How do we stack up?

D

Daddy

Confused about dryer sheets
Joined
Feb 12, 2003
Messages
6
Hope everyone is well!  I made my first and only post last June in the 'Hi, I am...' forum and titled it 'Young Dreamer'.  One month after my post, there was a new 'Young Dreamers' forum.  Does this make me famous? ;)

Anyway, although I hardley ever post, I am reading in here almost every day and enjoy all the posts but I am especially interested in the Young Dreamers forum because of my age.  

There's one thing that I have yet to figure out and that is how my wife and I are doing when it comes to retirement savings compared to others who are around our age.  

I'm 30, she's 28 and we have just about $90,000 saved in our 401k's.  I have no idea if this is above average, below average or just about average.  I haven't been able to find anything that provides what the average American family has saved for retirement at various points in their life.  Does anyone know if figures like these exist?

Many thanks!
Daddy
 
There are in fact figures, and they're dismal. Most americans arrive at 50 without any meaningful retirement savings aside from the company pension plan and hopes for SS.

At 90k with both of you in your 20's (I know you're 30, but I didnt acknowledge entry to my 30s until about a year ago at 42) you are probably in the top 1% of the top 1%.

Now keep going.
 
I don't know of any stats, but I can say that you're way ahead of where I was when I was 30.

Here's some figures for you :
90,000 at age 30, save $100 / month for 25 more years
at a return of 6.5% will give you $532,073 by age 55.

If you don't put any more money into the 401k,
ie. 90,000 at age 30, save $0 , return of 6.5%,
you'll have $456990 at age 55.

You're doing just fine. Keep it up.
 
Ok, here are some numbers from various studies. As with most studies, the results are entirely suspect, but as ballparks they should be ok.

% of americans who have saved anything significant for retirement: roughly 2/3. This number is rising year on year.

% of americans who have calculated how much they will need for retirement: about 37%. This number was low before the stock market run-up, moved up above 50% until the market peaked in 2000, and has since fallen back.

% who feel they will have adequate funds to retire on: 49%

Average amount they feel will be adequate: $26,256. Percent of those that are right: Less than 10%. All on the upper part of the average calculation.

Average savings per american per year: $2388

Average amount saved annually by americans age 25-34: $1761

Percent who have saved more than 100k: 17%

Percent covered by any employer retirement plan: 49%

44% of americans have balances under $10k.
14% have 10k-20k
46% have under 50k
15% have nothing saved
Average amount saved by Americans in their mid 50's: $71,250

With social security looking doubtful (if not the presence, at least the amount), and medical advances moving to increase our expiration dates forward, the future looks to be full of old folks with no money. I wonder if this will crush inflation due to the fact that the mass majority of people wont be able to afford higher prices, or if we'll simply turn into a country of poverty stricken elderly...
 
Hey Daddy !
Sounds like you are doing great ! I'm 33 (soon to be 34, ouch !) and I have about $75K in my 401k plans. I also have some serious savings in taxable plans as well, close to double to what I have in 401k plans. If you want to retire early, you need to save over and above the 401k plans, if you are looking to retire on time, you are doing better than pretty much everyone else !

Define your dream and go for it. Good luck, and I hope this helps !

Pan
 
Daddy, at 30 I had zero. My wife and I started at age 37 & 38 respectively. I'm 51 now and we have enough to retire very soon. At 30, the idea of retiring early had not even occurred to me! You are far, far ahead of where I was at your age.
 
I'll be 34 in a couple of weeks. If you have no other significant assests like equity in a house then together you are well ahead of where I was at 30; divide the loot between you and we're roughly even I think.

I think we're way ahead of the average American 30-somethings, but now that I'm 3 months from my medium-term goal of being CC-debt free I'm starting to play with numbers a bit and am not sure if I'll be able to retire very early if I stick with the assumption that I'll need $1 million to retire comfortably.

