How Much Wealth Should You Have by Age and Income?

Speaker 1 – 00:00
If you just Google how much you should have saved by 40, you’ll get one number.
Speaker 2 – 00:03
Oh, I need to have one times my income saved by the time I’m 30 or I need to have five times my income saved
when I retire. I’d argue that’s the worst way to look at it.
Speaker 1 – 00:10
That number’s almost always wrong for everybody, especially wrong for high income earners. There’s no one
magic number here. Ultimately, it’s all about money temperature. What do you need to save? What targets do we
need to hit by each age?
Speaker 2 – 00:22
The worst savers are like the best spenders and vice versa. You also don’t want to be the richest person in the
graveyard.
Speaker 1 – 00:27
Ultimately, you need to have a plan and you need to go through it to know like, what’s the true right answer. If you
just Google how much you should have saved by 40 phone, pull it out on Google, you’ll get one number. That
number’s almost always wrong for everybody, especially wrong for high income earners. So today we want to talk
about what the top 10%, 5% and 1% of income actually looks like at each age, what it means for after tax net take
home, and how much you should be saving, depending on when you start and what that will yield as far as the final
portfolio value by the time you retired. So there’s no one magic number here. Ultimately, it’s all about money
temperature, which we’ll start about, start talking about.
Speaker 1 – 01:09
So, Tyler, do you want to lead into what we mean by whenever we say money temperature? We throw that term
around a lot in meetings, so let’s define that to start.
Speaker 2 – 01:18
Yeah. Thanks for the introduction, Chris. Money temperature. If you’ve worked with us in the past and you’re a
frequent watcher, you’ve probably heard us say this several times. Your money temperature is essentially your
spending level while you’re accumulating assets during your working years. So it’s not really your income, which is
what a lot of people think. And they think like, I don’t know, I need to live off 20 grand a month because that’s what I
make. That’s not necessarily accurate. You really want to dive or dial into what you’re actually spending, not
necessarily what you’re bringing home. It’s a couple generic benchmarks that people use when they’re thinking
about money temperature, like, oh, I need to have one times my income saved by the time I’m 30 or I need to have
five times my income saved when I retire.
Speaker 2 – 01:57
I’d argue that’s like the worst Way to look at it, because someone that has one times their income saved and is
spending no money is way different than someone that has one times their income saved and spends every dollar
that they make. Like for example, two neighbors could have the exact same income and have two completely
different lifestyles that they’re living off of.
Speaker 1 – 02:13
Right? Yeah, I think with money temperature, I think it was Matt that he probably didn’t come up with it, but he told
me about it. I stole the language from him. He always says it’s like money’s like the temperature in a room. So like
whenever were saying the intro, meaning that Google answer that you get at 40 being wrong, especially for high
income earners because usually it’s not like you get out of college or get out of med school or start your business
and day one you’re making the big bucks. So usually in most career fields it’s a ladder that you’re working up in
some form, whether that’s through training or starting the company or whatever it is that you’re doing. So as your
income goes up, a lot of times that’s what we see.
Speaker 1 – 02:50
Like if you’re in a room that’s 70 degrees, it creeps up to 71, 72 maybe you start feeling it at some point, but you
don’t really notice those gradual increases. So that’s a lot of times where the conversations are heading as your
income’s going up. Like what are you used to living on? And if income’s going up and you’re trading houses, trading
cars, just constantly increasing that, then there’s going to be misalignment at some point and we further down as
we go, we’ll talk about like the cost of waiting with savings and that just directly ties into money temperature. So
it’s. And that changes over time. Right. Like if you’re young, family of mortgage kids, you know that maybe
discretionary spending, like whenever we look at retirement, like you’re not going to have a lot of those bills, kids
will be grown up.
Speaker 1 – 03:34
So we kind of have to parse out like what’s money temperature today versus into retirement. But yeah, do you have
anything to add to that?
Speaker 2 – 03:41
You’re going to wake up every day at 8am and go oh what do I want to do today?
Speaker 1 – 03:44
And yeah, at least for like the fund spending maybe, hopefully not. Hopefully, hopefully for a long time but like the
big ticket. Everybody talks about travel and stuff but maybe some of that income’s replaced with healthcare
helping the next generation or the one after that with you Know, family generational planning. So maybe this
outflow doesn’t change that much. But, like, what you’re used to living off of with like, swipe the card expenses. But
we definitely see both ends of that. Like, some people definitely go and increase spend in retirement. But then
some people that, some people I don’t think are, they’re financially ready to retire, but mentally not ready to retire.
