[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).

[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]

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]

The most important use of a net worth statement is to measure your progress toward retirement. In order to retire at age 72 and have sufficient funds to maintain your standard of living you need about twenty times your annual spending.

Take your net worth and divide by your annual take home pay. This is how many times your annual standard of living you have amassed in savings. If you are under 40, the number is probably less than five. That’s ok; it is supposed to be.

Progress toward retirement is not a linear function. To those of you wondering if the math you studied in high school is useful, the following equation was determined by quadratic regression. It estimates how much of your current net worth you should have saved given your age. This gives you a benchmark for determining if you are on track to retire by age 72.

Take your age and divide by 166. Then subtract fifteen hundredths (0.15). Finally, multiply the result by your age. The resulting number should be between zero and twenty. That number is how many times your current annual income you should be worth.

Pull out your calculator and follow an example. If you are 45 years old then forty-five divided by 166 equals 0.2711. Subtract 0.15 to get 0.1211. Then multiply by 45 again. The result is 5.45. By age forty-five you should be worth about five and a half times your annual spending. More sophisticated retirement planning includes the difference between taxable, tax deferred and Roth accounts as well as Social Security guesses and defined benefit plans, but this is a good approximation of your progress. Here is a table that shows by what age you should have saved different multiples of your annual spending.

Age Annual_Spending_Saved
30 1
35 2
38 3
42 4
44 5
47 6
49 7
51 8
53 9
55 10
57 11
59 12
61 13
63 14
64 15
66 16
68 17
69 18
70 19
72 20

If your net worth is a higher: Congratulations! You are on the path to retiring earlier than 72! For every 0.5 you are over, you could consider retiring about a year earlier. Conversely, for every 0.5 you are under your age’s benchmark you may have to work an additional year beyond 72.

Between the ages of 40 and 60 your net worth should increase by one unit of your annual spending every two years. That means that your current net worth divided by your take home pay should be one unit greater than it was two years ago. Alternately, if you are between 40 and 60, your net worth should have increased this year by half of your take home pay.

This is because money makes money, and by the time you are in your 40’s you should have enough investments to be earning about half of your annual spending each year. The compounded growth of your investments does the lion’s share of the work while you only need to contribute 15% of your current earnings. If you save 15% of your take home pay between age 20 and age 72 you should have sufficient savings in retirement. This is despite the fact that you will have saved less than 7 years worth of pay and many of those years will have been at a lower rate of pay. How much you save and invest is the primary determination of your financial future.

Want to retire younger? Try lowering your standard of living. In retirement, most people spend about 70% of the gross salary they earned while they were working. If you can live off 50% of your take home pay, you don’t need as much savings to maintain that lower lifestyle.

Need to catch up? Save more than the 15% of your take home pay. Determine how far you are behind and what additional percentage you can save each year. For example, at age 30 you should be worth 1.4 times your annual income. What should you do if you are only worth 1.1 times your annual income? Normally, to stay on track you need to save 15% of your income each year. In order to catch up you need an additional 0.3 times your annual income. One option would be to save an additional 10% of your income for three years. If saving 25% of your income is too much, try saving 20% (an additional 5%) for six years.

http://www.emarotta.com/article.php?ID=165

[carlsbadworker]

The most important use of a net worth statement is to measure your progress toward retirement. In order to retire at age 72 and have sufficient funds to maintain your standard of living you need about twenty times your annual spending.

Take your net worth and divide by your annual take home pay. This is how many times your annual standard of living you have amassed in savings. If you are under 40, the number is probably less than five. That’s ok; it is supposed to be.

Progress toward retirement is not a linear function. To those of you wondering if the math you studied in high school is useful, the following equation was determined by quadratic regression. It estimates how much of your current net worth you should have saved given your age. This gives you a benchmark for determining if you are on track to retire by age 72.

Take your age and divide by 166. Then subtract fifteen hundredths (0.15). Finally, multiply the result by your age. The resulting number should be between zero and twenty. That number is how many times your current annual income you should be worth.

