What’s Your Retirement Wealth Number?

Lots of Cash MoneyAuthor Romeo Clayton of How We Prevent Wealth is hosting a challenge for all of us to figure out how much do we exactly need for retirement.  He calls it “The Wealth Number Challenge” where we input our current age, savings, rate of return, current tax rate, annual contribution, years during retirement and more to figure out how much we actually need.

I’m not sure if it’s media schadenfreude, but apparently only 24% of Americans have enough savings to last six months.  Meanwhile, another 24% of Americans don’t have ANY savings.  I find this very, very hard to believe.  At least 52% of Americans have more than six months of savings though right?  Furthermore, I know none of you reading this site could be living that close to the edge.

As we learned from the latest triennial report by the Federal Reserve’s Triennial Survey of Consumer Finance, the median US family net worth in 2010 plunged to just $77,300 from a high of $126,400 in 2007.  What’s more shocking is that property accounts for $75,000 of the $77,300!!!  In other words, the average American based on this survey only has a $2,300 buffer!  $2,300 will buy you one month’s rent for an average one bedroom here in San Francisco with no parking!

ARE WE SCREWED?

Do know that if you only have $2,300 in savings and you’re the median age of 35, you are screwed.  I don’t want to be an alarmist or anything, but you will be working for the rest of your life if you keep up your poor savings / poor spending habits!  You’ve got to figure out whether you are spending too much or saving too little.  Fix one, then fix the other ASAP if you don’t want to work until death.

When you have such little saved you are going to curse at every little unexpected expense.  I’m going through the process of tightening my expenses myself because I plan not to have a steady income shortly, and man, do the unexpected expenses hurt!  I got a $98 parking ticket last week because I parked in a white zone that said, “Free parking except for during work hours.”  Shit, who knew some city help center was open at 4pm on a Sunday!  Now I know and I’m happy I didn’t get towed.  A water main pipe burst from the street to my house last month which cost $1,400 to fix.  Painful!  If I didn’t have savings I would be in a foul, foul mood and extremely depressed.

Please save.  If you’ve only got a couple thousand bucks, you’re just one step away from financial disaster.  The Expense Gods will conspire against you at some point.  When they do, you need to be ready to fight them off with your hard saved money!  If not, off to government assistance you go.

MY WEALTH NUMBER

My Wealth Number is admittedly somewhat arbitrary because of my various income producing streams already in place.  The number also depends on when I plan on retiring, which could very well be this month!  I’d like for my stable assets to generate roughly $5,000 a month in after tax income for 45 years in five years.  With a conservative 4% annual return on investment after retirement, a 20% effective tax rate, and a 2.5% inflation rate, my Wealth Number comes out to $1,800,000.

Now that I know what my Wealth Number is, all I’ve got to do is subtract $1,800,000 from how much liquid and semi-liquid assets I have now, and divide by five to figure out how much I need to save a year to get there!  It’s going to be a challenge if I don’t sell any real estate or stocks so I’ve got to figure out how to make more money, save more money, or create a business that will provide me $5,000 a month in perpetual income for life so I don’t need $1.8 mil!

I’m excluding my rental and online income from my Wealth Number because my goal is to build stand alone income streams that can support my life.  In other words, by the time I retire, I’m aiming for my rental income, online income, and Wealth Number income to each generate $5,000 in after tax income to total $15,000 a month.  It’s more of a challenge and it helps me from getting lazy.  Even if I don’t get there by the time I retire, I know I will have gone farther than if I just focused on one source.

TAKE THE WEALTH CHALLENGE TODAY

If you have not calculated your retirement number in the past several months, I highly recommend you head on over to The Wealth Number Challenge to figure out what your number is.  Inputting your figures in the calculator only estimates what you will have upon retirement.  You need to adjust the numbers to make the monthly annual after tax income work for you!

When you have a number, you then have a specific goal to work towards.  Without an end goal in mind, you don’t really know whether you are saving enough, too much, or too little.

After you’ve figured out your number, write it down, blog about it, and tell your closest friend.  You need to be held accountable so that you increase your chance of reaching retirement bliss!

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Terry says

    I live on less than $12K annually (2011 income $11,520), am paying off a student loan, and have no savings. I rent a room in a small house with four other people. Are my saving habits or my spending habits poor?T

    • Jonathan says

      It sounds like your spending habits are quite good, and your earning habits are quite poor. If you can improve your earning while maintaining your spending, then your saving habits will be good automatically! :)

    • Financial Samurai says

      Terry, how old are you and have you graduated from any type of post high school education? With no savings, you have no savings habits. Need to know more before giving you advice.

