Am I Rich? Unpacking Wealth Percentiles (Ep 91)
In this episode, we dive into the numbers and explore wealth percentiles. Where do you rank? Are you on par with everyone else? What does it mean to be financially comfortable? Find out how your net worth compares to different age groups and wealth percentiles across the United States. We’ll also expose the flaws in the standard 60/40 portfolio and look at the pandemic’s impact on our attitudes about what it means to “be wealthy”.
Check out the related episode from 2022, Cash Flow Confidence.
Transcript - The following transcript was generated by a robot, so please excuse any typos or inaccuracies.
Speaker 1 0:02
It's time to Make the Dough Rise the Financial podcast with Brian Doe.
Walter Storholt, co-host 0:11
Hey, welcome to another edition of Make the Dough Rise. I'm Walter Storholt alongside Brian Doe of Livingworth Wealth Advisors. Brian is a CERTIFIED FINANCIAL PLANNER, always the man that we turn to for guidance, advice and help into and through the financial and retirement planning worlds with more than two decades of experience in the financial planning realm. And we are looking forward to a great show today, Brian, I hope you're doing well. My friend
Brian Doe 0:34
doing great. It's been been very pleasant time of the year around here and had a good opportunity to take the pizza show roadshow up to Washington DC a couple weeks ago.
Walter Storholt, co-host 0:46
Nice. What was the honor? You're doing some lobbying up in DC and using pizza to bringthat both sides of the aisle together? Is that what was happening?
Brian Doe 0:53
Yeah, yeah, I'm up there lobbying on behalf of the secure act. And I'm from our clients. And I've got a buddy who's you and I are prone to doing interesting trips and kind of crazy things. He's the one that I met on the big road trip back in 2017. And he was having a big party and I said, all come up, I'll make pizzas for everybody. And now that I have a portable pizza oven, I loaded everything up and went up there and just had a really nice time Laura went along with me, we kind of made it a trip. She got her new cars, we took it out and gave it a little little time on the road. And we did a couple of stops on the way we did Highlands North Carolina and then Raleigh and then up to DC. So a school trip. And while we were up there, we wouldn't be very interesting. If you've ever had the chance to see it or if it interests you. They had a Museum of the Bible. That is I don't know if how new it is was I think it's relatively new. We're hearing about the years. Yeah, a client told me about it. So it was it was fantastic. And we went saw it. Yeah, it was, we clearly did not allocate enough time for it. There's just so much there to say.
Walter Storholt, co-host 1:58
I think that's how all the museums up there go that you can never squeeze in multiple on a trip, it seems. And then even just seeing all of one of them in a day is pretty difficult. So I remember I was there when the Newseum was being built in DC several years back. And I remember just looking at the size and scope of it going oh my gosh, and how many museums are there in DC?
Brian Doe 2:20
You could never know it.
Walter Storholt, co-host 2:22
So very cool.
Brian Doe 2:24
This was interesting. I think it was John Templeton that had provided a lot of the funding for that one, I was interested to see where the funding source had come from, from a man in the investment world.
Walter Storholt, co-host 2:35
How about that? Well, that's interesting to know as well. Very cool. Well, thanks for the tip. So check that out if you go to DC folks. And in the meantime, let's talk about today's episode Brian and dive into our content today. But building a little bit off of a prior episode from make the dough rise and gonna go a little bit deeper and kind of fill in some gaps here.
Brian Doe 2:54
We'll go back we'll do maybe a little bit deeper dive into a previous episode. And then we got to get some fun facts here to start the day off with
Walter Storholt, co-host 3:05
fun flying.
Brian Doe 3:07
I get a lot of clients who would do the plans with looks at their portfolios, we've run the projections we have a whole cascade of numbers and net worths and balance sheets all printed out. And so often it always comes back to like, where do I rank? How do I compare to other people? Am I on track? Am I doing okay? And it's funny because I think a lot of more affluent people are surrounded by other affluent people. And it's very easy to get fixated or notice those that have more than you do. And so I think people get a distorted or underestimation of where they actually rank with their net worth. So Charles Schwab did a wealth survey recently and pulled some numbers together. And I've pulled some other numbers together here to look at and what does it actually mean to be in the 1%? Or the top 2%? Top 5%? So that's been it's been a question I get asked a lot. And I thought I'd actually go ahead and formally put the numbers out there.