I may be able to retire on less or save more, though. I haven't really gotten into the calculations since up until recently being debt-free and saving upwards of half my income seemed a long way into the future. (Now I'm pretty sure that by Jan 1 2005 I'll be 100% debt free, have a few months of living expenses in cash and nearly half of my salary going to savings in addition to my existing nest egg.)
 
Daddy,

Very similar to Bob_Smith here. I'm 52 and ER'd 3 years ago. At age 30, I had a Negative net worth. Credit Card Debt of around 10K. Got serious at age 30 though.
 
Re:  Get a library copy of "Millionaire Next Door"

Page 13 in chapter one of the 1996 hardcopy edition (it was my birthday present, OK?!) says "Multiply your age times your realized pretax annual household income from all sources (except inheritances). Divide by 10. This, less any inherited wealth, is what your net worth should be."

On the next page Stanley says "To be well positioned in the 'prodigious accumulator of wealth' category, you should be worth twice the level of wealth expected."

Chapter two is titled "Frugal Frugal Frugal".
 
Millionaire next door was an interesting book if nothing else for the success vs demographics data.

I should say the first half was interesting because it frankly got a bit repetitive. By page 100 I just said "ok, I get it...save as much as you can, live a simple life and dont waste money...anything else in here?" In scanning the rest of the book it didnt appear to be so.

A great book to read if you're 30 and either havent started accumulating net worth or if you're still living the high life. I think if you're 20, you either wont get it or wont want to get it. If you're 40 and still have no net worth you're getting a little late in the game.
 
We're a married couple, ages 29 and 31, and we've salted away about $240K so far. ER/financial independence has always been on our minds, so we've saved something of what we earned even from the beginning, and purposefully kept debt loads (student loans only, no consumer debt) as low as possible.
 
Thank you all for your responses!!!

Panhead, I do have a question for you. You mentioned that you have a substantial amount of money in taxable plans. For my own clarification, is this money in a Roth IRA or a regular brokerage account?

I want to make sure I understand what you mean because I have a substantial amount of money in a brokerage account and I haven't been funding a Roth IRA like I should be. If I start making the 100% contribution to a Roth IRA, I can still withdraw the principal anytime with no penalty, right? So it would seem that it's a no-brainer to first max out the Roth IRA before contributing to my brokerage account as I would have access to the principal no matter what. Do I have this right?
 
Go to the IRS web site and read the publication on Roths. It is possible to withdraw before "official" retirement but its got to follow some strict guidelines.

But yes, you have it right...max out any Roths before investing in after tax investment vehicles. Its a no-brainer...in a Roth your money grows and can be withdrawn tax free later. In an after tax 'taxable' account, your growth is taxed at capital gains and dividend rates...both a lot higher than zero ;)

Again, read the IRS pub to see if you qualify to contribute, and how much.
 
Net Worth

Is there a standard for calculating net worth? Do the guidelines and rankings posted here follow the same standards for net worth calculation?

Subtracting today's liabilities from today's assest seems relatively straightforward. But I have a vested interest in a defined benefit pension plan and Social Security (well, maybe, maybe not :-/ ) that have no immediate value or any value if I die tonight.

I read somewhere that you should add 20 years' worth of your future defined benefits and add that to your net worth, but I'm not sure if that's actually useful for anything except possibly comparing notes with others.

Also, some people like to add their car, golf clubs and unsharpened pencils to their net worth, and some don't. The things I've read considers these all consumables, though.

When I posted earlier I was only counting my account balances minus my credit balances. (I don't own any property and therefore have no equity.) But if I get to add in 20 years of SS and pension my net worth doubles or triples or more.
 