Pull out your calculator and follow an example. If you are 45 years old then forty-five divided by 166 equals 0.2711. Subtract 0.15 to get 0.1211. Then multiply by 45 again. The result is 5.45. By age forty-five you should be worth about five and a half times your annual spending. More sophisticated retirement planning includes the difference between taxable, tax deferred and Roth accounts as well as Social Security guesses and defined benefit plans, but this is a good approximation of your progress. Here is a table that shows by what age you should have saved different multiples of your annual spending.

Age Annual_Spending_Saved
30 1
35 2
38 3
42 4
44 5
47 6
49 7
51 8
53 9
55 10
57 11
59 12
61 13
63 14
64 15
66 16
68 17
69 18
70 19
72 20

If your net worth is a higher: Congratulations! You are on the path to retiring earlier than 72! For every 0.5 you are over, you could consider retiring about a year earlier. Conversely, for every 0.5 you are under your age’s benchmark you may have to work an additional year beyond 72.

Between the ages of 40 and 60 your net worth should increase by one unit of your annual spending every two years. That means that your current net worth divided by your take home pay should be one unit greater than it was two years ago. Alternately, if you are between 40 and 60, your net worth should have increased this year by half of your take home pay.

This is because money makes money, and by the time you are in your 40’s you should have enough investments to be earning about half of your annual spending each year. The compounded growth of your investments does the lion’s share of the work while you only need to contribute 15% of your current earnings. If you save 15% of your take home pay between age 20 and age 72 you should have sufficient savings in retirement. This is despite the fact that you will have saved less than 7 years worth of pay and many of those years will have been at a lower rate of pay. How much you save and invest is the primary determination of your financial future.

Want to retire younger? Try lowering your standard of living. In retirement, most people spend about 70% of the gross salary they earned while they were working. If you can live off 50% of your take home pay, you don’t need as much savings to maintain that lower lifestyle.

Need to catch up? Save more than the 15% of your take home pay. Determine how far you are behind and what additional percentage you can save each year. For example, at age 30 you should be worth 1.4 times your annual income. What should you do if you are only worth 1.1 times your annual income? Normally, to stay on track you need to save 15% of your income each year. In order to catch up you need an additional 0.3 times your annual income. One option would be to save an additional 10% of your income for three years. If saving 25% of your income is too much, try saving 20% (an additional 5%) for six years.

http://www.emarotta.com/article.php?ID=165

[carlsbadworker]

The most important use of a net worth statement is to measure your progress toward retirement. In order to retire at age 72 and have sufficient funds to maintain your standard of living you need about twenty times your annual spending.

Take your net worth and divide by your annual take home pay. This is how many times your annual standard of living you have amassed in savings. If you are under 40, the number is probably less than five. That’s ok; it is supposed to be.

Progress toward retirement is not a linear function. To those of you wondering if the math you studied in high school is useful, the following equation was determined by quadratic regression. It estimates how much of your current net worth you should have saved given your age. This gives you a benchmark for determining if you are on track to retire by age 72.

Take your age and divide by 166. Then subtract fifteen hundredths (0.15). Finally, multiply the result by your age. The resulting number should be between zero and twenty. That number is how many times your current annual income you should be worth.

Pull out your calculator and follow an example. If you are 45 years old then forty-five divided by 166 equals 0.2711. Subtract 0.15 to get 0.1211. Then multiply by 45 again. The result is 5.45. By age forty-five you should be worth about five and a half times your annual spending. More sophisticated retirement planning includes the difference between taxable, tax deferred and Roth accounts as well as Social Security guesses and defined benefit plans, but this is a good approximation of your progress. Here is a table that shows by what age you should have saved different multiples of your annual spending.

Age Annual_Spending_Saved
30 1
35 2
38 3
42 4
44 5
47 6
49 7
51 8
53 9
55 10
57 11
59 12
61 13
63 14
64 15
66 16
68 17
69 18
70 19
72 20

If your net worth is a higher: Congratulations! You are on the path to retiring earlier than 72! For every 0.5 you are over, you could consider retiring about a year earlier. Conversely, for every 0.5 you are under your age’s benchmark you may have to work an additional year beyond 72.