Like, they don’t know what they’re going to do yet. Right.
Speaker 1 – 04:18
So sometimes there’s like a year or two of just wasted time because you’re sitting around like, what am I actually
going to do? And you didn’t do like the legwork before retiring. You were just kind of retired. Like running away from
something versus towards something. Right. We can’t stress the importance enough about the money
temperature. That’s something that, at least in our review meetings that we do together, Cash flows, always the
start of the discussion, like, what do you have coming up? What is. Like, we’re trying to diagnose what that
temperature is right now. And it’s a lot of times it’s clouded because even if you do your best and try to say what
you’re spending, most of the times you’re probably wrong. Right. So it’s usually understated.
Speaker 1 – 04:51
So we try to pull the hard data from credit card, spend every outflow and get it on a sheet. And not to put people on
a budget, but to understand what their cash flow is, because that’s going to drive, you know, what do you need to
save? What targets do we need to hit by each age, et cetera. So, yeah, I think that should cover money temperature,
anything. Till we jump to the next part with defining those income ranges and whatnot.
Speaker 2 – 05:13
No, no, I think we should spend some time. Chris, why don’t you take us through what take home pay actually looks
like? So for 200,000, but that’s not really what you’re bringing home on.
Speaker 1 – 05:24
Yeah. This is kind of why the Google thing doesn’t work. Like, if we do the how much should I have saved at 40?
The answer? Google has the Gemini overview. Now, it says financial experts generally Recommend to have 3 times
your annual salary saved by age 40. So that’s definitely a good, like, back of the napkin rule of thumb, I think, to get
started. And you can apply that, of course, to the top 10, 5 and 1%. But if we just talk about the numbers and the
census data that we pulled, if we look at age 40, the top 10% is 2 70, top fives, 360, top 1%, 700 at 50 which was
the peak for all the data. 10% Was 2 95% was 390 and 1% was 7 50. So that’s just the top line number.
Speaker 1 – 06:08
And a lot comes out of your pay. Of course we all remember back to whenever we got our first paycheck and we’re
like I thought I was making this. And then you look and like what’s all this? Uncle’s Sam is dad. Learn that lesson
early. Everything comes out of that of course. Right. So you know, this could change of course person to person.
But if you’re looking at like if we look at the age 40 again, the top 10% of 270 would yield approximately 180. After
taxes, of course 401k, all that kind of stuff comes out too. But this is just looking at after tax income. The top 5% at
4360 should yield about 245. And then top 1% at 700 would be around 435. This is super variable.
Speaker 1 – 06:48
But just to see that’s that bottom net number is what we need to work off of. Like what’s actually hitting your bank
account. Like doesn’t really matter what your gross. I guess it does. But what actually matters is what hits your
bank account. That’s what you feel. And we see the higher the income, the bigger the gap between gross and what
hits your account. Just by nature of a lot of the progressive taxes like the Medicare sur tax and net investment
income tax. Like there’s new, once you hit thresholds, there’s new taxes that apply. So that’s where you know, it gets
a little bit more nuanced. But if we get into some of the savings targets, all of our studies here, I guess or analysis
is using the standard 4% rule.
Speaker 1 – 07:26
That’s kind of the tried and true the old like what can we safely take out of the portfolio every year? So if we start
with 5 million, take 4% out, you should still have your 5 million intact. So you’re not eating into the principal
because once you start eating into principal, that snowball effect down the mountain starts to compound. Right.
Especially if we run into a bad set of returns. So let’s start with if you’re 30 now. So I know I’ve been using 40, but if
we back it up, I want to talk about the cost of waiting with savings. So could you talk us through that and how that
changes from go from 30 to 50?
Speaker 2 – 07:59
Yeah, Chris, you brought up a good example with the 4% rule. That’s not a perfect number, but historically speaking,
if you just take out 4% of your investment account balance in retirement, that usually keeps your principal relatively
safe. Now, if you were a household top 10% of spending, if your target was 140,000 of spending every year from
the portfolio. Yeah, see, that would be inflated as well. At 3%, you need about three and a half million.
Speaker 1 – 08:27
At 65, that’s today’s dollars too.
Speaker 2 – 08:30
Exactly.
Speaker 1 – 08:30
So if you’re 30 listening to this,.
Speaker 2 – 08:32
That’s going to be.
Speaker 1 – 08:33
That’s probably like double.
Speaker 2 – 08:34
Yes. Yeah.
Speaker 1 – 08:35
Everything we’re talking about here is all in present value, right?