Well, for years I compulsively figured my net worth
whenever I was killing time, sometimes several times a
day. Cocktail napkins, old envelopes......nothing was
safe from my financial scratching. Anyway, I never added in any future income stream, mainly because
to me net worth is a snapshot in time. As you correctly point out, some stuff you never see if you die first.
However, I did include "consumables" under the
heading "personal property" because if you have a
pencil (even a stubby one) you don't have to buy a
new one for a while and so the cash is in the bank
(or your pocket, or somewhere). Once spent, the cash becomes
pencil value, and is still part of your net worth until it's
worn out. Of course, you could depreciate pencils, paper
clips and dryer sheets. There are several IRS
approved methods to accomplish this :)

JOhn Galt
 
Good job !!! Good start...

My plan is as follows

1. Contribute to 401k until equal company match
2. Max out Roth IRA (Alas, due to an expatriate assignment I am ineligible for Roth in 2003 and 2004)
3. Finish Max of 401k
4. Contribute to emergency fund monthly until it reaches $10K
5. Contribute monthly to 529 for one child
6. Pay off CC debt (already refinanced at ultra-low rates) - WILL BE COMPLETE IN TWO WEEKS !!!

After that, I plan to start pouring money into after tax investment vehicles...
 
Re: Net Worth

Is there a standard for calculating net worth? Do the guidelines and rankings posted here follow the same standards for net worth calculation? . . .
Click to expand...
BMJ,

I think the short answer to your two questions is "no" and "no".

Because FIRECALC makes it easy to plan future withdrawals including social security and pensions, you don't even need to find a way to evaluate the effect of these benefits on your current net worth. Just plug anticipated benefit levels into the program and let it run. Other simulators and programs I've used are not all so friendly. So I have occasionally tried to evaluate a current net worth including pensions and social security. You can find various annuity calculators on the internet to do this, but the range of answers you can get based on the assumptions you have to make is very wide. From a planning perspective, it makes sense to include these benefits in your net worth unless you believe that your company pension is likely to default or that social security will go belly up. :)
 
Re: Net Worth

Is there a standard for calculating net worth? Do the guidelines and rankings posted here follow the same standards for net worth calculation?
Click to expand...
I'm sure everyone does it differently. Here's what I do:

-- I don't count any personal possesions (cars, furniture, etc.).
-- I don't count what I paid for long term care insurance, although it could very well be worth something if either my wife or I need to use it.
-- I don't count Social Security because almost everyone will receive it, so it isn't much use for comparison purposes.
-- I do count the value of my pension. I'm almost 52 and will collect for life at 55 (and my wife will collect 100% if I die before her). It would cost about $300,000 to buy an annuity with the payout my pension will provide. If I die before 55, my wife will receive roughly half that in a lump sum death benefit provided by the pension - plus I have life insurance to cover the balance (which I will drop at age 55). Since either the pension itself, or the value of the pension is virtually assured, I count it.
 
Hey Daddy !

The other money I have is in mutual funds, all taxable, not held in any kind of IRA, Roth or otherwise, and primarily with Vanguard (VFINX). My financial plan is much simpler than many here, primarily because I am single and don't have many of the same things to worry about. I put enough into my 401k to be sure I max it out each year, then I contribute the remainder to Taxable funds. I don't have a Roth IRA, as I've never contributed, but I believe I am ineligible to contribute anyway. So, I basically have 3 pools of money:

1) 401k (current and from previous employers) 33%
2) Taxable investments (primarily vfinx) 62%
3) Bank account 5%

These are just top of my head approximations. Now, I'm going to get a lot of pointers about how I should keep more of that 5% in something that provides me with a better return, etc. For me, it's just not worth it for the convenience. Now, this is also my only "safety fund" if you will.

As for your comment on Roth IRAs, I am pretty sure you are correct about you ability to grab the principal at will, but that is something better answered by the IRS or others on this board.

Good luck and congratulations on your progress !

Pan
 
Daddy, as the data posted before shows I think you stack up pretty well. However, what's more important is how far along you are towards your own goals. If you spend $200k a year you're much worse off with that much in savings than if you spend $20k.

One of the things that perplexes me about the census data is that all the net worths are positive. Surely the lowest quartile of 30 year olds has a negative net worth?