Between the ages of 40 and 60 your net worth should increase by one unit of your annual spending every two years. That means that your current net worth divided by your take home pay should be one unit greater than it was two years ago. Alternately, if you are between 40 and 60, your net worth should have increased this year by half of your take home pay.

This is because money makes money, and by the time you are in your 40’s you should have enough investments to be earning about half of your annual spending each year. The compounded growth of your investments does the lion’s share of the work while you only need to contribute 15% of your current earnings. If you save 15% of your take home pay between age 20 and age 72 you should have sufficient savings in retirement. This is despite the fact that you will have saved less than 7 years worth of pay and many of those years will have been at a lower rate of pay. How much you save and invest is the primary determination of your financial future.

Want to retire younger? Try lowering your standard of living. In retirement, most people spend about 70% of the gross salary they earned while they were working. If you can live off 50% of your take home pay, you don’t need as much savings to maintain that lower lifestyle.

Need to catch up? Save more than the 15% of your take home pay. Determine how far you are behind and what additional percentage you can save each year. For example, at age 30 you should be worth 1.4 times your annual income. What should you do if you are only worth 1.1 times your annual income? Normally, to stay on track you need to save 15% of your income each year. In order to catch up you need an additional 0.3 times your annual income. One option would be to save an additional 10% of your income for three years. If saving 25% of your income is too much, try saving 20% (an additional 5%) for six years.

http://www.emarotta.com/article.php?ID=165

[carlsbadworker]

The most important use of a net worth statement is to measure your progress toward retirement. In order to retire at age 72 and have sufficient funds to maintain your standard of living you need about twenty times your annual spending.

Take your net worth and divide by your annual take home pay. This is how many times your annual standard of living you have amassed in savings. If you are under 40, the number is probably less than five. That’s ok; it is supposed to be.

Progress toward retirement is not a linear function. To those of you wondering if the math you studied in high school is useful, the following equation was determined by quadratic regression. It estimates how much of your current net worth you should have saved given your age. This gives you a benchmark for determining if you are on track to retire by age 72.

Take your age and divide by 166. Then subtract fifteen hundredths (0.15). Finally, multiply the result by your age. The resulting number should be between zero and twenty. That number is how many times your current annual income you should be worth.

Pull out your calculator and follow an example. If you are 45 years old then forty-five divided by 166 equals 0.2711. Subtract 0.15 to get 0.1211. Then multiply by 45 again. The result is 5.45. By age forty-five you should be worth about five and a half times your annual spending. More sophisticated retirement planning includes the difference between taxable, tax deferred and Roth accounts as well as Social Security guesses and defined benefit plans, but this is a good approximation of your progress. Here is a table that shows by what age you should have saved different multiples of your annual spending.

Age Annual_Spending_Saved
30 1
35 2
38 3
42 4
44 5
47 6
49 7
51 8
53 9
55 10
57 11
59 12
61 13
63 14
64 15
66 16
68 17
69 18
70 19
72 20

If your net worth is a higher: Congratulations! You are on the path to retiring earlier than 72! For every 0.5 you are over, you could consider retiring about a year earlier. Conversely, for every 0.5 you are under your age’s benchmark you may have to work an additional year beyond 72.

Between the ages of 40 and 60 your net worth should increase by one unit of your annual spending every two years. That means that your current net worth divided by your take home pay should be one unit greater than it was two years ago. Alternately, if you are between 40 and 60, your net worth should have increased this year by half of your take home pay.

This is because money makes money, and by the time you are in your 40’s you should have enough investments to be earning about half of your annual spending each year. The compounded growth of your investments does the lion’s share of the work while you only need to contribute 15% of your current earnings. If you save 15% of your take home pay between age 20 and age 72 you should have sufficient savings in retirement. This is despite the fact that you will have saved less than 7 years worth of pay and many of those years will have been at a lower rate of pay. How much you save and invest is the primary determination of your financial future.