Walter Storholt, co-host 4:11
Makes sense. I mean, to know where we've got to go, we kind of need to know where we are. And I think that's probably why that one of the most popular questions is, you know, how do I compare to other people, it helps us get a little bit of that footing to be comfortable. Am I Normal? Right, like, that's kind of a question I can.
Brian Doe 4:29
Well, and I think the big number used to be like if you were a millionaire. And I think my reference to this goes all the way back to the 70s. And when I was really young, the idea of being a millionaire, a million dollars in the 1970s was actually a lot of money. And, you know, sad to say because of inflation. And, you know, certainly there's been a lot of wealth creation opportunities and things that have happened over the decades but a million dollars isn't nearly as rare or is on you Usually it used to be, and so not to frustrate or make anybody feel further behind. But to me the new million is kind of more like 10,005 to 10 million. But that's the number we're I feel like you've got to be to know that you're just set. I don't think a million dollars is as nearly as confident inspiring as it was many years ago,
Walter Storholt, co-host 5:24
for those who just kind of set that target number out there to shoot for and obviously, someone with different circumstances may need less to retire on that. That caveat always still applies. But this broader concept of get to a millenium, you'll be fine isn't necessarily the case for every family anymore.
Brian Doe 5:40
Yeah, well, and there is a, there was an interesting number that Trump put on their study that was to be financially comfortable. And it was interesting, what has actually happened to that number. So before I jump ahead, we pulled some numbers. And the I think the key takeaways, and bottom line numbers here all hit those first, but the highest average, American net worth, for those in the age group of 55 to 64 years old, is about $1,175,000. So you know that if you're a millionaire, this includes portfolio assets, savings, equity in your home, like total net worth, minus any outstanding liabilities or mortgages, which is a pretty standard number. So it's not just your portfolio, you can you can throw your home equity, if you had a second home or something like that, this is this is a net worth. And so, you know, to be average, it 55 to 64 years, it's 1,000,001. And there may be a lot of people out there that bought houses years ago, and we've seen a lot of appreciation, house prices, a good deal, that equity may just be, you know, tied up in a 567 $800,000 house. And it's again, it comes in my point that the average is not necessarily having a million dollars does not necessarily make you wealthy or affluent, that's actually quite average. But then around that there's the mean, and then we'll talk about some of the statistics at the at the bottom end and how this skews. Very, in a Pareto distribution, like 20% of the people are going to have the bulk of the net worth and the bottom 80% Will will have a lot less because the media numbers are substantially different. But Americans 65 to 74, the average net worth is 1,217,000. So again, it's pretty comparable. And I'm seeing numbers from the like mid 50s to mid 60s, are either ahead of or on par with the 65 to 74 year old crowd. And a lot of that may have to do with the growth of technology companies and stock options and maybe less pension and more money being in 401k, there could be a number of factors contributing to that. But that million 1,000,002 seems to be holding through age groups. And then when you get up above 75, and older, average net worth is 977,000. And again, I think that is very indicative of the drop off in pensions. A lot of people retired with pensions that generation pretty consistently had pensions. And today you see very little of that, well, if you had a $50,000 a year pension, that would be the equivalent probably of a maybe a million dollar extra net worth if you calculated what it would take to generate that type of pension. So don't Don't be disheartened if you've got a nice pension, you're drawing Social Security and you've got a million bucks in the bank. I mean that I think that's, that's definitely solid. And you know, pretty, pretty on par and average with your with your age
Walter Storholt, co-host 9:06
group gives maybe people a little bit of anxiety when they first hear those numbers and then the description that it's the full net worth, maybe relieves a little bit of that anxiety too. But then that that helps. I think people put that into context, a lot of seeing how they compare, where do you usually take the conversation with folks then or what else does is sort of unlocking your thinking when you see this data
Brian Doe 9:26
was so again, these these averages are very, very, it kind of muddies the clear picture, because the average is you know, everybody, but if you've you've had a statistics class before in the past Oh yeah. Walter heavy. Yep. Have you had the good fortune to have a statistics class
Walter Storholt, co-host 9:44
and my best best teacher was so my stats teacher and then cross country coach and then calculus teacher, so yeah, it was
Brian Doe 9:52
you get a better experience with statistics than I did then.