Speaker 2 – 08:37
Chris, you brought it up. But there’s a cost to waiting to save that I don’t, people know about, but I don’t think people
realize how much that really adds up. So for example, if you get a 7% average annual growth, which is obviously
relatively conservative, but I’d rather be conservative than aggressive when it comes to rates of return. If you start
at 30 and you need to save three and a half million by 65, if you started at age 30, you need to save about
2,100amonth. If you go to age 40, that goes the whole way to 4,600 per month to get to three and a half million.
And if you wait till even 50, you’re looking at 11,000 ish, 12,000 per month to get to that three and a half million
goal by age 65.
Speaker 1 – 09:18
At some point, the math just doesn’t work.
Speaker 2 – 09:19
Obviously wouldn’t recommend doing this, but if you were like, you know what? I’m not going to save a dollar until I
get to 60, it’s 50,000amonth. And that’s not a typo. Like at this point, looking at five.
Speaker 1 – 09:29
Years to get to three and a half million, it’s tough.
Speaker 2 – 09:32
Savings alone doesn’t get you there anymore. You either have to, well, I mean,.
Speaker 1 – 09:35
Work longer, but that’s just the calculator math. Like if you’re trying to get to three and a half million and you have
35 years to do it, if you start at 32,100amonth or what, like 25,000 a year needs to go in between all sources. If you
get a match employer, contribute, like all of that should be factored in, but that’s just how severe it is. So you can
think of it like every decade you wait roughly doubles the monthly savings that you have to do to get to the same
endpoint. So the dollars that you’re saving in your 30s are really the cheapest dollars you’re ever going to put away
because the compounding does the heavy lifting for you. So good way to think of it.
Speaker 1 – 10:11
A dollar saved at 30 is worth roughly 10x a dollar invested at 65 because you have so much time to compound the
interest behind it. So yeah, going back to the 10 versus 5 versus 1% of households for a 5 to 10 or 5 top 1% listener,
that target is much more dictated by what you’re spending versus your income because that’s where that gap
widens and it’s easy to fall behind if you’re, you start to get used to a lifestyle that you know when your family’s in
peak years and whatnot. So an example that we ran, if your net is 4:30 right now, take home pay and you spend
2:50, your number at 65 is about six and a quarter, 6.25 million. But if that your neighbor is making 4:30, but they
only spend 150, that number’s 3.75.
Speaker 1 – 10:59
So it’s just such a different outcome. Yeah, different. Everything just wildly different based on money temperature
again. So next topic, can you talk us through what said that? What’s the title of this wealth or how much wealth
should you have by age and income? So let’s try to actually answer that now because I know we’ve talked a lot
conceptually about what drives all of this, but talk to us about like, what are those portfolio targets at retirement
using the 4% rule? Let’s run through some examples here.
Speaker 2 – 11:26
Yeah, yeah, I think it makes sense to put some numbers behind some of the language we’ve had. We’ve kind of
mentioned this one earlier. If you spend 140,000 in today’s dollars, that’s about three and a half in retirement. If you
spend 200,000, that’s only 60,000 more a year. You now need 5 million to support that portfolio spending 300,000,
it grows to seven and a half million. And if you’re going to spend 400,000 in retirement, you need, this is simpler
math, but it’s $10 million. And that’s not a, I mean, that’s a lot of money. But you can see how if you start to spend
more, you really need to start juicing your savings to be able to supply, sustain that lifestyle. Yeah.
Speaker 1 – 12:07
So it’s all in that withdrawal rate, that 4%. Like if we want to maintain principle, protect bad outcomes, we need to
have the base there to replicate it. So that’s why, you know, at these income ranges, a lot of times we’re meeting
with a lot of people that, like, their income can support pretty much anything they want to do. So it’s hard to say no
or hard to like, live like you’re on a budget. And that’s why we try not to use that B word. Right. But it’s more so like
being in control of your cash flow because whenever there’s, like, if there’s small leaks, like, that’s just going to
compound, especially when the dollars get bigger. So it’s just such a slippery slip we can’t emphasize enough.
Speaker 1 – 12:42
Just making sure that you’re on top of what you’re spending and keeping that relative to what you’re saving, not
just your income. So I know we’re talking about the bad cases, like if you’re overspending, but same with, if you’re
underspending because there’s failures on both sides that we see. If you’re, you know, say, fast Forward and you’re
70 and you have, you don’t have enough money, that’s not a good outcome. But it’s also an inefficiency if you have
way too much and you’re never going to spend this because that excess wealth ultimately means you spent time.
