides you with a dollar-cost averaging approach, you can select a low-cost platform such as FSMone which allows you to start investing cheaply ($100/month) into ETFs (for diversification) on a monthly recurring basis.

Make it a habit to consistently contribute to your investment portfolio. The ideal way to consistently invest is to automate the “pay-yourself-first” process as much as possible.

What is a good net worth at Age 40?

In the US, the average net worth for families between the ages of 35 and 44 was $288,700 and the median was reported at $59,800.

For a typical Singaporean like Henry, that net worth figure should be hitting around $185,000 when he is age 45.

At this stage of your life, you might find yourself financing life on credit cards due to increased demands for your money.

Everything requires money. Your home, car, spouse, kids, etc.

If you have got credit card debt (one of the highest-interest accruing debt), it is going to be a struggle to stay on achieving your net worth target. The Average Effective Interest Rate (EIR) on your credit card is usually in the mid-teens but it can also be much higher.

You and your spouse need to take a hard look at your income and expenses. Do they gel or are you spending more than your cash inflow?

You probably will face multiple cash requirements at this age. Mortgage, car loans, kids’ education, expensive vacations. If you find yourself spending more than you should and your net worth is falling way behind your original expectation, it is time to make changes.

What is a good net worth at Age 50?

The average net worth for Americans between the ages of 45 and 54 is $727,500 and the median is $124,200.

For a typical Singaporean like Henry, your net worth should be in the region of $300,000 when you hit 50 and that should grow to about $470,000 when you hit 55, a pretty sizable jump over a 5-years horizon.

While this might seem like a herculean task to grow your net worth by $170,000 over a 5-year horizon, it is not that difficult to achieve.

First off, this is likely to be the time in your career where you are earning the most money you will ever make.

Against that backdrop and assuming that you have already settled the bulk of your loan repayments (except for your mortgage loan), you will likely be able to fork out a sum of just $575/month or a lump sum payment of $6,900/annum to “pay-yourself-first” at the start of each year for your investment portfolio.

Assuming an average annualized return of 7% (before inflation), that $6,900/annum, or $34,500 over 5-years, you contribute to your investment portfolio at the start of each year will “magically” translate into an amount of $170,000 due to the magic of compound interest.  

Assuming an average annualized return of 7% (before inflation), that $6,900/annum, or $34,500 over 5-years, you contribute to your investment portfolio at the start of each year will “magically” translate into an amount of $170,000 due to the magic of compound interest.  

What is a good net worth at Age 60?

The average net worth for Americans between the ages of 55 and 64 is $1,167,400 and the median is $187,300. Notice the huge disparity between the average net worth and median net worth of Americans in this age group. Wealth inequality is extremely obvious for this age group and that is one reason why most Americans reaching retirement age are extremely concern over their ability to finance their retirement years ahead.  

For the average Singaporean like Henry, your net worth figure should be close to $700,000 when you hit age 60.

At this stage, you are very close to retirement and you should be taking a hard look as to what you want your retirement to look like.

For Henry, he should re-evaluate to see if his monthly retirement expenses are still realistic. His $1,500/month original retirement expenses (when he is age 30) have now been inflated to around $3,640/month.

Can he realistically have a comfortable retirement based on a current monthly expenditure of $3,640/month? If so, then he is on-track to retire in 5 years, assuming he has accumulated a current net worth of $700,000 thus far.

As we age, medical debt might become a huge problem if we are not covered by medical insurance. Take note of this area and make sure you are sufficiently covered in this aspect because an unfortunate medical incident can potentially “wiped out” a huge chunk of your net worth if you are not properly insured.

Net worth by retirement    

The average net worth for Americans between the age range of 65 and 74 is $1,066,000. However, the median net worth is $224,000.

For the typical Singaporean, your net worth at Age 65 should be close to $1m, or to be exact, $960,000.

Now, you have to make some final decisions about your lifestyle. Will you move to a smaller, cheaper home to monetize some of your home equity? This might be a possibility if you have not yet hit the $1m net worth target, which we exclude home equity, in the example above.

Realistically, if you have been conscientious in reducing your mortgage payment, your home equity should at least be worth $200k/pax or $400k between you and your spouse. This should reduce your net worth requirement from $960,000 to roughly $760,000.

Based on our calculation, Henry, the typical Singaporean, is expected to spend approx. $51,000 in retirement expenses when he is Age 65 and this figure should continue climbing higher by 3% (due to inflation) each year.  

Based on a net worth of $960,000, you are essentially withdrawing 5.3% of your net worth per annum. This seems like a relatively high ratio, especially if you wish to benchmark against the popular 4% safe withdrawal rule.

I have written about the 4% safe withdrawal rule on numerous occasions, such as in this article:

Why 60:40 equity/bond allocation isn’t the ideal structure for a 4% withdrawal rule portfolio

How you structure your retirement portfolio next will determine if you are indeed able to retire well.

I have talked about the robustness of the NAOF portfolio when it comes to withstanding the variability of the stock market volatility over a long period, especially in a period of high inflation where investment assets such as Gold shines.

The NAOF portfolio structure also works pretty well to solve the issue of the sequence of return risk.

The NAOF portfolio has shown to be able to have a relatively safe withdrawal rate of as high as 6.4% which is also well over our 5.3% withdrawal rate shown in this example.

Conclusion        

Don’t feel bad if your net worth is not where it should be based on the “national norm”. Financial situation differs and as long as you are living within your means, you can have an equally comfortable retirement even if your net worth is not “up to par”.

In this article, I have highlighted that the calculation of the net worth by age should not be based on a standard country median or average number or even based on income.

Instead, it should be based on your projected retirement expense.

I use the NAOF retirement spreadsheet to calculate what my net worth by age should be according to my initial monthly retirement expense assumption.

This spreadsheet is made available free of charge for readers who sign up for the NAOF Investment Series.

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SEE OUR OTHER WRITE-UPS

• HPS Singapore: Why pre-paying your home loan in 2021 is a mistake with Home Protection Scheme in place
• Ultimate Guide to investing using SRS account
• How much to retire in Singapore?
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