Here is a formula to see if you are on track to retire in financial comfort.
Multiply your annual salary (or living expenses, or living expenses beyond your pension) by your age and divide by 10. The answer is the net worth you should currently have if you are on track to keeping your same standard of living in retirement that you have now.
(Net worth is what you own minus what you owe)
Examples: a 50 year old who lives on $50,000 per year should have a net worth of $250K.
a 25 year old living on $30, 000 per year should have a net worth of 75K
If you are like 95 percent of Americans you don't have what you should saved up by now. And you won't change your savings and spending habits so you will struggle financially in your old age. But If you want to be financially independant in your old age you should start saving 10 percent of your income when you are in your early 20's. The longer you wait the higher percent you need to save.
The Mammal Cage
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"The Mammal Cage" is the fifth story in *Of Seaweed and Chocolate*, but
it's also the first. Fifth is where it fits in the sequence of the book,
but it ...
4 months ago
2 comments:
Yikes! I am about 1/3 of the way there! I am pretty excited to just have a positive net worth...
Luckily, your income is your largest wealth building asset, and I plan for that to increase far more than my standard of living.
Did you come up with this formula yourself? Is it based on living off of 10% interest returned on your retirement investments?
I got the formula from a finance class I attended. for more information Inflation historically has been 3.1 Percent. Stock Returns used to average 10 percent but more recently have only been about 8 percent. Bond returns less. Social Security payments are more likly to decrease for future generations. And retirement savings formulas are based on average life expectancy. Since half the people will live longer than that they will need more savings. The best way to be prepared is to live beneath your means. Asset allocation (Stocks, Bonds, Commodities) is more indicative of your future wealth than which stocks you pick.
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