Maybe, maybe you like doing what you’re doing, but it meant that, like, that represents time, not dollars. And in our
eyes, I think, right, we’re looking at these balance sheets. So.
Speaker 2 – 13:17
And there’s like this interesting paradox where it’s like the worst savers are like the best spenders and vice versa.
Speaker 1 – 13:24
Right.
Speaker 2 – 13:24
Like conversations Chris and I have had with clients where it’s like, you can spend more. Like, you should enjoy this
wealth that you built up. Like, it’s really hard to get someone to finally spend what they’ve been saving.
Speaker 1 – 13:35
Yeah. Because they’re muscles that you build over time. Like, it’s takes discipline to, you know, when that money
hits your bank account, it takes real discipline to save it and not spend it. Especially today with all the noise and,
you know, and then, so you do that for years and then your income stops. And not only do you stop saving, which is
uncomfortable, but now you’re pulling from savings, you’re spending what you save. It’s like a double compounded
bad feeling for a lot of people. So that’s hopefully, if you’re listening, you’re one of the people we’ve. Hopefully it’s a
polite nudge to say that you should spend more because that’s. I think it’s important to highlight that definitely
there’s problems on both ends if you over and under accumulate. Obviously one’s better than the other, but. Right.
Speaker 1 – 14:17
So do you want to get into some of those wealth targets by age and then come to your next.
Speaker 2 – 14:22
Yeah, yeah, I think that makes sense. Let’s spend time here. I know we earlier were like, if you just Google a
number, you’ll figure out how much you need to spend, but I think this, we have a chart here. We did some research.
If you’re in the top 10% of households at age 30, goal would be to have about 100 to 150,000 saved. If you’re in the
top 5% of households at age 30, it’s 150 to 200. And if you’re in the top 1%, which I forget what we had, that income
was 450, you’ll want to have something closer to 250 to 350,000 saved. And then if you go to 30, top 10%, you want
about one and a half to 2.25 million saved. Top 5% household goes to 2 to 3 million.
Speaker 2 – 15:10
And then top 1%, it’s three and a half to five and a half. And then when you get to retirement, if you’re in the top
10%, same thing, three and a half to five. That’s just for the top 10%. Top 5% of household income, five to seven at
age 65, and then top 1%, seven and a half to 12.
Speaker 1 – 15:28
Yeah. So one thing just to mention again, those are all present value. So again, if you’re third here in that top 1%
household at 65, at 7 and a half to 12 and a half, that’s. You got to think like double that.
Speaker 2 – 15:41
If you’re right, because that’s how it’s going to feel when you get there.
Speaker 1 – 15:44
Right.
Speaker 2 – 15:45
Chris, we spent some time talking about, like, different net worths here. Yeah, I’m talking about how like, not all net
worth is created equal.
Speaker 1 – 15:52
Yeah, definitely. So if you’re one of these retiree households, 60 to 70, you know, in age, and you’re worth 6 to 15
million, call it. We see all the time that’s not just money sitting in a bank account. A lot of people think that’s what
net worth is. Just you have access to this pool now. But maybe it’s in real estate, maybe it’s in retirement accounts
that get different tax treatment. Like if you’re looking at a $2 million traditional IRA, it’s really not worth 2 because
taxes have to come out on the back end. So definitely the asset mix is very important. In general, we like to see a
2/3, 1/3 split for pre tax to Roth at a minimum. That is kind of similar to the back of the napkin 4% rule. Like all of
these rule of thumb sayings that we have.
Speaker 1 – 16:36
Because that’s just if you have too much pre tax, all of that income coming out could keep you on a high rate
throughout your retirement. If tax rates go up, that’s a problem. Just want to mention that point is the taxation of
either your income stream, the assets themselves, that it gets more granular than just one number for net worth.
Speaker 2 – 16:54
Of course.
Speaker 1 – 16:54
So I, yeah, I think it’s important to highlight. So. Yeah, thanks for mentioning that.
Speaker 2 – 16:58
Chris, what do you, I’m going to kind of put you on the spot here. We’ll, we’ll test your EWA history knowledge. We
just went with a client a couple of months ago that they’re sitting on a bunch of real estate. So on paper they’re
worth let’s say 25 million. Technically you can’t cash flow from that if they’re not rentals. So like what is the mix of
like liquid to illiquid assets that we try to get clients at? Like you talked about pre tax and Roth. But what about
liquid to ill, liquid assets?
