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Net Worth Targets By Age

Net Worth Targets By Age – Dividend Power Week In Review

Net Worth Targets by Age

Net worth targets by age. When you are trying to build wealth the question invariably becomes what should my net worth be by a certain age? How much should I have when I am 20, 30, 40, 50, and 60 years old? Most people are not worth too much at 20 years of age. They are in college and if they are not, they are trying to get their career going?

I certainly was not worth too much at age 20. I have worked since I was 12. I saved money from my various jobs delivering papers, mowing lawns, shoveling driveways, cashier at a department store and fast food, and finally Summer intern when in college. I wish I had kept better records back then, but I don’t really have a number that I can remember. But still, it probably did not add up to more than very low five figures.

Net Worth Targets By Age
Net Worth Targets By Age

It is really by age 30 or 40 that you can build some measurable wealth. By this time, you have worked for somewhere between 10 and 20 years and likely have saved an emergency fund and put away money for retirement in a 401(k) or IRA. You have probably paid down some debts although you may have added mortgage and some car loans. But your net worth is likely positive and hopefully not negative.

How do you calculate net worth? I discussed how to calculate net worth and the Fed data on net worth by age, college degree, and home ownership in an earlier Dividend Power Week in Review article. I also covered median and mean income and net worth in an earlier article.

Net Worth Target by Age Depends on Who You Ask

But how are you doing for your net worth? Everyone wants to measure up against a realistic goal or the average. It feels good to be better than average. What is some good net worth targets by age? The strange part is that the net worth target by age depends on who you ask. The value varies by up to a few hundred thousand dollars depending on the resource.

Some resources use an annual salary multiplier for net worth targets. But the multipliers are not the same. For example, Fidelity says by age 30 you should have 1X of your annual salary as net worth. Note that Fidelity is actually suggesting how much you need for retirement, so it is not exactly the same as net worth. T. Rowe Price takes a similar approach but with slightly different multipliers. While the website, The Balance, says you should have 0.5X of your annual salary as net worth, and Financial Samurai says you should have 2X. This is a big difference and wide range. Yet another site, Workable Wealth, provides a rule of thumb equation for net worth goal. I am not sure where they obtained this equation, but it is given below, and I will use it in this comparative analysis.

Ideal Net Worth = (Your Age – 25) x (0.20 x Annual Gross Income)

The Federal Reserve provides actual trailing data based on age brackets. I use the midpoint of age bracket for the data given by the Fed. For example, when for age 35 – 44, the median net worth is given as $91,300. I make the assumption that it is for age 40.

Median or 50th Percentile Salary Net Worth Target by Age

I use median or the 50th percentile annual salary for all Americans here since it represents the midpoint. Some people may want to use the mean annual salary, but mean data is often skewed by those with high annual salaries making the mean annual salary much higher than the median annual salary. In turn, this skews the net worth values higher. The Federal Reserve states that the median family income is $58,600 in 2019. We will use that value in our first chart.

The chart is given below. In cases where no multiplier or data was provided I linearly interpolated.

Median or 50th Percentile Net Worth Target by Age

What can we learn from this chart? First, Financial Samurai has the most aggressive targets and is over $1 million. But he assumes that you are maxing out your 401(k) and IRA each year and saving an additional 20% or more after taxes. This means that you are likely saving nearly 40% or more of your annual salary. You have an approximately 3.6% chance of becoming a millionaire. However, on an age basis roughly 61% of millionaires are between the ages of 60 and 79.

The most conservative net worth targets are from the website, The Balance. In my opinion they are probably too low. Granted, the actual median net worth data from the Federal Reserve is lower than the targets from any resource by at least a couple of hundred thousand dollars per year. So, even if you achieve the lowest net worth target by age you are doing better than the median person.

Net Worth Target by Median Salary and Age

There above chart is simple to follow but there is a limitation. The median income used is for all Americans as opposed to median income by age group. In reality, someone who is 30 will most likely earn less than someone who is 40 or 50. What happens if we account for median salaries by age. I use the median salaries from the Federal Reserve dataset.

Net Worth Target by Median Salary and Age

What can we learn from this chart? We can see that the actual net worth targets by age are now higher up to an age of 60. This accounts for rising salaries up to this point. After age 60, net worth targets decline to account for lower median salaries at higher age groups. The general differences in net worth between the different resources are still similar though.

Can You Retire at Your Net Worth by Age Target?

The real question is can you retire at your net worth by age target? That is a tough question, but let’s take look at it. The 4% rule means that you can withdraw 4% of your retirement savings each year for expenses. We make an assumption here that you net worth is equivalent to your retirement savings. At age 60, if you attain the high net worth target value of $1,272,000 then the 4% rule gives you $50,880, which is pretty decent especially when combined with your annual Social Security benefit. On the other hand, if you attain the low net worth target value of $445,200 then the 4% rule gives you $17,808, which is probably less than many people need even when combined with your Social Security benefit.

So, to answer the question, can you retire, it probably depends on the net worth target and if you achieve it.


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Dividend Increases and Reinstatements

Graham Holdings Company (GHC) hiked the dividend 4.1% to $1.51 per share from $1.45 per share. The forward yield is about 1.1%

Kaiser Aluminum Corporation (KALU) raised the dividend 7.5% to $0.72 per share from $0.67 per share. The forward yield is about 2.8%. This is the 10th consecutive annual increase making Kaiser a Dividend Contender.

UMH Properties increased the dividend 5.6% to $0.19 per share. The forward yield is about 4.9%.