Want to retire younger? Try lowering your standard of living. In retirement, most people spend about 70% of the gross salary they earned while they were working. If you can live off 50% of your take home pay, you don’t need as much savings to maintain that lower lifestyle.

Need to catch up? Save more than the 15% of your take home pay. Determine how far you are behind and what additional percentage you can save each year. For example, at age 30 you should be worth 1.4 times your annual income. What should you do if you are only worth 1.1 times your annual income? Normally, to stay on track you need to save 15% of your income each year. In order to catch up you need an additional 0.3 times your annual income. One option would be to save an additional 10% of your income for three years. If saving 25% of your income is too much, try saving 20% (an additional 5%) for six years.

http://www.emarotta.com/article.php?ID=165

[carlsbadworker]

The most important use of a net worth statement is to measure your progress toward retirement. In order to retire at age 72 and have sufficient funds to maintain your standard of living you need about twenty times your annual spending.

Take your net worth and divide by your annual take home pay. This is how many times your annual standard of living you have amassed in savings. If you are under 40, the number is probably less than five. That’s ok; it is supposed to be.

Progress toward retirement is not a linear function. To those of you wondering if the math you studied in high school is useful, the following equation was determined by quadratic regression. It estimates how much of your current net worth you should have saved given your age. This gives you a benchmark for determining if you are on track to retire by age 72.

Take your age and divide by 166. Then subtract fifteen hundredths (0.15). Finally, multiply the result by your age. The resulting number should be between zero and twenty. That number is how many times your current annual income you should be worth.

Pull out your calculator and follow an example. If you are 45 years old then forty-five divided by 166 equals 0.2711. Subtract 0.15 to get 0.1211. Then multiply by 45 again. The result is 5.45. By age forty-five you should be worth about five and a half times your annual spending. More sophisticated retirement planning includes the difference between taxable, tax deferred and Roth accounts as well as Social Security guesses and defined benefit plans, but this is a good approximation of your progress. Here is a table that shows by what age you should have saved different multiples of your annual spending.

Age Annual_Spending_Saved
30 1
35 2
38 3
42 4
44 5
47 6
49 7
51 8
53 9
55 10
57 11
59 12
61 13
63 14
64 15
66 16
68 17
69 18
70 19
72 20

If your net worth is a higher: Congratulations! You are on the path to retiring earlier than 72! For every 0.5 you are over, you could consider retiring about a year earlier. Conversely, for every 0.5 you are under your age’s benchmark you may have to work an additional year beyond 72.

Between the ages of 40 and 60 your net worth should increase by one unit of your annual spending every two years. That means that your current net worth divided by your take home pay should be one unit greater than it was two years ago. Alternately, if you are between 40 and 60, your net worth should have increased this year by half of your take home pay.

This is because money makes money, and by the time you are in your 40’s you should have enough investments to be earning about half of your annual spending each year. The compounded growth of your investments does the lion’s share of the work while you only need to contribute 15% of your current earnings. If you save 15% of your take home pay between age 20 and age 72 you should have sufficient savings in retirement. This is despite the fact that you will have saved less than 7 years worth of pay and many of those years will have been at a lower rate of pay. How much you save and invest is the primary determination of your financial future.

Want to retire younger? Try lowering your standard of living. In retirement, most people spend about 70% of the gross salary they earned while they were working. If you can live off 50% of your take home pay, you don’t need as much savings to maintain that lower lifestyle.

Need to catch up? Save more than the 15% of your take home pay. Determine how far you are behind and what additional percentage you can save each year. For example, at age 30 you should be worth 1.4 times your annual income. What should you do if you are only worth 1.1 times your annual income? Normally, to stay on track you need to save 15% of your income each year. In order to catch up you need an additional 0.3 times your annual income. One option would be to save an additional 10% of your income for three years. If saving 25% of your income is too much, try saving 20% (an additional 5%) for six years.

http://www.emarotta.com/article.php?ID=165

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