Speaker 1 – 17:29
Yeah, no, real estate can be great. Gets the stepped up basis at passing. So if there’s generational properties that
you want to leave in the family, absolutely, you could of course lend against it, but we need to have a plan to, you
know, pay that back. Yep. So I mean it really just comes back to the what is, what can we draw against? What’s the
sustainable base that we can draw against? So going back to the portfolio, that’s why all of those numbers that we
quoted were like investable assets, like what can we actually draw against? So yeah, that’s where it’s tricky
because, you know, maybe you hit some home runs by holding a lot of these properties, but you don’t want to be a
landlord during retirement. Right.
Speaker 1 – 18:06
Maybe you don’t want to pay fees for the property, you know, any number of things. But yeah, that’s the big thing.
Liquidity is everything during retirement. So everything from asset allocation, we need to make sure we have
enough cash for short term, enough buffer assets to meet, you know, to take care of down markets.
Speaker 2 – 18:23
Right.
Speaker 1 – 18:23
You know, during distribution mode. So yeah, between Asset mix, type of asset. We need to have something that
we can draw that 4% on. Right? Yeah.
Speaker 2 – 18:31
Well, Chris, we spent, I don’t know if this is a 25 or 30 minute podcast, but we spent 30 minutes talking about, you
know, numbers and stats and what you should be spending. But at the end of the day, you also don’t want to be the
richest person in the graveyard.
Speaker 1 – 18:47
Yeah.
Speaker 2 – 18:47
I don’t know how many times we’ve told people that, like, don’t be afraid to like gift while your kids need it or
grandkids, like if you have the excess money. Like, yeah, no one wants to die with 10 million. That’s not the point of
why you saved your entire life for sure.
Speaker 1 – 19:01
Yeah, that’s so important to always. If you’re in that stage and in retirement, like, be very mindful of that. Like,
what’s your sustainable withdrawal ceiling? We use the 4% throughout this podcast, but really being intentional
about using up that Runway or being intentional behind not using it up one way or the other. Just have a reason
behind what you’re doing. Yep. We always have people. Good exercise is ranking to conflicting goals of like, if we
ask somebody, how important is it on a scale of 1 to 10 to maximize your own financial independence? That would
mean your 4% rule tells you can withdraw 200,000 per year. Do you want to withdraw 201,000 per year every single
year and really push it? Or so that would be a 10 because they want to max it, they.
Speaker 2 – 19:42
Want to spend what they can.
Speaker 1 – 19:43
Yeah. And then the second question is same thing. But how important is it for legacy? On scale of 1 to 10, how
much are you passing to the next generation? The following. So those two can’t be 10 on both ends. You know,
one’s going to suffer. So that’s a really good just thought exercise to think through is like, what’s the end goal for
everything that you have here? Is it to support. Support you support the next generation or a little bit of both. And
then having really intentional decision making around like what you’re actually doing. So now it’s live. It’s kind of
easy on the accumulation mode. Definitely have to be disciplined, save enough. But once it’s live and you’re
realizing returns, that’s when like we need to make sure we have it down.
Speaker 2 – 20:21
Yeah. And it’s a moving target too.
Speaker 1 – 20:23
Right.
Speaker 2 – 20:23
Like you might get older and be like, I don’t need to spend all this money. Like I can afford to gift a charity or do
other goal, like, do other things with the money. So it is a moving target.
Speaker 1 – 20:30
Right.
Speaker 2 – 20:31
It’s like, I don’t know how many clients we meet with. They’re telling us, like, I didn’t spend that much this year. And
we’re going back and reviewing their cash flow, and they really did. And so there’s room to gift more or spend more
the next year. So just keep in mind, it is a moving target.
Speaker 1 – 20:42
Yeah. Especially as you move through life, if kids are young, you know, college years. Yeah, all that kind of stuff.
Mortgage is paid off. So, yeah, I think we hit on just about everything here. So hopefully those benchmarks can tell
you where you should be directionally. But ultimately, you need to have a plan, and you need to go through it to
know, like, what’s the true right answer? Cause there’s always. There’s the book answer. With a lot of this stuff, and
definitely with the tools that we have nowadays, it’s easy to find the right book answer, but the right, like, human
answer a lot of times falls in those gray areas. So, yeah, we’re. We’re certainly here if anybody has any questions.
And. Yeah. Tyler, anything to. To add to that before we sign off?
Speaker 2 – 21:21
No, no, I think.
Speaker 1 – 21:22
Yeah.
Speaker 2 – 21:23
If you guys are listening to this and you’re like, am I in a good spot? Am I where I need to be? Like, we always
recommend, like, reach out. If you have an advisor, talk to them. If you want to get a consult for us, do it. We’re
more than happy to kind of take you through the process and learn more about your situation.