Lakeland Financial Corp (LKFN) hiked the dividend 13.3% to $0.34 per share. The forward yield is about 2.3%. This is the 9th annual increase in a row. Lakeland is a Dividend Challenger.

Apogee Enterprises (APOG) raised the dividend 6.7% to $0.20 per share. The forward yield is about 2.2%. This is the 9th annual increase in a row. Apogee is a Dividend Challenger.

STAG Industrial (STAG) increased the dividend 0.7% to $0.12083 per share. The forward yield is about 4.7%.

Target Factory Outlet (SKT) reinstated the dividend at $0.1775 per share. The forward yield is 7%. Tanger previously suspended its dividend and was a Dividend Champion.

IHS Markit (INFO) hiked the dividend 17.6% to $0.20 per share. The forward yield is about 1%.

Coronavirus Dividend Cuts and Suspensions List

I updated my coronavirus dividend cuts and suspensions list this past Wednesday. The number of companies on the list has risen to 510. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.

No new companies were added to the list in the past week.

I included four companies that I had previously missed. The four companies that I previously missed were Greif (GEF.B), Tremont Mortgage (TRMT), Steve Madden (SHOO), and RiverNorth Opportunities Fund (RIV).

Market Indices

Dow Jones Industrial Averages (DJIA): 30,814 (-0.91%)

NASDAQ: 12,999 (-1.54%)

S&P 500: 3,768 (+1.48%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 38.0X and the Schiller P/E Ratio is at about 34.3X. These two metrics are down this week. Note that the long-term means of these two ratios are 15.8X and 16.7X, respectively. I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued. Note that we are starting to approach 40X and valuation levels near the top of the dot-com era.

S&P 500 PE Ratio

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Source: multpl.com

Shiller PE Ratio

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Source: multpl.com

Stock Market Volatility – CBOE VIX

The CBOE VIX measuring volatility went up this past week by almost three points to 24.34. This is above the long-term average but still a low value. The long-term average is approximately 19 to 20. So, at this point we are just above the long-term average and trending down.

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Source: Google

Fear & Greed Index – Net Worth Target by Age

I also track the Fear & Greed Index. The index is now in Greed at a value of 60, down 12 points from last week.

There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.

Stock Price Strength is signaling Extreme Greed. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the upper end of its range.

Market Momentum is indicating Extreme Greed. The S&P 500 is 7.94% over its 125-day average. This is on the higher end over the past two years.

Stock Price Breadth is indicating Greed as the advancing volume is 9.85% more than declining volume on the NYSE. This is near the higher end of its range over the past two years.

Put and Call Options are signaling Greed. Put option volume is lagging call option volume by 62.52%, which is amongst the lowest levels over the past 2-years.

Market Volatility is set at Neutral. The CBOE VIX reading of 24.34 is a neutral reading.

Safe Haven Demand is in Fear. Stocks are still outperforming bonds by 3.06% over the past 20 trading days. This is close to the weakest performance difference over the past two years.

Junk Bond Demand is indicating Extreme Fear. Investors are accepting 2.20% yield over investment grade corporate bonds. This is historically low but has spiked over the past few weeks.

Timeline

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Source: CNN Business

Unemployment Numbers

The number of weekly new unemployment claims were up with last week at 965,000. This is up 181,000 from last week’s revised numbers. After falling below 800,000 for several weeks the new unemployment claims started to trend up several weeks ago. The 4-week moving average is over 800,000 and trending up.

For some perspective, one-year ago weekly unemployment claims were only about 207,000. Currently we are 3X – 4X the normal level. The seasonally adjusted insured unemployment rate was 3.7%.

The ten states with the highest unemployment rates were Pennsylvania (6.6), Alaska (6.5), Kansas (6.4), New Mexico (5.9), Illinois (5.6), Washington (5.6), Nevada (5.5), the Virgin Islands (5.3), Minnesota (5.2), and California (5.0). 

Economic News

The U.S. Bureau of Labor Statistics reported the number of job openings declined 1.6% in November to 6.5 million, compared to 6.6 million in October. Job openings decreased in durable manufacturing (-48,000) information (-45,000), and educational services (-21,000). The report showed a 17.6% jump in layoffs to 2 million (+295,000) with the service sector increasing the most, driven by job cuts in leisure and hospitality (+263,000), which nearly tripled. There were 10.7 million unemployed workers versus 6.6 million openings in November.

The U.S. Bureau of Labor Statistics reported the consumer price index increased 0.4% in December after rising 0.2% in November. Gasoline prices were up 8.4% that contributed to 60% of the CPI increase. In the 12 months through December, the CPI advanced 1.4%. The index for all items except food and energy increased 0.1% in December after a 0.2% rise in November. Excluding the food and energy components, the core CPI edged up 0.1% after climbing 0.2% in November. Indices for used cars and trucks, recreation, and medical care all declined in December. The core CPI gained 1.6% in 2020, well below the 2.3% increase for 2019.

The Commerce Department reported retail sales dropped 0.7% in December to $540.9 billion. Spending at electronic and department stores were down 4.9%. Foodservice and drinking places dropped 4.5%, with a 21.2% decrease for the year. Online sales dropped 5.8% after rising 19.2% for the year. Retail trade sales were down 0.3%, but 6.3% above last year. Clothing store sales rose 2.4% after dropping 16% for the year. The biggest price increase was gas, up 6.6% after dropping 12% for the year.

Thanks for reading about Net Worth Target by Age!


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