Here’s the average net worth for American households — and how to grow yours in time for retirement

Your net worth is something you may not think about every day. Rather, you may want to focus more on your checking account balance so you can pay your short-term bills.

You don’t necessarily have to stress about your net worth every day. But your goal should be to grow your net worth over time so that once retirement arrives, you’ll have plenty of money to spend on the essentials and fun things you’ve always wanted to do.

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You might be curious what the net worth of a typical US household is. To that end, the Federal Reserve has some answers. But it’s important to know that no matter where your net worth is today, the right strategy could boost it significantly by the time retirement comes.

What do the numbers say?

Every few years, the Federal Reserve publishes a survey of consumer finances that provides a detailed picture of Americans’ finances. According to the most recent, the median US household net worth was $1,063,700 in 2022. But that doesn’t tell the whole story.

The same data set also reveals that the median net worth of the American household that year was $192,900. And when you have a median that is substantially lower than the mean in a given data set, it tells us that the median is generally a more representative figure.

In other words, what may be happening here is that a small percentage of higher net worth households are driving the average up. So if your personal net worth is closer to $192,900, don’t assume you’re behind or in bad shape. You might be on par with the typical American.

How to Increase Your Net Worth for Retirement

Regardless of what your net worth looks like today, you may be eager to grow it in time for retirement. And for this purpose, it is worth doing a few key things:

Let’s break down each action item. Living below your means simply means not spending your entire paycheck each month. A good way to make sure you’re living below your means is to keep your bigger expenses, like housing, as low as possible. If your home is your biggest current expense, committing to a mortgage payment of $2,000 instead of $4,000 gives you a lot more breathing room.

Then aim to budget your money to allow plenty of it to go towards long-term savings. This does not necessarily mean that you have to plan your expenses down to the last penny. But what you should do is aim to save 15% to 20% of your paycheck each month for retirement, and put that process on autopilot by signing up for your employer’s 401(k) or automating contributions to an IRA.

It pays to save for retirement in one of these plans, especially because you’ll get a tax break on either your contributions (with a traditional savings plan) or your withdrawals (with a Roth savings plan). Plus, you won’t pay taxes on capital gains year after year in a traditional IRA or 401(k). And with a Roth, you won’t face any earnings taxes at all.

However, allocating money to retirement savings is not enough. You’ll also need to invest that money if you want to see it grow.

If you’re not sure how to invest your retirement plan and don’t feel very comfortable building a portfolio of individual stocks, you can always turn to a broad market index fund, such as an S&P 500 index fund or a total index fund of the stock market. fund. These options give you instant diversification, which is an essential component of investing.

In fact, if you were to invest $500 a month in one of these index funds over 40 years, you could end up with over $1.5 million, assuming an 8% annual return on your portfolio. It is one step below the average annual return of the stock market.

Don’t be fooled by the average household net worth

You might be interested to see what the net worth of a typical American household looks like. But don’t let that average number throw you off.

At the same time, don’t assume it’s untouchable. With the right approach to spending, saving, and investing, you can set yourself up with plenty of money for retirement.