Everybody should have a net worth target to shoot for by age, work experience, and income. Targets will help you stick to your financial plan and motivate you to do more if you’re falling behind. I’ve updated my net worth target chart for 2018 and I’d like to discuss the premise behind the numbers.
These target figures are for those who:
- Take action rather than complain about an unfair system
- Max out their 401k and IRA every year
- Save an additional 20% or more after taxes and 401k/IRA contribution
- Take calculated risks through investments in various asset classes
- Build multiple streams of active and passive income
- Focus on the big picture and doesn’t nit pick with minutiae
NET WORTH TARGET ADJUSTMENTS
Lower Multiples For Younger Folks, Higher Multiples For Older Folks
The main adjustments to my previous net worth target chart are the lowering of the multiple for people in their 20s, and the raising of the multiple for people ages 40 and over. The reason I lowered the multiple for people in their 20s is due to growing student loan debt, wage stagnation, and increased competition for good paying jobs due to globalization. Despite expectations of a large generational wealth transfer, inheritances usually won’t happen until much later in life.
If you so happened to have delayed entering the work force because you decided to go to graduate school or go travel the world like a lot of wealthier college graduates do nowadays, no problem! Simply follow the “Years Worked” column to find your appropriate multiple. For example, if you’re 30 years old with no work experience because you spent your 20s getting a PhD, your target net worth multiple is 0!
On the flip side, partly because of such large inheritance expectations, I expect Millennials and Gen Xers to see significant injections to their net worths after the age of 40. Another reason I’ve raised the target multiples of income after age 40 is because all of us become much more savvy with our money as we get older.
By our 40s, we’ve already gone through 20 years of money making wins and losses. Surely, by now we should all understand our monthly budgets, net worth compositions, spending tendencies, and risk tolerances.
I have found I get much more pushback from folks in their 20s and 30s than folks in their 40s and beyond. The reason is because when we are young, we think we know what we don’t know. We are more arrogant, more stubborn, more know-it-all. As we age, we see the positive effects of compounding that really starts to snowball with a larger financial nut.
Easier To Live On Less When Older
Being able to comfortably live on less is perhaps the biggest reason why target multiples are raised later in life. Let’s say you have a $2 million net worth and make $200,00 a year at age 50. Your multiple is 10, while I suggest it should be closer to 15. If you can find a way to live comfortably off $150,000 a year, or 25% less, then you’re spot on target at 15. If you can live off $100,000, then I think you can retire immediately due to a 20X multiple.
For the first two years after leaving Corporate America, I was making around 50% – 80% less than I did while working. Funny enough, my after-tax savings rate still was over 50%. Saving money is much easier when you don’t work because there are lots of free activities and discounts during working hours such as free museum week, early bird dinner specials, the ability to enjoy free parks, libraries, hikes, etc. Your commuting costs go down as well.
As an elderly person, the biggest X factor are medical expenses and long term care costs. Good thing we’ve had decades to save and enough acumen to take out insurance policies that cover such expenses.
Easier Multiples To Remember
The major age milestones everybody thinks about are 25, 30, 40, 50, and 60. As a result, I’ve made it easier for everybody to remember what multiple to shoot for at each milestone. Aim for a net worth equal to 2X your average income by 30, 10X your average income by 40, 15X your average income by 45, and 20X your average income by 60 or whenever it is you plan to retire.
When I left work in 2012 at the age of 34, my net worth equaled roughly 15X my average income over the last three years. In other words, I fell short of my 20X income target. However, thanks to a severance package that has a five year payout from 2012, I technically don’t really have to start my retirement clock until 2017. Since 2012, I have aggressively boosted my net worth by building an online business, while lowering the amount of income I need to be happy.
I’ve been well over the 20X income multiple for the past several years and I can assure you that I have no fear of running out of money or being forced to live a lower standard of living. Multiple income buffers such as passive income, online income, and consulting income ensure financial security. When I left work at a 15X multiple, I still had money worries despite the severance package. It takes a tremendous leap of faith to try and recoup a 50%+ income decline through an entrepreneurial endeavor.
REMEMBER 20X
If there’s one figure to remember from this post, it’s the 20X income multiple. At a 20X income multiple, even if your net worth provided zero returns, it would still take 20 years to exhaust your wealth while maintaining your same standard of living. You could of course invest your wealth in a risk free asset like a CD for a ~2% – 2.5% interest rate to extend the life of your principal. You could also pay off your primary residence to lower your cost of living for another guaranteed return on your money.
You don’t have to wait until you are 60+ to achieve a 20X multiple. If you can figure out a way to do it earlier, all the better! Early retirement awaits.
Track your net worth today so you know exactly where you stand and how much more you’ve got to go. You’re free to calculate the multiple based off your spending. But why not challenge yourself more? Spending is after tax income after all. Nobody I know on Financial Samurai spends more than they make.
Personal Capital’s Retirement Planning Calculator. Click to sign up and see how you’re doing.
Readers, what is your current net worth as a multiple of your average annual income over the past three years? If you are retired, at what multiple did you retire? What do you think is an appropriate multiple of income to retire?
For those who argue spending is a better figure than income, several points:
* You can swap spending with income if you wish. It’s very easy to do.
* Spending is after tax income e.g. spending $75,000 is equivalent to ~$100,000 in gross income.
* It’s marginally easier to try to earn X income than spend Y because there’s usually only 1-5 income sources to get to an income figure. Spending is compromised of many more sources.
* Using income is a more conservative way to go because most people don’t spend more than they make. And if you do, then using spending is ironically more conservative.
* Why not be more conservative and end up with a little too much wealth, than too little? You can’t reverse time if you end up with too little.
* If you have not reach the target multiples, and want to use your lower spending figure to raise your target multiple, you are welcome to do so. At the end of the day, it’s your money and your decision to make.
