Ever wonder how rich you actually have to be to crack the top 1% — especially in your 40s, when your finances are supposed to be hitting their stride? Whether you’re just curious or quietly comparing your net worth to your peers, we’ve got the numbers.
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“A huge misconception is that a top 1% net worth means you’re living a life of liquid financial luxury,” said Jason Pack, chief revenue officer at Freedom Debt Relief. But for most 40-somethings in this bracket, he said a big part of their net worth is tied up in illiquid assets, like homes and businesses. “Since most people can’t get to the top 1% from salary alone, many of them are entrepreneurs,” he added.
Here’s what it takes to join the wealthy elite in your 40s.
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Seriously — You Need More Than Just a Few Millions
In order to be in the top 1% net worth group in your 40s, Dennis Shirshikov, professor of finance at City University of New York and head of growth and engineering at GrowthLimit, said you need to have a total net worth somewhere between $5.8 million and $6.5 million depending on the source and year.
“What often gets lost in the sturm und drang, though, is just how much it varies by geography,” he said.
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In cities such as New York City or San Francisco, he explained it may be closer to $10 million, when you adjust for property values there, for how compensation packages depend on stocks and for the price of living. By contrast, in numerous midwestern or southern states, he said $4 million could readily place you in the top percentile.
You Won’t Get There With Salary Alone
According to Shirshikov, this kind of achievement for folks in their 40s is not just a function of stellar earnings — it tends to be something achieved with aggressive investing, ownership of a business or early and regular exposure to the equity markets.
“I’ve known founders who paid themselves not much more than subsistence-level salaries for years but wound up with multimillion-dollar net worths in the form of equity in their companies,” he explained.
And one of his clients, a founder in their early 40s, had technically spent most of their career taking out income of only $95,000 a year — but suddenly, when a startup they had equity in was acquired, they had a net worth of over $8 million overnight.
Those in the Top 1% Are Not Defined Only by Assets
A significant caveat is that those in the top 1% in their 40s are not defined only by assets; it’s also about liquidity and risk.
“At this point many people are highly leveraged in their lives, via investment real estate or stock options or carried interest in funds,” Shirshikov said.
Their on-paper “net worth” might sound impressive, but the ability to lay hands on cash or liquidable wealth is another story. Which is a nuance that gets more important when you are comparing a corporate vice president with a diversified portfolio to a startup founder who loses his entire net worth if his one bet fails.
Pack also spoke about this nuance. While the top 1% might have a net worth of $7 to $10 million on paper, they couldn’t go to the bank and have that cash in hand tomorrow.
“Their wealth is hard at work, but often inaccessible, so their daily life sometimes looks a lot more humble than their actual net worth,” Pack said.
It’s About Doing Something Different
People in their 40s who reach this plateau often didn’t get there accidentally. They deviated from the norm, Shirshikov explained.
They bought real estate before the rebound that occurred in 2010, invested in start-ups when the market was down or allocated to alternative investments ahead of time.
“They also knew the power of compounding long before most of their generational peers,” he added.
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This article originally appeared on GOBankingRates.com: Here’s the Minimum Net Worth To Be Considered the Top 1% in Your 40s