Walter Storholt, co-host 9:56
It was still a pretty tough class. Actually. This is gonna sound like I'm bragging but It statistics I thought was harder than AP Calculus. It was just stats, sometimes wisdom, and it's just, it was just tough stats are hard, you know,
Brian Doe 10:10
it gets a little bit mind bending after a while. Well, you'll remember this is basic statistics here, we're not going to calculate a p values are anything but thankfully, the the median net worth in the 55 to 64 year old is only 212,000. Okay, so the average we said was 1,000,001 75, the median, the middle is 212,000. So 50% of the people have less than $212,000 net worth, but the average being 1,000,002, that tells me there's there's a lot of people that have a lot more than 1,000,001 75. And there's a whole lot of people that have less than 200,000. And the numbers are very consistent when you go into that 65 to 74 year old group, the average is 1,000,002. But the median is 266,000. So that means half the population has less than $266,000. Net Worth, when people get discouraged, or maybe thinking they don't have as big a net worth is as their neighbors, I always remind them look backwards just a little bit in put things into perspective, on a global basis, you're clearly in the top 1%. If you're average or above average, that's still probably in the top 5%. And there is a whole group of people with astronomical networks that skew that that number upward. And so you can also backup and look at the top 2% of the United States population has a net worth of about 2.4 million. So this is transcending age groups and in different demographics and things like that. If you've got two and a half million dollars, that puts you in the top 2% In this country, so that you know what once people hear those numbers, it puts it into perspective that says, Oh, wow, yeah, a lot of people actually think well, you know, maybe I'm middle class, upper middle class at best. And I'm like, no, no, no, no, you're you're, you're running on top of the heap here, it just doesn't seem like it because you're, you're surrounded with you get into communities and country clubs, and affluent neighborhoods and things like that. And bracing, it feels like everybody's that that will off. And it's just not the case, there's there's a lot of people out there that don't have those means. And if you back up to the million dollar level that captures 5%, of the wealthiest Americans. So if you got a million dollar net worth or more, you're in the top 5% of one of the richest countries in the nation that doesn't to be ashamed of with a million dollar net worth for sure. And then the interesting thing that the number that I saw that was considered wealthy versus comfortable. And this is the survey that Charles Schwab did, they said, what's the average net worth, and they polled 1000 people in different age groups and whatever. And the number to be wealthy was a couple million dollars. And in 2018, it was pretty consistent, like through 2018 2019 2020. And on it held in about the 1.9 to 2.4 million range. So that number is relatively unchanged. That as far as people's perception of what it is to be to be wealthy. But the number to be considered financially comfortable, has gone from 1.4 million in 2018. Through the pandemic went down to 934,020 20. In 2021, it went down to 624,000. And ended up in the prime mid seven hundreds in in 2022. And the most recent 774, I believe was the number in 2022. So I want I think what that says is that is an indication of what COVID did to people's perception of how much money they really needed to get by when everything shut down when people had to pull back or had to stop doing a lot of things and maybe travel plus the net savings rate skyrocketed for a little while because a lot of checks were coming in stimulus checks were coming in or people were still getting paid, but they couldn't do stuff. I think a lot of people really reevaluated what was necessary, and what was needed, what their fallback position was. And so the idea of what it means to be financially comfortable, has actually dropped in half from where it was just a few years ago. I thought that was interesting.
Walter Storholt, co-host 14:48
That is pretty interesting. I think equally as interesting if we could fast forward three years would be the curve that this takes right back up to that 1.4 million given inflation now and people's habits returning back to norm Trouble.
Brian Doe 15:01
Exactly. Yeah, I think that will happen. But just, this was the one place where I saw the data really go, wow, that's this is dramatically different than it was five years ago.
Walter Storholt, co-host 15:10
Maybe it at least shows us we have a little bit more buffer than we think. Right?
Brian Doe 15:15
Right. Yeah. Well, in in the buffer always comes back to, you know, if you've got a debt free life, and your house is paid off, and you don't have a ton of expenses, and you've got your pension, your social security, a little bit of savings, you know, if you've got more money at the leftover at the end of every month, and you probably feel just fine. But if you're trying to keep multiple homes and Country Club memberships, and you got a boat and multiple cars, and insurance and all those things, you know, the money's not going to go as far. So it just is good opportunity to assess. What do you got? What do you actually need, which fallback position? And do we need to shore things up a little bit. So anyway, that's hopefully that's shed some light on where people rate and what the average versus median net worths are. And one other statistic that on the bottom end, the reality is a 60% of Americans are still living paycheck to paycheck. And 50% say they can't handle even a $400 emergency. So definitely a chasm between the haves and have have nots in the country. And hopefully, some things on that front will improve overcoming yours.