For those who entered the work force later due to grad school or fun traveling: simply follow the “Years Worked” column to find your multiple.
Hey, Sam.
How do you calculate net worth when someone has a pension plan? Example: $75k pension starting at age 56.
I like dividing your annual pension amount by a certain risk-free rate plus equity premium. For example dividing your amount by 3% or 4% is a reasonable figure.
I am 4 years into a defined benefit plan that at this point will bring in $10,000 annually. Is it reasonable to multiply this by my life expectation and use that in my net worth calculation? It is not indexed.
Can I count the equity value of my business if I work as a self employed individual where the typical value of the business is 1.5-2.5 Revenue for industry sales?
I’m 22 with two years of work experience. Networth is something I haven’t really been paying attention to. Right now, I’m focused on my savings goals. In 2017, I may switch my thinking to “net worth” rather than “dollars in the bank”.
Not many of these ‘net worth’ charts properly adjust for younger working professionals, but your chart does a good job of this. I’ve often used the wealth formula from Millionaire Next Door (NW = age * income / 10), but it really only works in the later decades of a life and its not as ambitious as this chart.
At 26, my net worth is ~0.6 but I also started off at -1.0 thanks to student loans. I’m grateful for the student loan debt as it has helped spark my interest in personal finance. Having said this, the graph might also be harsh on MBA or JD students who are seeking to make back their investment in their 30s & 40s.
The goal of 20x is well said. The current personal finance culture is geared towards reaching a $ amount instead of focusing on what someone is currently spending. 20-25x is a much cleaner number.
Long time reader, first comment. I’m not sure I fully agree with this statement: “There is a multiple which I think is too high, and that’s 50X.” Not that I claim to have this net worth, but I know a number of people who do qualify (or close). However, their net worth is tied up in house, chattel and other non income producing assets. True, they could liquidate some or all of that and live on the proceeds ,but that is an indication in my mind that they may not be ready for FI.
Feel free to share what multiple limit you think is too high and why. Thanks!
I’ve seen tables like these before, and I have one comment; the multiple should be based on spending, not income. If, e.g., I have a $120k income, and $60k after-tax spending, those are two very different targets.
That’s what I was thinking. I live on half of my $71,000 income so I would use $35,500 X 20 correct?
Going to have to agree with Jeff Here.
If I may make $150,000 + but live off $65,000.
My goal at 20 X Income would be 3 million.
My goal at 20 X Expense/Living Cost would be 1.3 million.
That being said, with your net worth including things like house and car etc that may not be something easily tapped into, it probably isn’t too outlandish of a goal.
I personally was shooting for 25 x Expense in semi-liquid assets (CDs, Cash, Stock, Bonds) for me to Declare FIRE and move on to the next stage.
Just for comparison sake I’m 38 and at 10.5 x income but already past 20 x expense in semi-liquid assets (no house no car counted), and should reach my goal by 40.
~T~
Feel free to use spending as the denominator for your multiple calculation if that works better for you.
From my post:
“Being able to comfortably live on less is perhaps the biggest reason why target multiples are raised later in life. Let’s say you have a $2 million net worth and make $200,00 a year at age 50. Your multiple is 10, while I suggest it should be closer to 15. If you can find a way to live comfortably off $150,000 a year, or 25% less, then you’re spot on target at 15. If you can live off $100,000, then I think you can retire immediately due to a 20X multiple.”
First time post….Comment on using income or expenses as denominator…..let me say the following:
On your above example….it states if you MAKE $200,000 ….most good savers, with average to high net worth may make $200,000 BUT do not live off the $200,000. They are more than likely maxing out 401k and have large post tax savings with either free cash flow on a monthly basis or annual bonus’. Thus, using the “income” is not truly reflective….
Your chart as pertaining to Income is flawed in he following, because it is very re-latable to myself.
I make $200,000 , I am 50 years old AND I have 15x my income or a Net worth of $3,000,000….Bam…you suggest I can retire today.
But…if my compensation stays the same at $200,000 and 10 years from now I want to retire (now at 60 years of age), i should have 20x or $4,000,000 net worth.
I just used up 10 years of living…why should my Net Worth be more, that is just silly…
Using the expense methodology makes way more sense…..
I call it “what is your BURN rate”
How much cash do you burn in a month / year….?
Assume $10k month or $120k year….
If your 50….20x or $2,400,000 is plenty to get you through your lifetime….assuming modest 3 or 4% growth on money and Soccial security kicks in at 65 or 67.
Note:
The 3 or 4 % will generate $72k – $96k which means that $2.4 million pot will last wayyyy more than 20 years cause your only tapping principle for less than HALF to live on (BURN rate).
Welcome Mike.
It’s always better to be safe, than sorry since you can’t rewind your life. Further, you will find it feels VERY BAD to draw down principal once you want to retire because you’ve been aggressively accumulating all your life. Instead, the ideal withdrawal rate in retirement draws down ZERO principal. Instead, you only live off the interest to protect your nut forever.
In your example, a $4,000,000 liquid net worth can generate roughly $100,000 in risk free income at 2.5%. That’s 50% of what you were making.
Sam
Few things….
1. I actually completely agree with you that drawing down principle will feel horroble…I am not there yet but knowing myself, it will cause anxiety…..BUT
2. I didnt need the $200k to live….I am probably living off $150k (saving $50k) so now that $100k is 67% of what I was making
3. Are we in a world that we should be looking to leave a $4,000,000 estate to our family? I see nothing wrong with chipping away at the principle, especially if we worked so hard to save alot of money and retire early….and by chipping $50k (1.25% of a $4m nest egg) is not very aggressive…..
3. Once Social security kicks in…it will be roughly $4k/month or $50k/ year and back to even and not touching principle…
But I truly appreciate your commentary about tapping principle….something to think about….
