“Ideal networth formula”

[Anonymous]

The version of Quicken I have has a pretty good retirement calculator tool that allows you to include life’s “financial events” such as kid’s college education, selling your home, etc. The tool certainly is pretty comprehensive, but it’s hard to know if it’s correct. (I guess I’ll find out a few decades from now…)

I don’t remember which versions of Quicken has this tool – I think you have to get “deluxe” or something like that. If you care about when you can retire and use Quicken, it’s probably worth the $30 bucks or so in additional cost. I find that it is useful to change parameters and “run scenarios” as you will learn that some factors matter much more than others.

And, no, I don’t work for Intuit 😉

[kev374]

too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.

[kev374]

too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.

[kev374]

too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.

[kev374]

too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.

[kev374]

too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.

[carlsbadworker]

Fletch:

I just copied a formula that I think makes more sense than the one from Millionaire Next Door. It still has a few shortcomings, primary one is that it does not take inflation into account. It needs tuning but could definitely serve as a good start.

To answer your questions,
1. You should only use the amount that could be coverted into retirement funds when needed. So even if you have taxable accounts, as long as you can use the money for retirement, count it as your retirement savings.

2. Yes, annual spending does not include annual savings.

3. I think the saying makes sense only in average return sense, but since an investment-grade asset always produces fluctuating returns, it makes the saying useless. I would change the rule such that using a hypothetic 6% return on your existing networths, it should yield a similar amount of savings compared with your real savings from the salary.

[quote=Fletch]Thanks for the explanation, Carlsbad.

Can you tell me:
– only half of my net worth is retirement. I have a bunch in 529s and some in other non-retirment investments. Shouldn’t I only divide my retirement savings by annual spending?

– About that “annual spending”: this should not include any annual savings (again, 529s and non 401k monthly investments), right?

– Are you really saying that when I’m 40, my retirement investments should be yielding 50% of my annual spending?[/quote]

[carlsbadworker]

Fletch:

I just copied a formula that I think makes more sense than the one from Millionaire Next Door. It still has a few shortcomings, primary one is that it does not take inflation into account. It needs tuning but could definitely serve as a good start.

To answer your questions,
1. You should only use the amount that could be coverted into retirement funds when needed. So even if you have taxable accounts, as long as you can use the money for retirement, count it as your retirement savings.

2. Yes, annual spending does not include annual savings.

3. I think the saying makes sense only in average return sense, but since an investment-grade asset always produces fluctuating returns, it makes the saying useless. I would change the rule such that using a hypothetic 6% return on your existing networths, it should yield a similar amount of savings compared with your real savings from the salary.

[quote=Fletch]Thanks for the explanation, Carlsbad.

Can you tell me:
– only half of my net worth is retirement. I have a bunch in 529s and some in other non-retirment investments. Shouldn’t I only divide my retirement savings by annual spending?

– About that “annual spending”: this should not include any annual savings (again, 529s and non 401k monthly investments), right?

– Are you really saying that when I’m 40, my retirement investments should be yielding 50% of my annual spending?[/quote]

[carlsbadworker]

Fletch:

I just copied a formula that I think makes more sense than the one from Millionaire Next Door. It still has a few shortcomings, primary one is that it does not take inflation into account. It needs tuning but could definitely serve as a good start.

To answer your questions,
1. You should only use the amount that could be coverted into retirement funds when needed. So even if you have taxable accounts, as long as you can use the money for retirement, count it as your retirement savings.

2. Yes, annual spending does not include annual savings.

3. I think the saying makes sense only in average return sense, but since an investment-grade asset always produces fluctuating returns, it makes the saying useless. I would change the rule such that using a hypothetic 6% return on your existing networths, it should yield a similar amount of savings compared with your real savings from the salary.

[quote=Fletch]Thanks for the explanation, Carlsbad.

Can you tell me:
– only half of my net worth is retirement. I have a bunch in 529s and some in other non-retirment investments. Shouldn’t I only divide my retirement savings by annual spending?

