Yaёl Bizouati-Kennedy
·3 min read
Becoming a millionaire might seem out of reach for many Americans. Yet, for one age group, this reality is not too far-fetched. Indeed, people in their 50s have an average net worth of approximately $1 million, according to the Federal Reserve Board’s triennial Survey of Consumer Finance.
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So how did that happen?
First, between 2019 and 2022, Americans’ real median net worth surged 37%, the largest three-year increase over the history of the Federal Reserve Board’s triennial Survey of Consumer Finance. In addition, the Fed noted that this pattern implies some narrowing of the wealth distribution between surveys.
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How Is Net Worth Determined?
In simple terms, it’s your assets minus your liabilities or debt.
As the Federal Deposit Insurance Corporation (FDIC) explains, it is a good indicator of your financial health and a better measure of someone’s financial stability than income alone.
Americans between 50-54 have an average net worth of $1.13 million; while those in the 55-to-50 age group have an average net worth of $1.44 million, according to USA Today.
In comparison, for people in their 20s, the average net worth is $120,896for those aged 20-24 and $120,185for those aged 25-29.
The average net worth for the 30-34 age group is $258,073, while it’s $501,289for people in the 35-39 age group.
And for those in their 40s, the average net worth is $590,718 for those in the 40-44 age group, while it stands at $781,923 for those aged 45-49.
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How Is This Wealth Being Accumulated?
According to Peter C. Earle, senior economist at the American Institute for Economic Research, from 2013 to 2023 the compounded return of the S&P 500 was about 312%.
In turn, he said, anyone with $240,000 in their 401(k) at the start of those 10 years would, if untouched, have entered 2024 with roughly $1 million invested.
“But it would have been a dicey time with the first stock market crash since 1987 early in the Covid outbreak and exceptional volatility in 2022. On top of that, the returns in 2015 and 2018 were lackluster. Yet anyone who stayed in stocks during that period did quite well,” said Earle.
Another factor in the sizable accumulation of financial wealth may be in the ethos of investing, added Earle. For instance, if a large number of investors did dollar cost average fearlessly while markets were falling precipitously in February, March, and April of 2020, they would have reaped some truly outsized gains, he said.
“Consider the NASDAQ, which returned 43.6% in 2020 alone: there are a number of historical periods in which five years of cumulative market returns wouldn’t have come close to that. But investors who remained steadfast — even through the nauseating plunge on March 16, 2020 — garnered the benefits in retirement security,” he added.
Additional drivers of the accumulation of wealth for that generation include the fact that people might be close to entering their final years of a mortgage, while their home is also rising in value, according to USA Today.
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This article originally appeared on GOBankingRates.com: Average Americans in Their 50s Are Millionaires — How Did They Get There?