Lastly, I was just trying to convey to the group that I feel burn rate is more relative…..but to each is own…
Sam, nice post once again! I voted in the poll and my multiple is 4x income. However, as a multiple of my expenses, it is closer to 5.5x. I also have some pension money that will be coming when I retire, so I need to look at how much that will be. My multiple will not need to be as high as 20x.
Thanks for putting some aspirational goals out there for the community! Oh, and by the way, I’m 46 today, so I’m a lagging a little behind your goals, I need to keep plugging away!
Very informative post! I’m 48 and make $71,000 and my salary is frozen so I won’t be getting raises anymore. In retirement I could live off $36,000/yr. easily since I’ve been currently doing it for years. I want to retire by age 62. Using your formula should I multiply $71,000 X 20 or $36,000 X 20? Does your formula include yearly inflation adjustments?
I’m 28 with six years of work experience and my net worth at the end of 2015 was about 4x my average gross income for those years. I’ve maxed out my Roth IRA starting in 2010 and my 401(k) starting in 2011. My net worth is closer to a 35 year old in your chart. If you’re a frugal rich 20-something who looks even younger than you actually are, no one will ever assume you are as rich as you are – great for stealth wealth.
My goal is $1MM in net worth by my 30th birthday and so far, I’m still on track to get there. I wouldn’t base my retirement goal on a multiple of income – I’d rather base it on spending since I don’t spend most of my income.
Curious about your numbers? Assuming you have been able to contribute full amount to your Roth every year and extrapolating that into future, you would heave taken home approximately $644k. If you conservatively saved 70% of you income this comes to saving ~$450k ($57k/yr for 8 years). This works to an IRR around 22%. Impressive but curious of your investments, if I’m thinking of this wrong, or if there were extraordinary circumstances?
I bought a piece of real estate four years ago that is up 40% on the purchase price, which is two times my original down payment. That “investment” has outreturned all of my stock market investments, which are “only” up about $20k total over the last ten years.
I’ve saved about 60% of my gross, which means I saved somewhere around $540k over those six years.
It’s hard to come up with more specific trends over a long time period without digging into the data.
23 with almost 2 years of work experience. NW/Spending is about 6.8x. NW/Income is a little over 1x. The goal for 2016 is to get NW/Income to 1.5x (which would make NW/Spending almost 10x). I like what you said about no one assuming you’re rich if you’re a frugal twenty-something who looks young. I find it to be true.
I’m about a 4.4 when I should be a 10 according to your chart – though I can’t say I follow the 20% after tax savings plan. I’m not sure I will ever get to the levels in your chart. I could if I started spending a lot less. I just don’t want to. Of course, I’m not really complaining. I am someone who feels somewhat good about where I am, though I realize I could have (and probably should have) done more. So I’m not starting off completely behind the 8 ball, but I probably have some catching up to do.
I just started diving into the personal finance world ~6 months ago after trying to learn how to just manage my money on a day-to-day basis. Even that is overwhelming to begin with.
Now that I feel like I’ve got my feet under me a bit, I’m starting to learn more about investing to build net worth and for retirement. That’s a whole ‘nother ball of worms. This post breaks it down pretty easy, though, in terms of how much I should have. Always good to see other people’s viewpoints. Thanks!
I still have a negative net worth unfortunately, however only by a little. We are still in the debt-repaying stage of our dauntless route to financial independence. Hopefully it won’t be long until we can start firing things up to improve our numbers.
A spreadsheet such as this one is quite the motivation however (and OK, maybe just a bit annoying :))
Basing net worth on multiples of what you earn, rather than what you spend, doesn’t give a great indication on when you will be ready for retirement.
I am 35, and my net worth is at 6x, however as I only spend 50% of my earnings, I will be ready for retirement about 10x earnings, I am aiming for 12.5x, which I will hopefully reach by 40.
It really all depends where on the income spectrum you are. Someone earning $50k a year likely has to be a whole lot more conservative on income multiples, than someone earning $250k a year.
On these net worth charts, I feel the headings should be “Do you have an earning problem” at $50k, and “Do you have a spending problem” at $200k.
My one problem with this is how it is somewhat biased against people that went back to school/got professional degrees. I took three years off to get my law degree (earning nothing during that time period/going into student loan debt), so I’m pretty far behind where I should be at 36, but pretty close to where I should be if I was being graded as a 30 year old.
Whatever, it’s nice to have targets (particularly high ones!), so that if you miss, you’re still in a pretty good place.
Hi Chad,
Simply follow the “Years Worked” column to find your multiple.
Thx
I totally didn’t see your comment before I posted mine, but you’ll see my same exact question below Chadnudj. I basically started from a negative net worth at age 27 but I spent the next 5-6 years aggressively paying down debt and saving up money. I imagine you went through something similar. My peers who started working right out of college probably had $100k+ in their retirement accounts on my first day at my lawyer job!
Anyways I agree with you. Although the these charts make me feel like I’m behind, I think they’re useful targets to shoot for, a good reminder to stay humble and focused on the ultimate goal of financial independence.
Wow, those charts make me feel inadequate! Do you have a “delayed” version for someone who went to grad school and had to pay down school debt?
My wife and I often talk about how far behind we probably are when it comes to retirement savings and investments. I didn’t start actually earning and saving real money until I graduated law school at 27 (I worked for 2 years before law school but all my money went to tuition!) but even then I had debt to pay down. My wife spent 4 years in medical school and 3 years earning very low wages as a medical resident.
Our incomes are also kind of choppy–there were times I earned a ton working for a corporate firm, and there were times I earned well below my market value by clerking for a judge. The same goes for my wife–she didn’t earn much as a resident, earns a lot right now as a cardiac ICU hospitalist, but her salary will go back to resident levels when she begins her fellowship in a few months. How do you track how well you’re doing when your income is so variable?
Easy solution for those who chose to delay making money. Follow the “Years Worked” column!
