Investable Net Worth Benchmarks Drive Financial Independence Timeline
TL;DR
- The median net worth for Americans in their 20s is $6,700, significantly below the target of one times annual income, highlighting a critical need for early engagement with savings.
- By age 30, individuals should aim for investable assets equivalent to one times their annual income, a benchmark that the median American significantly misses, indicating a widespread deficit.
- Achieving financial independence by age 65 requires accumulating 20 times annual income in investable assets, a goal necessitating a consistent savings rate of 25% starting in one's 30s.
- Strategic utilization of tax-advantaged accounts (Roth, tax-deferred, after-tax) can save individuals up to $22,000 annually in retirement compared to relying solely on pre-tax accounts.
- By age 50, individuals should target 13.7 times their annual income in investable assets, a substantial sum that the median American is far from reaching, underscoring the importance of proactive wealth building.
- The 40s represent a pivotal decade where individuals must assess if they have saved enough or need to accelerate their savings, with many crossing into seven-figure net worth status during this period.
Deep Dive
The Money Guy Show's "Average Net Worth By Age! (2026 Edition)" podcast episode emphasizes that true financial progress is measured by investable net worth, not total net worth which includes illiquid assets like home equity. This distinction is crucial because only investable assets can generate passive income for financial independence. The episode argues that standard net worth benchmarks often inflate perceived progress by including home equity, leading individuals to believe they are further along financially than they actually are, which can hinder proactive financial planning.
In your 20s, the primary directive is simply to "do something" to initiate wealth building, leveraging the powerful asset of time. This means living on less than you earn to create margin for saving and investing, even if the initial amounts are small. The second-order implication of this early action is profound: by consistently saving and increasing contributions, individuals who start in their 20s can become millionaires by age 65, even if they stop contributing later, demonstrating that early engagement with compounding growth is more impactful than later mastery of investment strategies.
As individuals enter their 30s, the focus shifts from "doing something" to "doing the right things," necessitating a higher savings rate of 25% of gross income to counteract a later start. The consequence of not prioritizing this higher savings rate in the 30s is a significantly delayed timeline for financial independence, potentially pushing it years later if one only begins serious saving in their mid-to-late 30s. By the end of the 40s, the critical question becomes "Have I done enough?" This decade is a divergence point where those on track can potentially ease off the accelerator, while those behind must urgently accelerate their savings, as it also marks the period when most individuals cross the seven-figure net worth threshold, underscoring the need for a clear assessment of one's progress.
Entering the 50s, the focus transitions from accumulation to consumption and planning for the next stage, requiring a strategic shift in investment allocation rather than an abrupt change. The episode highlights that failing to gradually adjust investment strategies as retirement nears can expose individuals to significant risk if market downturns coincide with job loss or other financial emergencies. By the end of this decade, the target net worth becomes approximately 13.7 times annual income, a benchmark significantly higher than typical public figures, indicating that individuals in their 50s often need to leverage specialized financial planning to navigate the complexities of managing substantial wealth and ensuring a secure financial future.
Action Items
- Create net worth statement: List all assets (cash, investments, real estate) and liabilities (debts) to calculate total net worth.
- Track investable assets: Monitor growth of liquid assets (excluding home equity) against income multiples (e.g., 1x income by age 30).
- Implement automated savings: Set up automatic transfers for 25% of gross income to investment accounts by age 30.
- Optimize tax buckets: Strategize asset allocation across tax-free, tax-deferred, and after-tax accounts to minimize retirement tax liability.
- Define financial independence number: Calculate target portfolio size (20-25x annual income) needed for retirement using a "Know Your Number" approach.
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View Episode Notes →Key Quotes
"Very simply, the equation for net worth is not a complicated thing. It is what you own minus what you owe. You take the things that you own, you subtract out how much you owe on those things, and that gives you your total net worth."
The hosts, Brian Preston and Bo Hanson, define net worth as a straightforward calculation: assets minus liabilities. This interpretation clarifies that net worth is not an abstract concept but a tangible measure of one's financial position. The hosts emphasize that understanding this fundamental equation is the first step in wealth building.