  2. Lance@MoneyLife&More says

    I don’t actually have a set number so I will definitely ly have to check that’s out. Thanks for the heads up. Just because I don’t have a number doesn’t mean I am not saving because I definitely put 25% toward retirement.

  3. krantcents says

    The retirement is a combination of fixed (Social Security/pension), tax deferred savings (403B & IRA) and Brokerage (capital gains rates) accounts. The fixed portion supports our day to day expenses because we will be debt free. The savings/brokerage will support any of our wants.

    • Financial Samurai says

      Yes, $5,000 after tax / month for my Wealth Number.

      Unfortunately, I don’t think any business is forever self sustaining, but I’ll continue to build various streams of business.

  4. John | Married (with Debt) says

    I’m pursuing an asset-based retirement. When I get enough cash to buy a tract of land – spend. When I save enough to build a modest sustainable home – spend. These items are expensive enough that if I change my approach in a few years, I can continue on a different course with no pain.

    Most people pushing “retirement” want you to build up more wealth than you could ever spend in your lifetime. That’s a retirement plan for THEM, not for me.

    • Financial Samurai says

      Sounds like a plan John. My family just sold their farm, which is sad b/c I could totally have lived there and become self-sustainable in 5 years time.

      I like the cynicism of retirement planners!

  5. Romeo says

    Hi, John. That’s why knowing your number is so important. You’re describing someone who is told and follows the approach of “just save.” You can’t save too much more than you need if you know the number that you’re aiming for. Also, retirement savings doesn’t have to include tax accounts, although it’s an often overlooked strategy. I’d argue that as long as your expenses are taken care of on a perpetual basics, and you have enough saved for unexpected medical events, then you could probably retire.

  6. Untemplater says

    Good ideas! You’ve motivated me to log into my retirement account and check on my allocations and balance progress. Every little bit helps! And boy does company match help a ton!

  7. Jason says

    Thanks for highlighting the Challenge! Romeo and you make a good point that there needs to be a number, or better yet, a purpose to savings. Otherwise, it’s kind of meaningless!

  8. RichUncle EL says

    I just did this and found that I am going to need 1.9 million producing 5070 monthly income retiring at age 65. Problem is I dont want to work until 65 so I am going to need alot more cause I want to stop working at 50.

  9. traineeinvestor says

    I worked backwards – starting with current spending and adjusting for things that I expect will change once I retire (mostly upwards) and then adding an arbitrary 20% and calculating how much assets I need to support that level of spending for the next 50 years. Why 20% extra? Once I quit, I do not want to wake up at 70 and have to go searching for a job if things have not gone to plan – much better to front load an extra year or two now than be forced to take on much lower paying work for long when I am older.

    As a cross check, I ran the numbers through FireCalc.

    I have hit my number and will retire either end of this year or early next year (depending on bonus expectations).

  10. Barbara Friedberg says

    The importance of this activity is to motivate one to save and work to take charge of our financial life. Don’t get overwhelmed if you’re not where you want to be. It’s really important to start NOW, no matter what!

    • Romeo says

      Agree in full, Barbara. It’s easy to get overwhelmed or lose motivation. However, I hope that people find more motivation to save more…or less, depending on where they stand financially.

  11. PK says

    Sort of like those ING commercials, eh? So you’ve got to take that $1.8 million, add a few stray dollars, and walk around all day with a giant floating number over your head.

    $1,811,433!

  12. Miss T @ Prairie Eco-Thrifter says

    We don’t have a set number either but we are always saving for retirement. I think saving is dynamic. Situations change and inflation happens so your number also changes. The important thing is to keep focusing on a number and reaching it.

  13. AJ says

    I’m 35 years old, plan to have cash liquid $500K (Very challenges for this number) in 2017 (40 yrs old). Current running own business, has one income from business. Trying to expand other business revenues to be able to generate more income. Plan to be able to transfer the business to children (if we have), then when i’m 55 yrs old (20 yrs from now), I can choose to work or not work, but business that we built still generating income. So hope when I’m 55 yrs old. Own home, businesses, generate income at least 10K / month and have saving around 5 M.

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