Haha easy solution I should have figured out myself Sam. I think the reason why commenters are quibbling with your chart is because we feel insecure–especially those of us who like to be ahead of the curve when it comes to personal finance.
Amazingly easy solution yeah? I even put the solution in my article’s title “Work Experience”! :)
We see what we want to see. I’ve decided to pre-empt the complaints by writing a comment that I’ve stuck at the top of the comment section.
Not only does it make more sense to divide NW by spending, it should be NW/spending less pensions, annuities, SS, etc. A person who has a $3,000,000 NW and spends $150,000 with no pensions, etc. is in much different shape than a person who has a NW of $3,000,000 and pensions of $120,000. In the first case the multiple is 20x and in the second case it is 100x.
But what about Uncle Fred’s $200,000 inheritance at age 52?
I think you’ll enjoy my 1/10th Rule For Car Buying too. There are TONS of comments from readers who say it should be this or that to take into account for this model year, that auto part, this weather condition etc. It’s great! I distill the 1/10th rule into one figure to make it easy. Follow it, and all will be good. Don’t have to worry about the rest.
For this post, get your wealth to a 20X multiple of gross income, and all will be good as well since most people spend less than they make. Would you like to share your multiple?
I am turning 38 this week and am currently at 7x. It is going to take some serious stretching to get to that 10x, but I am going to make it happen dammit!
25 year old with 2 years of working experience thus far. I hit 1x last year and am now working on increasing my income stream so each factor gets easier to hit. My next target is 100k NW which I should hit sometime early this summer!
I’m at 5x in my 40s….10x if you consider the multiple based on what I’m actually spending to live now. Should have been more diligent way back, but not time like the present to smarten up. Kicked my net rate of savings to 50% in recent times. I probably won’t make it to the high water mark of this chart, but what else can you do but save/invest?
And build extra income streams! Think about them as auxiliary rocket boosters attached on the side of your wings to help you surge father.
I think I’ve officially reached the one million number. I may have actually reached it earlier. For the longest Zillow valued my home below what I paid for it and Trulia way above so for net worth purposes I always used what I paid. Zillow has now suddenly over the last couple of months jumped way past Trulias number. Anyway taking either Zillow or Trulias number I would be considered a millionaire. Did it before 40th birthday, good stuff. Need to keep the momentum going.
That was an interesting poll, the net worth multiple is all over the map for readers of this website!
Probably because the readership is large and broadbased. I should have also included a poll on age or work experience. How about you?
Behind the curve as usual, but not by much, at least until the kids get older…
As for inheritance, our sons will be earning their own way through life. I haven’t worked out all the details, but I’m considering leaving our estate in a trust which matches any non-salary income produced each year until it runs out. Anyone can be a salary slave all their life. I want to raise them to be financially free in mindset which will lead them to the reality.
This table is scary! I’m 48 and have just 5x my annual income (ave last 3 years). I toiled for many years at about 1/2-2/3 the pay I’m making now. I also started late. I’m saving a lot, but even if I use my spending instead of income, my multiple is only 8.5x.
It’s discouraging – I have read you can retire once you hit
How should one account for incomes that change dramatically for year to year or for 20 yr olds that may have started at a low salary but have increased it substantially e.g. $50k to $250k from 23yrs old to 28 yrs old?
Use the income you think is most sustainable and the income you think you could live well off the most realistically.
Very motivating. To your first comment, I think the spending approach is actually more logical, but I’m planning based on the income approach. I expect that I’ll actually need much less income in retirement than I do now. First, I won’t have any mortgage expense. Second, I won’t have any remaining 529 contributions or 401k/other retirement contributions. And third, all the expenses associated with having a stressful job will go away. For this reason, I might need less than 20 times income (assuming mortgage is paid off and 529 plan is fully funded), but I’m certainly not going to put my money where my mouth is on this one!
I had kinda eyeballed my networth in my head for a while and finally sat down and calculated it all out recently and I’m really glad I did (https://untemplater.com/personal-finance/2016-net-worth-report-i-want-to-be-a-multi-millionaire/).
I’ve really started to get more and more interested in PF and investing in the last few years and while that makes me wish I was more aggressive in my 20s, I’m happy with what I’ve done so far. And I hope to continue on an upward trend going forward.
.5x right now (29), my wife and I make around 125k a year but are still paying about 12k a year towards my student loans. We have been steadily increasing our savings rate every year by 5-10%. getting to a point where our net worth will start gaining momentum. I have been in the workforce under 5 years (graduate school).
I know we need to cut our spending further, we go through waves of blowing to much money on trips and sushi……
We plan to retire early so we better get moving based on these charts :)
I’m 26 with a net worth of about 10X my current income. What am I doing wrong?
Either humble-bragging or not earning much. Maybe you received a fat inheritance? Even on the hyper-aggressive chart, 35 is the age FS calls out to reach a 10x multiple. Care to elaborate on your situation?
Not sure how to use your tables. I’m in my mid 20s. I used to make six figures, but (willingly) got a new job three years ago where I make well under 30k. My net worth is over 10X my current income, but this seems too good to be true.
Enjoy it! And work your way to 20x.
If you are happy to live off $30,000/year, then more power to you!
Hi Sam, the targets are great goals to attain, another perspective would be to also look at the targets as net worth increases with respective years of work. This would speak to more of building the ability to save and max out pre-tax as with the previously mentioned spread of networths, some readers myself included may have educational debt and that starting age of working years varies accordingly as well.
Hi Sam, i conisder myself a big saver, however i am nowhere near your saving targets. I dont believe this is bcs of my spending habits but bcs i started making good money late in my carreer.
I think this makes a substantial difference and should be taken into account.
If i average my median income in the last 3 years, my nw is only 3 times that and i am 44. However if i make an average of my income over the last 20 years (a bit difficult to calculate actually) i would say i am at 15 times.