"But here's the problem, and this is why we can completely tell you, give you this information that other channels are going to use to drive their content, and we're going to say this ain't enough. It's because we want you guys to understand it's not just what your net worth is, it's what your investable net worth is because this is the part that you can actually use."
Brian Preston and Bo Hanson distinguish between total net worth and "investable net worth," arguing that the latter is more crucial for financial independence. The hosts explain that investable net worth represents assets that can actively grow and work for an individual, unlike illiquid assets such as home equity. This distinction highlights their focus on actionable wealth-building strategies.
"So we said, 'What if we reverse-engineered this? What if we came up with a more accurate representation of what financial independence actually looks like? Here's what we said. We know that the 4% withdrawal rule is commonly held out as a long-term sustainable withdrawal rate. Well, if we just reverse-engineer that, 4% withdrawal on your portfolio is equivalent to 25 times the retirement income you need to replace.'"
The hosts, Brian Preston and Bo Hanson, describe their methodology for determining financial independence targets by reverse-engineering the 4% withdrawal rule. This approach allows them to calculate the necessary portfolio size (25 times desired annual retirement income) as a foundation for their age-based savings goals. They use this as a more robust metric than simply comparing net worth to income.
"For your 20-something, the big question you ought to ask yourself is, 'Am I doing anything?' We give a lot of grace in the 20s. A lot of times we have these rules, these things you ought to be doing, but a lot of times when it comes to folks just starting out at the very beginning of your journey, we just want you doing something."
Brian Preston and Bo Hanson emphasize a foundational principle for individuals in their 20s: simply taking action. The hosts explain that at this stage of life, the primary goal is to begin saving and investing, regardless of the amount. This approach acknowledges the significant advantage of time and encourages early engagement with financial planning.
"If you can start at 20 and you start saving 25% of your gross income, there's a really good chance that you're going to be able to be financially independent by the time you get to 46. Let me say that again. If you can start at 20 and you start saving 25%, financial independence is a reality for you in your mid-40s."
Brian Preston and Bo Hanson illustrate the power of early and aggressive saving by highlighting that starting at age 20 with a 25% savings rate can lead to financial independence by one's mid-40s. The hosts use this example to underscore the significant impact of consistent, high savings rates early in one's career. This demonstrates how early financial discipline can dramatically alter one's timeline for achieving financial freedom.
"The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance with and compliance with the securities laws and regulations."
This quote provides essential context about the hosts, Brian Preston and Bo Hanson, and their affiliation with Abound Wealth Management. The hosts clarify that their firm is a registered investment advisory firm, subject to SEC regulation. This information is crucial for understanding the professional background and regulatory standing from which they offer financial advice.
Resources
External Resources
Books
- "The Total Money Makeover" by Dave Ramsey - Mentioned as a resource for financial planning.
Articles & Papers
- "Average Net Worth By Age" (2026 Edition) - The primary topic of discussion for the episode.
Tools & Software
- Wealth Multiplier Tool (moneyguy.com/resources) - Used to visualize savings impact based on age and income.
- Know Your Number Course (learnmoneyguy.com) - A tool to determine financial independence goals.
- Net Worth Tool (learnmoneyguy.com) - Used for tracking net worth with a dashboard view.
Websites & Online Resources
- moneyguy.com/resources - Provides a free net worth statement template.
- learnmoneyguy.com - Offers a net worth tool with a dashboard view.
Other Resources
- Financial Order of Operations - A framework for making financial decisions and building wealth.
- Three Bucket Strategy - A method for organizing savings into tax-advantaged accounts (tax-free, tax-deferred, after-tax).
- Four Percent Rule - A guideline for sustainable withdrawal rates in retirement.
- Lower of Cost or Market - A valuation method for primary residences.
- Investable Net Worth - A metric focusing on assets that can be actively used for wealth building.
- Messy Middle - A term describing the challenging financial phase in one's 30s.
- Abundance Cycle - A concept describing the process of giving advice and potentially gaining clients.