It seems like such an easy question to answer. Of course the answer varies from person to person, but let’s just say that you know what you need to have when you retire. If you would like to retire with an annual retirement income of $50,000, you are going to need to have roughly a million dollars at retirement age. This assumes that you are able to earn 5% on your investments during retirement and that you don’t touch the principal. With inflation as a consideration and additional variables out there, maybe it’s better to shoot for $2 million at retirement age. That would give you $100,000 per year without cutting in to your principal.
Let’s just assume that you want to be able to draw $50,000 per year once you retire. If you want to retire at age 62, you should have about 62,500 put away at 30. Now, that assumes that you aren’t saving any additional money between now and age 62. The reality is that you will be putting money away for the future via your 401k, or other retirement savings vehicles. So, 62,500 could be considered worst case scenario if you want to have $1,000,000 by the time you retire. The other big assumption here is that you are earning 9% on your money. That’s not really a very unrealistic expectation if you are in index funds.
If you don’t have 62,500 put away by the time you are thirty, don’t sweat it. You have a ton of time to catch up, but you have to start NOW. The easiest way to do that is to start putting more away in your 401K through your employer, or start contributing the maximum to a ROTH ira each year. If you only have $7500 at age 30, but start putting away only $400 per month in your tax deferred account, you can still reach $1,000,000 at age 62! For every month you delay your saving, it’s going to be much harder to reach your goal, so start now.
If you want to play with some various scenarios to see how much you’ll need to save in order to retire comfortably, you can use this calculator at CNNMoney: http://cgi.money.cnn.com/tools/millionaire/millionaire.html
And where should you be at various ages along the way? (Assuming no futher contributions @ 9% interest)
30: $62,500
38: $125,000
46: $250,000
54: $500,000
62: $1,000,000
I wish I knew what my net worth was when I was 30… I didn’t even keep track of it back then… and it’s starting to feel like such a long time ago…
I guess the good news is that I’m seeing more and more searches by people wondering what their net worth should be at 30. Maybe we are entering the age of net worth enlightenment. :)
I did track my net worth at 30 and it has made a huge difference for me from a financial standpoint. I’m hoping that by getting an early start, that I’ll be able to retire by age 55 at the latest.
I looked at quicken to see where I was at 30, and we were about $59,000. In hindsight, that was just 4 years ago and it looks like we’re on a way to being millionaires in no time.
I think setting the goal at 30 is a great benchmark. It gives a young person a short term goal to shoot for. And at the same time, it instills a sense of urgency early on about retirement. Something that you can’t easily make up beyond those early years.
I completely agree Sixpack. If people can “check in” on themselves at 30 they have tons of time to make any course corrections. Then, once they do make course corrections, I think they’ll blow their goals out of the water, much like it sounds you are doing! :)
That’s a very good point, although I would argue if we could just get people to start saving towards a million, they’d be in a lot better shape. With the national savings rate so low, any amount of saving is better than not saving at all.
I’m personally planning with future dollar values in mind.
Let’s just assume that you want to be able to draw $50,000 per year once you retire.
In today’s dollars, or in 2039 dollars?
Thanks for the info. It’s nice knowing I’ve saved enough, but for the wrong age. If I were 38, I’d be on target. Problem is I’m 50+.
Oh well.
As you said, better a little than nothing.
Knowledge of your net worth is a heck of a good first step. Just think of the percentage of people that have no idea what their net worth is.
Now all you have to do is try to make financial decisions that make the number larger over time. :)
My net worth is negative, why would I want to make a negative number larger?
Dear Hazzard:
What financial decisions could I possibly make that would make my net worth larger over time?
Don’t eat? Live under a bridge?
With the very limited knowledge I have of your situation (but judging by your name) I would say that the single biggest financial decision you can make is to increase your income. I’m not sure how you would do this because I don’t know your situation but I would guess that it would come via more training, a job change in to some sort of apprenticeship in another field etc.