Walter Storholt, co-host 16:31
Yeah, not having 400 bucks for an emergency is a stressful place to be. And we've all probably been there at some point in our lives. And so that's a good reminder of where you have a huge portion of the population living. It's unfortunate. And hopefully we can change that with better planning, better guidance and better saving out there among folks. And part of the goal of this show is that better financial education, all of that Brian helps us figure out where we are, what about where we're going.
Brian Doe 17:00
Okay, so we we've been looking at the markets lately, and I know for being investments being one of the main things that we do, I don't necessarily talk about it that much, because I don't think it's nearly as interesting as all the other stuff and planning points that are going on out there. But things have changed pretty dramatically. In the last year, year and a half, I would say, two were the strategy that I was deploying, and people were utilizing, in a very low interest rate environment has changed, which is great, because now as I'm putting together retirement income plans, the ability to do a income ladder for a five to 10 year time period. I never thought I would get so excited about a 5% rate of mid single digit rate of return that you can now get on bonds and treasuries and CDs and things like that. So it's a we're getting back to normal. And you hear a lot about the 6040 portfolio and how much stocks and bonds you have. I take a little bit different approach. And we've we've talked about this in the past, we did an episode number 64. And it was called the cashflow confidence formula. And what I would recommend if that was actually a really good episode, if you want to go back and listen to the basic methodology to this, and the rationale for it in the examples that I gave, but if you were trying to build yourself a five or 10 year runway that said, Hey, I've got my income bolted down, I've, I've matched my liabilities, it is as good of a fancy way to say it is liability matching. I have an obligation 1357 10 years in the future. I want to fund that today, in a way that I know I'm going to be able to afford that in the future. Makes it make basic sense. Yeah, I'll track it so far. Okay. So as people come in, we'll sit down and map out what monies are going to need over a certain range, maybe it's for a large purchase, or maybe it is just for that consistent cash flow. We've got a calculation that we did is called net net present value. And if we allocate a certain amount of money to an investment today, what interest or growth is it going to have, so that it keeps up with inflation so that I can have my money in the future? So if you were in the past, let's say 2020 Not even so distant past interest rates on longer term treasury bonds Corp With bonds, they were in the fraction of a percent, or are super low single digits if you if you took on any kind of interest rate or duration risk. So if you said to me in 2020, I need $100,000 available in five years, how much money do I have to allocate to that liability, so that I know I'm going to have $100,000, in today's dollars in five years, in 2020, that number would have been about $97,800. And this is just a average, talking about a very specific investment or one that is or was available, I'm just talking it on average, you would have had to have allocated almost that full $100,000, to know that you were gonna have that dollar amount in five years today, that same calculation, because you can go get 5% on CDs, money market, government agency bonds, Treasury is a little below a little less risk, but a little bit below 5%. But if you if you wanted $100,000, inflation adjusted in five years, today, I only have to allocate $78,300, to make that same thing happened almost $20,000, less than just a few years ago, this is opening up a huge planning ability and opportunity for those that either have never done this, or it's time to rebuild an income ladder. Or if if retirements just a couple of years on the horizon, right now is actually a really good time to begin putting some of these in place. So that as you as you move into retirement, you're locking in and taking advantage of some of these rates. And just to just to add on and emphasize the power of this increase in rates, if you wanted to go out 10 years, said, okay, in 10 years, I'm gonna need $100,000. In 2020, I would have had to have allocated $96,000 To make that goal happen. Today, that's only $62,000 that you would have to allocate to the 10 year time horizon, that leaves a huge amount of your portfolio, that you can then either put into high quality dividend paying stocks or growth investments, or heck, maybe it just frees up some money to do the things that you that you want to do now. So again, I never thought I would get this excited about 5% bonds. But it's been so long, since we've had this that we were living on what I would call bipolar portfolios, we had a lot of high dividend stocks trying to drive as much income as we could. And then we would use cash to just you know, fund funded the reserves and, and cash flow that you needed. So it's definitely an opportunity here to really lock in some of these rates. Last year was a weird year because rate shot up so much, both stocks and bonds were down. And that hasn't happened since 1974. And so I think the phenomenon of reversion to the mean, things going back to normal creates a real opportunity for both the for the two categories of investments that I'm talking about here today, high dividend quality stocks, and intermediate short and intermediate term bonds, you can you can put together a really solid plan. And that past performance is no indication of future success tax tag and title not included. Dealer retains all incentives some offers may not apply. But I can't guarantee what's going to happen. But if I was moving into retirement today, and I had the current valuations on value stocks, and the current yields on on bonds a whole lot easier to put together an income plan today than it was just two three years ago.