However i do max out 401k, max out college saving for my child, save approx another 40% of my net income. However with your method my nw should be way higher than what actually is.
So i feel the chart is too generic to be applied as a rule.
I love your posts, btw.
Thanks a lot
Hi Babets,
You can shift your comparison to the Years Worked column as well.
My chart is based on my knowledge that once I got to 20x average gross income for net worth, there were practically no more financial worries anymore.
S
Sam I am confused why you think 50x is too much. Isn’t having a perpetuity payment situation just about ideal? I mean net of inflation the real cash value goes down anyway. And of course this assumes a static 2% risk-free RoR. It could rise (or I suppose fall..). Anyhow Shouldn’t we be hedging against medical advances which allow humans to live much longer?? Hence the perpetuity…
FYI I’m 31 and 4.7x based on your math.
-MrB
I think after 50x, making more or having a larger net worth will have 0% effect on happiness and security, which is what it’s all about. Also, the government imposes a hefty ~40% Federal death tax on wealth over $5.4M per person. Hence, best to donate the money to help others or spend the money and enjoy life with your hard earned wealth. Do you not agree? If not, what is your max multiple?
Sam
Hi S: When you say net worth, does that include the equity we have in the home that we live in?
– An avid reader
Check this post out. It’s really up to you.
https://www.financialsamurai.com/why-its-ok-to-include-your-primary-residenc-in-your-net-worth-calculation/
The limit on employee contributions for your 401(k) in 2016 is $18,000. For those with a SIMPLE 401(k) plans, the limit is $12,500 in 2016.
If your employer offer “contribution match”, the total amount that can be contributed to a 401(k), including both an employee’s maximum of 18,000, and any contributions from the employer, is $53,000 for those under 50.
The income limit for taking a full deduction for your contribution to a traditional IRA when you are not covered in a workplace retirement is $117,000 for singles.
Based on the ratio above, and using real returns of 6%, after n years of work you should worth x your income.
n=5 worth=0.95x
n=10 worth=2.2x
n=15 worth=4.0x
n=20 worth=6.3x
n=25 worth=9.3x
n=30 worth=13.4x
Note that the multiple is inflation adjusted so you can use the multiple on your current income. And also note that returns varies from year, but in the long run it is 6%, so dont get too hung up when when your worth doesnt match exactly with the multiple.
Hey Sam,
Interesting calculations and very motivating to try to hit those goals. I think it’s important to not be de-motivated if you don’t quite hit your targets, and still appreciate how far you’ve come (and try to work even harder for the next milestone).
We’re not quite where we’d like to be at this stage in our lives in terms of net worth, we’re only just starting, but hopefully we will hit our targets as the years roll by.
Tristan
May have already been discussed by the jump from 28 to 30 needs to be reviewed. For a NW based on comp of $150K you are essentially saving every $ made?
I’m surprised how low the poll results are. Is it just because there are many readers in their early/mid 20s?
Sam – always entertaining to see a guideline you offer mistaken for a law of physics.
It reminds me of sell side research models – the astute investors aren’t reading those reports for the stock price target – they’re digesting the thesis offered by the analyst. At the end of the day, people can quibble about an accounting line item until they turn blue, but there’s a prayer of a discount rate in that model that has much larger implications.
I personally like the framework you use for targeting FI.
1. Think and operate to the most conservative parameter.
Facing the choice of income or spending in the denominator? Plug in income. Include or exclude home equity in your NW calc? Try excluding.
2. Remain future oriented and have some sort of benchmark.
Everything we do in the present is a trade with our future selves. You really drive this point home with your template.
3. Personal accountability.
Find a way to reach our self-appointed targets (multiples) by making executive decisions. Using this table as a literal guide is missing the point – the larger concern is that we readers hold the power to respond to changes and update benchmarks along the way.
I’m genuinely impressed by some of the outcomes achieved by various posters – 4x income at 28 is quite an undertaking if self-made. Folks like these are focused on the fundamentals and the rest is taking care of itself.
This is kind of depressing to read. I’m 55, worked 30 yrs at mega corp and NW is $1.15M. All but my first two years I’ve contributed to 401K at company match (now maxing at $18K). Why don’t I have $1.5M? Annual pay is ~ $125K.
That figure includes my home equity (should it?).
On the plus side I have a defined benefit pension that will pay me (fingers crossed) $37K annually as of April 1st, 2016. Can I include that in my NW? An annuity would cost about $625K that would pay the same income stream. Please advise! Cheers!
The pension is absolutely worth a lot of money and should be included in your net worth. $37k annually is worth at least $1M in my book!
Sweet! That makes me feel better. Cheers and thanks for the feedback!
I have 5 times my average income of the past 3 years in networth. But when I break it down by average spending it’s at 17x. My income grew a lot, my spending stayed low and invested the difference. But going for the income multiple will definitely allow me to have more. I suppose it’s better to have more and not need it, than have less and need more.
Sam, I may be missing something but can you explain one of the multiples? You said when you left your job you had 15x your income as net worth. Did you mean you had 15x your annual spend, or 15x your actual total comp? Given what I know of mid level ibanking salaries, and that you saved over 50% of your take home pay, I’d figure having 15x your last 3 years’ comp would be equivalent to about 60 years of living expenses (and a very large number), and from other posts I don’t think you felt you needed that much.
Did i misunderstand? Thanks!
Hi Josh,
Around 15X my last year’s total compensation, which wasn’t very good compared to previous years. My severance package was large enough to pay for 5-6 years of living expenses, which meant I could save/invest 100% of all after-tax income earned between 2012 – 1Q2017 to try and “catch up” to the 20X target.
In 2012, I probably had around 45 – 55 years of living expenses at my existing lifestyle (back then, about 15% of my net worth consisted of the equity in my primary residence, which wouldn’t be liquidated, and 30% of my net worth was in property, so same thing).