– About that “annual spending”: this should not include any annual savings (again, 529s and non 401k monthly investments), right?

– Are you really saying that when I’m 40, my retirement investments should be yielding 50% of my annual spending?[/quote]

[carlsbadworker]

Fletch:

I just copied a formula that I think makes more sense than the one from Millionaire Next Door. It still has a few shortcomings, primary one is that it does not take inflation into account. It needs tuning but could definitely serve as a good start.

To answer your questions,
1. You should only use the amount that could be coverted into retirement funds when needed. So even if you have taxable accounts, as long as you can use the money for retirement, count it as your retirement savings.

2. Yes, annual spending does not include annual savings.

3. I think the saying makes sense only in average return sense, but since an investment-grade asset always produces fluctuating returns, it makes the saying useless. I would change the rule such that using a hypothetic 6% return on your existing networths, it should yield a similar amount of savings compared with your real savings from the salary.

[quote=Fletch]Thanks for the explanation, Carlsbad.

Can you tell me:
– only half of my net worth is retirement. I have a bunch in 529s and some in other non-retirment investments. Shouldn’t I only divide my retirement savings by annual spending?

– About that “annual spending”: this should not include any annual savings (again, 529s and non 401k monthly investments), right?

– Are you really saying that when I’m 40, my retirement investments should be yielding 50% of my annual spending?[/quote]

[carlsbadworker]

Fletch:

I just copied a formula that I think makes more sense than the one from Millionaire Next Door. It still has a few shortcomings, primary one is that it does not take inflation into account. It needs tuning but could definitely serve as a good start.

To answer your questions,
1. You should only use the amount that could be coverted into retirement funds when needed. So even if you have taxable accounts, as long as you can use the money for retirement, count it as your retirement savings.

2. Yes, annual spending does not include annual savings.

3. I think the saying makes sense only in average return sense, but since an investment-grade asset always produces fluctuating returns, it makes the saying useless. I would change the rule such that using a hypothetic 6% return on your existing networths, it should yield a similar amount of savings compared with your real savings from the salary.

[quote=Fletch]Thanks for the explanation, Carlsbad.

Can you tell me:
– only half of my net worth is retirement. I have a bunch in 529s and some in other non-retirment investments. Shouldn’t I only divide my retirement savings by annual spending?

– About that “annual spending”: this should not include any annual savings (again, 529s and non 401k monthly investments), right?

– Are you really saying that when I’m 40, my retirement investments should be yielding 50% of my annual spending?[/quote]

[carlsbadworker]

[quote=kev374]too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.[/quote]

That is right. If I were to design a formula, I would assuming an inflation adjusted 2% return on my networths, and walk backwards to see how much saving is needed each year from now until my retirement.
Unfortunately, that will make the formula complex. And a complex formula has its own drawbacks (hard to remember thus impossible to draw actions based on the formula).

[carlsbadworker]

[quote=kev374]too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.[/quote]

That is right. If I were to design a formula, I would assuming an inflation adjusted 2% return on my networths, and walk backwards to see how much saving is needed each year from now until my retirement.
Unfortunately, that will make the formula complex. And a complex formula has its own drawbacks (hard to remember thus impossible to draw actions based on the formula).

[carlsbadworker]

[quote=kev374]too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.[/quote]

That is right. If I were to design a formula, I would assuming an inflation adjusted 2% return on my networths, and walk backwards to see how much saving is needed each year from now until my retirement.
Unfortunately, that will make the formula complex. And a complex formula has its own drawbacks (hard to remember thus impossible to draw actions based on the formula).

[carlsbadworker]

[quote=kev374]too simplistic, besides in my personal opinion we are going to be hit by a massive wave of inflation and higher taxes in the years to come which will wipe out savings unless you’re invested in something that will survive that.[/quote]

That is right. If I were to design a formula, I would assuming an inflation adjusted 2% return on my networths, and walk backwards to see how much saving is needed each year from now until my retirement.
Unfortunately, that will make the formula complex. And a complex formula has its own drawbacks (hard to remember thus impossible to draw actions based on the formula).

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