MoMo Production/Getty Images
Income isn’t the only metric. Calculate your net worth regularly to understand where you stand.
-
According to the Federal Reserve, the median household income for Americans ages 55 to 64 is $82,150.
-
Incomes vary widely across groups, with homeowners and college graduates earning far more than renters and people without degrees.
-
Even with a high income, your ability to retire comfortably depends on other factors such as total savings, assets, pensions and debt.
According to the Federal Reserve’s Survey of Consumer Finances, income typically rises during midlife and then levels off in the late 50s and early 60s. Understanding how your income and savings compare to your peers can help you understand where you are and where you may need to improve.
According to the latest Federal Reserve survey, the median household income for Americans aged 55 to 64 in 2022 will be $82,150. That’s the second-highest of any age group, behind only the $91,880 for those 45-54 and well ahead of the $49,070 for those 75 and older. (Use the median rather than the mean to reduce the impact of unusually high or low values.)
The figures reflect a stage when many workers are approaching their peak earning years, although some may shift to part-time or more flexible work, while others may have given up work altogether.
Comparing your income to your peers can help you understand where you stand, but true retirement readiness depends on your overall financial picture—savings, home equity, a stable source of income, debt, and more.
According to the latest Federal Reserve survey, the median income for all households is $70,260, but that number varies significantly for housing and education. Homeowners make more than twice as much as renters, with the median household income being $94,040 compared to $42,160 for renters.
Education shows a similar divide. The median income for families with a college degree is $117,820, while the median income for families without a high school diploma is $32,430. The median income for those with a college degree is $60,530 and for those with a high school diploma is $52,960.
While a college degree can lead to higher incomes, it’s not the only path to financial success, says Jason Howell, a family wealth advisor at Jason Howell & Co. in Fairfax, Virginia. “If you are responsible and have ideas, going to university is optional,” he said, whether that means starting a business or pursuing a trade. In fact, he noted, trade schools “can make six figures in less than six years.”
Starting a business “may take longer, but having income over the long term is the most direct way to realize what wealth means to you,” he added. For experienced workers, “now is an ideal time to start any type of business, especially one where you’ve built your skills over the past 25 years,” whether that’s consulting, plumbing or another industry. “You couldn’t be better equipped — and young enough — to start something.”
Howell said that while people in their late 50s and early 60s are often labeled as the “pre-retirement” group, that description “doesn’t apply to everyone.” “A lot of people think they’ll never retire.”
Many of Howell’s clients in this age group ask about retirement. He said they often wonder, “When can I stop working if I want to? I probably won’t [want to]but I just like this job [to be] Elective. “
Howell says when you think about whether retirement is realistic, it’s not just about how much money you have saved. It also depends on whether you will continue to earn some income, receive pension or social security benefits, own a home with a paid off mortgage, and how the cost of living compares in your local area.
The Federal Reserve defines net worth as total assets (such as a home, investments, and retirement accounts) minus total debt (including mortgages, credit cards, and personal loans).
“If a person asking, ‘Can I retire?’ is trying to assess whether they can based on the funds they’ve accumulated, they’re probably still very far away,” he said. While many people have a target number in mind, it only makes sense when all the other pieces align.
As an example, Howell said, “Someone has $50,000 in pension income, maybe $25,000 or $30,000 in Social Security income, and maybe $500,000 in savings. If they’re 67 and their house is effectively paid off, or they’re planning to sell an expensive house in their area and move to somewhere where they can use that equity to buy a house, then the math actually works.”
Calculating your net worth regularly is a great way to understand where you stand. It represents what you own minus what you owe — and the latest Federal Reserve survey showed the median net worth of Americans ages 55 to 64 in 2022 was $364,270. This number provides a useful benchmark for measuring financial stability and retirement readiness.
Read the original article on Investopedia