I did not know whether I might require MORE due to insurance costs, desire to travel, fill the void with expensive toys, etc in retirement. It was only after a couple years did I realize I needed LESS in retirement. You can save a lot on daily work expenses not having to go to work. And there’s a lot more free/cheap stuff for people who are willing to attend during off-peak hours/months.
Not everybody is going to be as an aggressive saver and investor. Some people might spend more than they make or make bad investments too. Therefore, shoot for 20X income before retiring/declaring FI and I’m pretty sure all will be good.
Great post, Sam. Any way to make your pictures more mobile friendly? They’re too pixilated, making it hard to read
Look pretty mobile friendly to me w/ the resolution. Try turning your mobile horizontally.
I am at 10x of my base salary and 30x of my annual spending. I am afraid to quit my job because I am still in my early 40’s and ~40% of my NW are tied up in my primary home. Being a single female and living in the Bay Area, I am definitely more conservative when it comes to investing in the stock market. My parents have always taught me that all debts are bad, and I should pay them off ASAP, so that’s what I did and been doing. I wish I had come across your blog lot earlier and learn about early retirement and passive income. I guess it’s never too late to start. I am working on my passive income now and I hope to get layoff in 3 years.
It’s definitely a great goal to pay off all debts before retirement. But if you retire early, I dare say you will do something to still earn some money, and you should have some passive income to help pay down the mortgage anyway. Retirement isn’t as expensive as you think, if you have the necessary insurance policies in place!
I will be 53 this fall. No debt. $2.6MM NW including 20% home equity, 30% in Cash/Taxable Investments and 50% in 401K/Non-Taxable Investments. All self made as my wife and I married with very little money. We have lived well below our means for our 30 year marriage so it can be done. My wife has been working part time for over 30 years with no benefits to make her own “mad money. Kids college education funded through 529 plans and started saving since birth … 1 child graduated and funding her own graduate degree and graduating in 2016 getting married in 2017 and 1 child graduating college in 2017 with Bachelors. My goal is to retire from Corporate America at 55. Not sure I’m going to make it that long as my patience is wearing thin! By your chart I’m exceeding the 20x multiple based on income and NW and based on the expenses I’m ~40x multiple. My wife and I are both very healthy. The only thing that keeps me from quitting is health insurance and the uncertainty of our country’s leadership. What are my plans when I retire ? … would like to work part time doing remodeling/handyman work/refurbishing homes to flip or rent depending upon the market conditions. My problem is that at my age, I’m worried about retiring too early and losing my skills with 30 years of technology management under my belt. Being out of the industry for a year puts you well behind as technology changes constantly. Thoughts? Am I just being too damn conservative?
If you want to leave, you have the financial health to leave your job. I would stay until 55 if there is some type of health or retirement pension. The final two years will go QUICK when you KNOW the end is near.
Check out these posts for your questions: Overcoming The One More Year Syndrome To Do Something New
and
Shoot To Retire By A Certain AGE Not A Certain Financial Figure
No, I would not get any health benefit at 55, would be on my own. Pension, a small pension…maybe enough to pay for 1/2 of annual health insurance premiums for my wife and I. I think another good article for those that are in or seeking Financial Independence is what are the options and costs for protecting your health without breaking the bank and eating through all of your cash. Although, we are healthy now and we all think we are invincible, how do we have piece of mind in our FI days that we protect ourselves and families? Enjoy your articles and readers comments…all hard working people with great experiences that I continue to learn from.
“Years worked” should be the first column, and the age should be presented as a range in the second column. I’m 31 and because I have a double master, I only started working 6 years ago (and not 8). This table would seem a lot less obnoxious by simply switching columns around. The risk, showing numbers that are too aggressive, is losing a lot of good readership. You offer great, inspiring financial advice on your blog, but if you say things like “if you don’t have 150k saved by the time you’re 28, you’re doing it wrong,” you’re losing my attention because it sounds like you’re talking to the 0.01%. Take it back to 1% and I’m all ears.
Did I say a 28 year old is doing it wrong without $150k? If so, please point it out and I’ll change the language. These are target net worth amounts. If it makes you feel better by switching the columns, feel free. If you chose to start FT work at 25, then simply go with 6 years of experience.
The top 0.1% have waaaaay more wealth than the top chart.
Based on your experience, what do you think the targets should be by age, work experience, and income?
Thanks for responding!
The table suggests that a 28yo making 150k but who has saved less than $150k is not on target, but it assumes a 28yo making 150k in the first place, and that’s theoretical data.
I’m sure you’ve seen this: https://en.wikipedia.org/wiki/Personal_income_in_the_United_States
I’m mostly reacting to the way you choose to display data.
Overall I think your numbers are ambitious yet accessible, at least for the type of people who would be landing on your blog.
I see you adjusted the factor for young people, which is good. I remember seeing this table a couple of years ago and feeling somewhat discouraged. I’m more or less on target now (I would not be if I had student loans).
I wouldn’t get discouraged, but motivated.
The longer you work and save, the more you will see these targets ARE achievable. Things just seem harder in the beginning, but things do get better as momentum builds.
I strongly believe many people can achieve these figures. Having targets make saving and investing more meaningful and I wish I had a net worth target guide to follow growing up.
Nice goals to shoot for in those green rows of the Extreme table.
For the average income, how many past years should we use to calculate?
Does this factor folks with kids? How should one think about living expenses in 20s-50s when one is likely to be incurring a higher levels of spend during child-raising years versus the run-rate of expenses once (hopefully) they leave the nest?
Yes, i agree. You can live on close to nothing when you are young and single. Add a family, a mortgage for a (bigger) house, after-school care costs, summer camp costs, vacation costs, monthly credit card bills, bigger/safer/newer car, college savings, etc etc. if you retire at 30 yo with a salary of $50k and savings of $1M, you still may in for a rude financial awakening when those kids start arriving and you closed down your career.
