Here's the Income and Net Worth You Need to Reach the Top 50% of Americans

The Federal Reserve conducts its Survey of Consumer Finances (SCF) every three years. The report collects information concerning income, assets, debt, and demographic characteristics of American households, creating consistent financial snapshots taken at regular intervals.

The most recent SCF was completed in 2022 and published in October 2023. At the time, the median before-tax income was $70,260, and the median net worth was $192,700. Based on that data, anyone with a higher income or net worth ranks among the top 50% of Americans.

However, while those figures are useful in studying the broader population, time is a major factor in earning promotions and building wealth. So, individuals should limit personal comparisons to age-based data. Read on to see the median income and net worth for different age groups.

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The median before-tax income among American households by age

The chart shows an age-based breakdown of the median before-tax income across American households based on the age of the reference person.

Data source: Federal Reserve 2022 Survey of Consumer Finances. Note: Reference person is defined as the male in mixed-sex couples and the older individual in same-sex couples.

The numbers shown above represent the 50th percentile, meaning 50% of the defined age cohort reported a higher income, and 50% reported a lower income. For instance, adults aged 18 to 34 need income exceeding $60,530 to rank among the top 50% of their peer group. Additionally, anyone with income above $70,260 ranks among the top 50% of all American households.

The median net worth among American households by age

Net worth is defined as assets minus debt. The SCF groups assets into two categories: (1) financial assets like bank accounts, retirement accounts, and other investment accounts, and (2) nonfinancial assets like vehicles, real estate, and equity in a business. Likewise, debt includes credit card balances and loans, including but not limited to mortgages, student loans, and auto loans.

The chart below shows an age-based breakdown of the median net worth among American households based on the age of the reference person.

Data source: Federal Reserve 2022 Survey of Consumer Finances. Note: Reference person is defined as the male in mixed-sex couples and the older individual in same-sex couples.

The numbers in the chart represent the 50th percentile, meaning 50% of the defined age cohort reported a larger net worth, and 50% reported a smaller net worth. For example, adults aged 18 to 34 need a net worth exceeding $39,040 to rank among the top 50% of their peer group. Additionally, anyone with a net worth exceeding $192,700 ranks among the top 50% of all American households.

Some readers may be disappointed with how their net worth compares to that of their peers. But anyone can improve their financial standing with proper budgeting and smart investments.

Constructing and sticking to a budget is the first step in growing your net worth

Financial experts generally recommend the 50-30-20 budgeting framework, which breaks after-tax income into three spending categories, as detailed below.

• Needs: 50% of income should be dedicated to necessary expenses like housing, groceries, utilities, transportation, and healthcare. This category also includes minimum debt payments.
• Wants: 30% of income should be dedicated to discretionary expenses like entertainment, restaurants, travel, and luxury goods.
• Savings: 20% of income should be dedicated to a savings vehicle. Examples include high-yield savings accounts, retirement accounts, or brokerage accounts. This category also includes debt payments above the minimum.

Generally speaking, financial advisors recommend anyone with high-interest debt -- credit cards are the most common example -- pay down the balance before saving money. That's prudent because high interest rates (8% or greater) can cause debt to grow more quickly than money invested elsewhere.

After eliminating high-interest debt, the next step is selecting a savings vehicle. It's wise to choose more than one type. For instance, I divide my money between a high-yield savings account and a brokerage account. Personally, I think most people should allocate at least some money to stocks, though the precise percentage depends on risk tolerance.

The U.S. stock market has been one of the best ways to build wealth in recent history, and an index fund that tracks the S&P 500 (SNPINDEX: ^GSPC) is an simple way to get exposure to the U.S. stock market.

Investing in an S&P 500 index fund is a smart way to grow your savings

The S&P 500 tracks the performance of 500 large U.S. companies. It includes growth stocks and value stocks from every market sector, which cover about 80% of domestic equities and 50% of global equities by market value. In that sense, an S&P 500 index fund provides exposure to some of the most influential companies in the world, including Apple, Microsoft, and Nvidia.

There are three reasons an S&P 500 index fund is a great option for most investors.

1. The S&P 500 outperformed virtually every other asset class over the last decade, including international stocks, real estate, precious metals, and fixed-income.
2. Less than 10% of large-cap funds outperformed the S&P 500 over the last decade, which means most professional managers fail to beat the index over long periods.
3. The S&P 500 returned 650% over the last two decades, compounding at 10.6% annually. At that pace, $400 invested monthly would be worth more than $300,000 in 20 years.

Here's the bottom line: History says patient investors that hold an S&P 500 index fund are likely to outperform most asset classes and most professional money managers. More importantly, small sums invested on a regular basis can compound into enormous portfolios over long periods. The key is patience and consistency.

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