Here's the Income and Net Worth You Need to Reach the Top 50% of American Households

Every three years, the Federal Reserve publishes a financial snapshot of the American population with its Survey of Consumer Finances (SCF). The report explores income, net worth, asset ownership, and debt burden across households in different economic and demographic categories.

The most recent SCF was conducted in 2022. American households reported an average annual income of $141,900 and an average net worth of $1 million.

However, averages are skewed by outliers in the data. For instance, 10% of American households control about two-thirds of total household wealth. As a result, the median -- which simply selects the middle value -- is more informative than the average when dealing with asymmetrical data.

Read on to see the median income and net worth by age among American households.

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The median income and net worth by age

The median is also referred to as the 50th percentile. That means 50% of the values are smaller than the median, and 50% of the values are bigger than the median.

The chart below shows the median income and net worth by age (of the reference person) among American households. For context, net worth is equal to assets minus liabilities.

Source: Federal Reserve 2022 Survey of Consumer Finances (SCF). The chart shows the median income and median net worth by age among American households. Note: For couples, the reference person is the male in mixed-sex couples and the older individual in same-sex couples.

As shown above, the median income was $70,300 in 2022, meaning households that earn more income are in the top 50%. Similarly, the median net worth was $192,900 in 2022, meaning households with more wealth are in the top 50%.

Readers may be curious about other distributions. The chart below shows the median net worth for American households at the first quartile (25th percentile), the second quartile or median (50th percentile), the third quartile (75th percentile), and the top decline (90th percentile).

Source: Federal Reserve 2022 Survey of Consumer Finances. The chart above shows the median net worth among American at the 25th, 50th, 75th, and 90th percentiles.

Statistical jargon can be tedious. Here's how to interpret the data shown in the chart:

• 25% of households reported a net worth under $27,100, which means 75% reported a higher net worth.
• 50% of households reported a net worth under $192,900, which means 50% reported a higher net worth.
• 75% of households reported a net worth under $658,900, which means 25% reported a higher net worth.
• 90% of households reported a net worth under $1.9 million, which means 10% reported a higher net worth.

That information will likely elicit one of two reactions. Some readers will feel happy and other readers will feel disappointed by their current financial position. However, individuals in either group can grow their net worth through prudent budgeting and smart investments.

Increase your net worth through prudent budgeting

Financial advisors often recommend the 50-30-20 rule for budgeting money. In that scenario, an individual would divide their income into three groups, as detailed below:

• Needs: 50% of income should be allocated to necessities like food, housing, utilities, and minimum debt payments.
• Wants: 30% of income should be allocated to nice-to-have items like travel, entertainment, and luxury goods.
• Savings: 20% of income should be allocated to debt payments (above the minimum) and retirement savings.

The 50-30-20 rule leaves some wiggle room where debt payments are concerned. To elaborate, minimum debt payments count against income allocated to the needs category because they are nonnegotiable. Incurring late fees or penalties is tantamount to throwing money away, so individuals should do everything in their power to make those minimum payments.

However, financial advisors generally recommend paying more than the minimum on high-interest debt, meaning debt that carries an interest rate of at least 8%. In other words, it makes sense to pay down high-interest debt before saving money in 401(k) plans, individual retirement accounts (IRAs), or brokerage accounts.

Why? The outstanding balance on high-interest debt is likely to snowball more quickly than the capital gains earned on investments. That means individuals that prioritize investment accounts over high-interest debt payments could actually dig themselves a deeper hole.

Asset management company Vanguard provided the following insight in a blog post: "We believe you should first prioritize paying off any high-interest debt like credit cards. But for debt that's comparatively low interest, it's a good idea to compare the debt's interest rate against the rate of return you hope to achieve with your investments."

Increase your net worth with an S&P 500 index fund

One of the easiest ways to make money in the stock market is to buy and hold an index fund that tracks the S&P 500 (^GSPC 0.41%). The S&P 500 is a popular benchmark for the overall U.S. stock market. The index comprises 500 large companies, representing value stocks and growth stocks, that span all 11 market sectors.

There are two primary reasons investors should consider an S&P 500 index fund. First, the index has increased in value over every rolling 20-year period in history, meaning investors that patiently hold an S&P 500 index fund are virtually guaranteed to make money. Second, more than 87% of large-cap funds underperformed the S&P over the last decade, meaning even professional money managers struggle to beat the index.

With that in mind, the S&P 500 returned 1,950% during the last three decades, compounding at 10.5% annually. At that pace, $200 invested monthly in an S&P 500 index fund (less than $50 per week) would be worth $15,600 in half a decade, $42,100 in one decade, and $162,100 in two decades.

As a caveat, readers should not assume the S&P 500 will return 10.5% every single year, but rather that it will return an average of roughly 10.5% per year (plus or minus a point or two) over long periods.