Walter Storholt, co-host 24:16
Yeah, you can see that dramatic difference in those 10 year numbers 96,000 needed down to 6162 range. That's a that's a large Gulf. And so it really illustrates the point in the new the new world that we're in. We always talked about the new normal and the New World as being a bad thing. Finally, that means something good here, Brian, so little little positivity to that term now, which is a good thing. So I like that. What What's your kind of final thoughts on this, Brian, as you then apply this to the planning process and help people what does this motivate you to do with your clients or if somebody's thinking about their financial future in their planning? What should information like this kind of inspire them to do and to be thinking about?
Brian Doe 24:57
Well, a lot of people say hey, you know, retiring what's on the horizon are, you know, I'll call you when we when we get to retirement, don't wait to take action now, because this environment could change quickly. If you look at the valuations on high dividend stocks, we are in a range that we have not seen since probably the early 2000s, where value stocks are better values than growth stocks. So that that could be a phenomenal factor going forward. And the yield curve is very inverted. So that means the shorter term rates are higher than the long term rates. And that I think that's where the real opportunity comes in to lock in some of these higher rates that you can get. Now, maybe, maybe if it's even just a few years out, you can take advantage of the current rate environment, if on the other side of this inflation comes back down, and we get the soft landing and Kumbaya and all that stuff. I don't know when that's going to happen, or how long it takes for this to play out. But this is still a very attractive strategy for those that are wanting to reduce risk, lock in some, some assurances that they're going to have money in, in that intermediate time period. And just as a contrary indicator, if you look at consumer confidence, and the stock market, anytime that we've had big dips in consumer confidence, and we bottomed out in June of 2022. All of these times that we've bottomed in consumer confidence, those were usually contrarian times, investing in those environments actually made a lot of sense and subsequent 12 month, returns have always been in the say over what yeah, all of them have been double digit returns, if you go back 2030 years, and actually 4050 years of look at these inflection points. So as doom and gloom is the headlines may be as scary as anything that's going on out there. We've been through all this before, we can do a lap around that. But I would be looking very hard at at some of the great values in in the market, the high deals that you're getting off of high dividend stocks, there's not been a lot of action in those for the last two years, they've been very flat. But that's what we like low volatility, good dividend, and put all the pieces together.
Walter Storholt, co-host 27:36
Yeah, almost Welcome to see kind of like a boring financial plan at this point after the last couple of years of up and down finance, right and try to navigate all this. It'll take us Yeah, we'll take a little bit of that. Exactly. Well, very good. My big takeaway today is if your plan is not incorporating some of the different strategies and ideas, or at least having the conversations that we had with Brian today about considering these things as part of your financial life, well, that should be a warning sign that you aren't in maybe the best position possible. Do you have a full blown financial plan? Is it comprehensive making sure every stone is you know, looked underneath of and explored and thought about. So if that's the case, and if you are looking to take control of your financial future, but maybe you don't have an exact idea of where to start? Well, good news. Let Brian doe your seasoned CERTIFIED FINANCIAL PLANNER with more than that 20 years of experience. Be your trusted partner through the process. And this is whether you want to create a solid retirement plan, or receive expert guidance on optimizing investments. Or if you're really concerned about avoiding costly tax traps, Brian's got you covered on all those fronts as part of the planning process. And if you're new to the financial planning world, and maybe listening to this podcast, you should also know that a CERTIFIED FINANCIAL PLANNER professional meets the highest standards of education, training and ethics, always putting your best interests first. So Brian is happy to wear that badge as a certified financial planner. Take the opportunity to have a 15 minute call with Brian and gain clarity about your financial goals and prepare for a more secure tomorrow by picking up the phone and calling 706-451-9800 That's 706-451-9800. Or you can go to living werth.com and click book a call to schedule your visit and your conversation with Brian as well living worth.com And just click book a call. And we'll see if we can pave the way to financial success together when you reach out. Well Brian, thanks for all your help on the show today. Enjoyed catching up with you. And we'll look forward to another chat next month. Sounds great. Thanks, Walter. All right. Thank you, Brian. And thanks everybody for listening. We'll catch you next time on Make the Dough Rise.
Announcer 2 29:54
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Announcer 3 30:34
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