For now I’m a little bit below the target with 0.2 at age 24, but I’m still proud because at least now my net worth is positive, and two years ago I had over 30K in debt. I have a pretty high savings rate for my age, at 40%, so I imagine that as I get older I’ll be able to meet or exceed those targets. My focus should be on earning more, since I already live on the minimum I feel comfortable with, and don’t think that it’s worth it to live in deprivation for years just to put away a little more in the bank. I always think it’s interesting that among the personal finance community I’m not really that badass, but compared to the general population I’m way ahead of the pack.
It’s always a little slow in the beginning. Give it 10 years of methodical saving and investing and I’m sure you will surprise yourself with how much you can grow your wealth.
Surround yourself with people who will encourage you to do more and be better, and you’ll have an easier time getting there.
Tables look good to me – My problem is my income has gone from ~$60k/yr to ~$250k/yr counting bonuses and stock in the last 6 years (roughly the same increase in $ each year) so its been hard to get my savings multiple well above my income in that time period since the denominator has gone up 4x and a good portion of that income (~25%) vests over 3 years so there is a lag on when I actually receive the money to set aside for retirement.
I believe I need around $3-5MM for retirement as our annual spending needs pre-tax are around $100k/yr, which includes 2 international trips a year. Could go a bit above that if we want to travel extravagantly for a while.
Great article. I just shared this link with my facebook followers.
The chart is a great example of how people should be thinking.
Then using insurance and risk transfer to protect their net worth is a topic that I am most excited about. For example, if your net worth is a function of mostly speculative risks, most cannot be insured – but can be hedged. or as you describe using risk free assets.
The other components of net worth, including your home and any liability exposures, need to be appropriately protected so your net worth is not exposed in the event of an accident.
I am a big fan of buying as much umbrella insurance as can be afforded. to protect your NW as you get up to 10-20x it will be important.
There’s something odd in the assumptions between 35 to 40 and 40 to 45. For example in the $200k+ column the target for 35 is $1million, target for 40 is $2million and target for 45 is $2.6million – basically means you need to save around $100k per year from 35 to 40 to stay on target, but then 40 to 45 you don’t need to save at all the hit the target – what’s driving that? I know you don’t like people picking at your numbers but that outcome is fairly odd and I think a lot of people will drift off track from 35 to 40 but be back on track by 45 without actually doing anything different.
Look at the numbers from 28 – 30 – they essentially indicate you need to save every dollar you make. The numbers are a good model but in order to portray a realistic model you need figures rooted in reality. Its not picking at numbers if they are not logical. I appreciate the overall premise but it lends questions if series are not rooted in reality as you have pointed out.
Hi Sam,
speaking from where I live, perhaps there are two groups and not one single chart as you have it.
Two observations:
[i] There is a ‘critical mass’ net worth amount, that varies where you live. Once you hit that level, investing to gain new income streams gets much easier. In Bay Area I propose that’s around $2-3M.
[ii] I’ve come across 2 groups of wealth-builders: achieved CM early (say, age 35-40) and later (will get CM by say 55-65). Not many fit in between, so I see 2 groups with a 20 year gap. The second group I am familiar with mostly have a slow flat line of nw growth until they moved here and then it suddenly jumped up due to opportunity.
Explanation –
Anecdotally, all the Group 1 folks I’ve met got there fast through right place/right time opportunity at a new business venture(s). I observe that many 30-somethings who have net worth CM have >$3M nw got there through “being here”. Now they can invest and achieve that smoothly rising growth chart you show.
All of (us) Group 2 folks lacked the opportunity to be early so our chart will almost certainly have lower numbers until we too “get lucky” and catch up. Example, in my case, raised in small town NE rust belt, hardworking culture but places like Manhattan and SF were *not* on my parents or neighbors radar. (In my home county, I estimate $0.5M nw is regarded as CM).
Once I got to the Valley, things changed and I too got a connected, met cool people and got relatively lucky. Where I came from, we had to seek out new-technology, tools and startup news but here, its in your face daily; one drinks from a fire hose of information leading to opportunity. So, even though I and others started late, we caught up quickly. Our charts are not linear.
Dave in San Jose
Hi! I like your site! Thank you! I just stumbled into it when googling for buying RE on leverage led me to one of your past posts. Your site has interesting reads and makes me think…
I’m 40 and my NW including RE reached 21 x Income. But my semi-liquid assets (including retirement) is at 18 x expense. Reverse of Tenser’s situation due to difference in ratio of RE and ‘semi-liquid’ assets, income & expense being not much different. Do equities in retirement accounts count as ‘semi-liquid’ assets?
Using the Mint App, my net worth is still negative with all my student loans. At 29 that is pretty depressing. I’m slowly building up my wealth, but I’m going to have to do something drastic to meet those target goals. How much do kidney’s go for on the black market?
Thanks for sharing!
I heard in IRAN kidney’s get sold for $5,000!
Another great post Sam. I read this when it came out but looked again today. To the Canadians on the forum, you definitely need to make appropriate adjustments in your thinking while considering the wealth targets. Our taxes are overall considerably higher making saving much more difficult particularly above $200K (but true throughout the spectrum). Our health care is conversely much more affordable so less of a consideration for retirement needs, at the moment anyway. Our government sponsored social benefits on retirement are approximately half those available to our US friends in the foreseeable future (I’m talking CPP+OAS versus SS when both are at the max level). In general our costs of living are higher in many categories but Toronto and Vancouver would be comparable with SF, Boston, or NY in round numbers. There are many more differences, and some of these are quite material when you are talking about your retirement passive income or capital scenarios. So, puts and takes for sure that we Canucks need to related to. Otherwise, the analysis is very helpful and while aggressive, that’s good and in the spirit of the FS approach.
