In retirement, net worth shows the total result of a lifetime’s savings, debts and investments. This measure is often more insightful than income, as it reveals your financial stability and whether you’re poor, middle class or rich.
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Here’s how retirees can assess their financial status across the spectrum from “poor” to “rich.”
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Defining Economic Classes in Retirement
In retirement, your economic class can be broadly categorized into four distinct groups, each defined by their net worth and financial capabilities, ranging from retirees with limited resources to the wealthy. According to Moneywise, here are the net worth categories of the poor, middle class (and upper-middle class) and rich:
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Poor retirees: Poor retirees are in the lower 20th percentile, and may have a net worth of around $10,000. This is often without property ownership, forcing many to rely mainly on Social Security or minimal pensions.
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Middle-class retirees: Making up the 50th percentile, with a median net worth of approximately $281,000, this group usually includes home equity, retirement savings and a 401(k) plan.
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Upper-middle-class retirees: These retirees possess a net worth between $201,800 and $608,900. They have diversified assets and enjoy a comfortable retirement cushion.
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Rich retirees: In the 90th percentile, with net worth starting at $1.9 million, this group has much more financial freedom and is able to afford luxuries and legacy planning.
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What Is the Average Net Worth at Retirement?
According to recent data from the Federal Reserve, the average net worth for those aged 65 to 74 was $1,794,600, which is more than four times the median net worth of $409,900. This significant difference is because the super-wealthy skew the average much higher.
Although $409,900 seems like a decently sized nest egg, it won’t provide enough retirement income for most Americans. For example, if you invest that amount at a 5% interest rate, it will only produce $20,495 in income each year, as previously reported by GOBankingRates.
Where you live and your lifestyle also play a big role in how far your money will go. Nearly $20,500 per year won’t be enough in high-cost-of-living states like California or New York. Social Security can help, but it still may not be enough.
Many financial advisors say you’ll need at least 80% of your pre-retirement income to live comfortably. According to the Fed’s report, the average American will need at least $56,240, based on the U.S. median household income of $70,300.
Poor and Lower-Middle-Class Retirees Struggle the Most
According to a study by the USC Schaeffer Center for Health Policy & Economics and the Columbia University Mailman School of Public Health, lower-middle-class Americans nearing retirement age are worse off than they were two decades ago and often struggle to pay for health care and housing. On the other hand, upper-middle-class Americans have seen their life expectancy and wealth improve.
Many seniors are often saddled with debt — particularly medical, credit card and mortgage debt. This can even lead to negative net worth in retirement, which means total debt adds up to more than total assets.
Based on data from the Consumer Financial Protection Bureau, the National Council on Aging reported that more than one-in-five older adults with incomes under $25,000 have medical debt. In 2019, the Center for Retirement Research also found that 85% of American households aged 65 and older had credit card debt — and more than one-in-four older adult households were still paying a mortgage after age 65.
Final Take
Determining your economic class in retirement based on net worth is more than just a measure of financial success; it’s a guide for future planning and lifestyle choices. Whether you’re aiming to climb the economic ladder or seeking a stable retirement, understanding your finances is the first step.
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This article originally appeared on GOBankingRates.com: Net Worth for Retirees: How To Tell Whether You’re Poor, Middle Class or Rich