My husband and I are both 31 with a 2X multiple. We had no student debt when we graduated together at age 21, but we also had three kids in our 20s and I “retired” at 24 to stay home with them, even though I had the higher income. It has been worth it, but I cringe a bit when I consider what our multiple would be if I had kept working…
As a CFP I appreciate what you do and your straightforward Keep It Simple Stupid Kiss approach to building wealth and savings for retirement. Cheers. Next time youre in Ann Arbor would love to grab a beer✌️
I’m 45, husband 48. Large gorgeous house (bought long ago in SF Bay Area) in wonderful area is conservatively worth 500k, could be as much as 650k+ with cosmetic improvements in current market (though no intention to ever move). 250k equity, very low monthly payment on 265k mortgage (40% or less than market rate for comparable rent). Credit is shot but not a lot of need to borrow for anything. Very low income. I’m self-employed making $15k-$25k (could go higher with 10x more hustle). He’s making $50k/year in blue collar job working 80 hours a week (but he loves it, keeps him out of trouble). 2 amazing resourceful kids in public school and doing low-cost activities. 1 old car we love. Very good at living on not much money. $225k in Vanguard IRA. $12k debt incurred last year for medical expense, intend to refinance it (also claimed it on taxes). How are we doing? Do I calculate correctly that our net worth is ~$500k (IRA plus house)?
I hope someone will answer — in past comments I have found us low-income types don’t get any attention on this blog, but I totally agree with FS principles (and just read Millionaire Next Door). I have several streams of passive income and am building them up (currently they are making $300/month income and that’s enough to make me take notice!). Also working on remodeling a space to Air BnB it for additional passive income.
65 to 75k is low income? That’s well above the median income in the US and around the median in the bay area ) Your income may not be as high as some but you are not low income.
I think you are calculating your net worth correctly given the numbers you have reported. You are at about a NW to income multiple of 6.5 to 7.5, which is pretty low for your age. So to answer your question of how you are doing… Not great.
Thanks for replying! You actually gave me a boost with your comment that we are not low income.
However, this 2015 table from has the following definitions for Alameda County, family of 4:
moderate (!) income for family of 4 = $112,200
median = $93,500 (as I thought)
low income = $71,600
very low = $46,750
extremely low = $28,050
Wow! If we were pulling in 6 figures, while still spending as little as we do now, WE’D BE SO RICH. Or is that flawed thinking? Save now today matter how much you make?
Anyway, thanks and at least I’m on the right path in knowing where we stand. Much more to do in terms of savings and safety net. Could be cool for FS to do an article on how people like us live so well in such an expensive area — it still seems like his focus is on high earners even when he wonders how people live in Manhattan or SF. I super appreciate his perspective on SF Bay being worth it. Love LA but there are too many people there.
Sam – Is this total net worth (i.e., includes home equity) or liquid net worth? Thanks.
Total net worth. Thx
Thanks for the crazy fast response, Sam.
I believe that if you want to have a higher net worth, or more importantly wish to retire young, the key is to start in your youth. With compound interest on your side, starting to contribute to a Roth ira at 16 can be the most beneficial decision in your life. I built up an extensive savings by the age of 15 working at the golf course and with my stock portfolio. At 16 I opened up a Roth IRA with my Etrade broker and begun contributing. My goal is to max out the IRA ($5,500) every year so that when I am out of college I will already be more than 5 years ahead of my peers. With compound interest on my side this will allow me to retire much younger than anticipated.
Most of my life I made much less than I do now. It was only in the last 8 years that my income jumped and I played catch-up. If the first 3/4 I made much less, but now make much more. How do you suggest I calculate?
Sam, is there an easy way to translate your advice – graphs, financial goals etc. for someone planning on moving to England?
Can you recommend a British counterpart of yours or something? :)
I think your net worth table is interesting, but the interpretation is something like: This should be your goal for savings to get you to the 20x by 60 (or something similar). A 20x NW is really a 5% withdrawal rate. So this is a different view on the standard rule of thumb – which was usually 4% for 30 years of retirement to slightly less these days according to most planners.
Many of your readers are probably interested in retiring early and want to know when they can be serious about taking the plunge. This table is not that helpful for that question because the focus is increasing savings until the 20x at 60. A more interesting table is the same columns but the factors and values are such that you would be comfortable at any age to retire. So if at 60 you need 20x at 50 you need more – say 27x. The interpretation of the table would be – At whatever age you hit this (age, NW) mark you should feel comfortable trying out early retirement.
Hi Dan, I’ll make it more clear to help you another readers understand The chart. Because I have an original post.
If you can get the 20 X your average household income, no matter your age, I declare you as financially independent and can retire early if you want, at whatever age.
When you refer to “average household income” in the 20 X recommendation, are you referring to NET or GROSS?
Thanks Sam.
I’m referring to your gross average household income over the past three years, since top line can’t be manipulated.
But you are welcome to use the average NET income if you want to be more aggressive.
Hi Sam — just curious about the expected return rate on the 20X figure. Seems like that is assuming a 5% return (with no dipping into principal). Given today’s interest rates, seems like a high expectation… wouldn’t 3% be more realistic? And if so that would be more like 30X…right?
Thanks,
-Ben
Just a comment for young savers. When you add kids and house, costs can increase at a surprising rate. I used to live on $15k per year when single (albeit 20 years ago). Now it’s close to 10x that, and I consider myself relatively frugal.
Sam great read… I have to say that living in CA housing market, the posts about saving a bunch of money living off only $200k is easier said then done. equity plays a huge part of NW. I pride myself on saving and 30% of gross is as good as I can get done barring an emergency. Also, the posts on living expenses vs. income as a calculation is not exactly accurate at first glance , I feel as you are still taxed on that money, correct? I am not sure how that tax is calculated purely in a calculation of expenses x multiple. Getting to $5m seems a task. I think the plan is save, sell the house and get out of CA?