The Millionare Next Door is a great book, but that formula of income x age / 10 just makes no sense. A 30 year-old should have 3 times their income? How can you save 3 times your income in perhaps 10 years, when your income at 30 is probably twice what it was at 22. And, on the other hand, a 50 year-old only 5 times their income? How would you save three times your income in, say eight years, and then only twice your income in the next twenty? It's nuts.
 
Bongo2:

I agree completely on the income*age/10 equation. I change jobs, get a huge raise, and all of a sudden I suck wind according to this equation, plus the other shortcomings you meant. Having never read the book, maybe I don't understand how the equation was meant to be applied, or maybe its just supposed to make us younger dudes (yes, and dudettes) that we up the proverbial creek with out a paddle, and to put a smile on the face of people who have saved for years. BUT ! your other comment is the key: It doesn't matter how you're doing compared to everyone else, it only matters when you have enough to meet your needs.

Ahh, I wish I was already there ! Getting closeer !
 
Does anyone who read TMND question the equation? Gee, maybe the book explains it.

No, no, sit down, I have it right here. "From years of surveying various high-income/high-net worth people, we have developed several multivariate-based wealth equations. A simple rule of thumb is..."

The formula is only derived from a statistical analysis of their data and it has a wide bell curve. It's not intended to apply to all of us, but it worked for a substantial group of substantially wealthy people and I'd rather be on the right-hand side of the curve. Stanley & Danko make their living from advising businesses on how to identify & market to high-net-worth people, so presumably they have credibility beyond TMND.

"How can you save 3 times your income in perhaps 10 years, when your income at 30 is probably twice what it was at 22." The one-word answer is: compounding. A longer answer is: save your pay raises. Our income actually tripled over that eight-year phase of our lives, but our savings rate exploded because we were saving almost all of the pay raises instead of spending to upgrade our standard of living. (OK, we were working our butts off and didn't have much time to upgrade anything, but the result was the same.) Our net worth went from essentially zero to a chunk less than lifetime earnings. It was approx five times our latest annual salary, although a minor chunk of that was home equity. (I keep a spreadsheet tracking salary, savings, taxes, & net worth since 1977. It starts slowly but the acceleration is gratifying, and in 1996 our net worth finally exceeded our lifetime earnings. It's one of the reasons I stopped chasing earnings.)

"How would you save three times your income in, say eight years, and then only twice your income in the next twenty?" It's quite possible that the divergence is caused by buying a home, raising a family, saving for college, and maybe going through a major business expansion. That's pretty much what's happening to us. When you throw in a divorce or another major catastrophe, it's all too easy to see why things dip for a while.

"I change jobs, get a huge raise, and all of a sudden I suck wind according to this equation". Well, yeah, exactly, at least to start. At a minimum you should be saving the same % of your new salary without having any new expenses, and your actual savings rate ($/year) could at least double if you don't spend ANY of the pay increase. And you'll suck at the start, but you'll compound your way to a comfortable lead. The line between prodigious accumulators of wealth and the under-accumulators is that the latter expand their expenses to match their pay raises, while the former expand their savings.

"It doesn't matter how you're doing compared to everyone else, it only matters when you have enough to meet your needs." Absolutely. BigMoneyJim asked for a benchmark and he got one of many. If you don't like it, suggest a better one before you criticize this one. Personally, I think your benchmarks are better since you're the ones in charge of deciding when your expenses will enable you to retire.
 
Hey Nords ! Thanks for the quick summary of the equation. I was going to get up and go to the library to get a copy, but my beer was still full and after work I usually only like to get off the sofa for: 1) a new beer, or 2) bodily function calls. So this was appreciated.

Yeah, like most things, I figured the equation was like using a hand grenade, you don't have to hit the target, just be close. And as you correctly point out, it's much better to be on the right side of the curve.

I also hear you on saving the difference in income from the new job, and once I'm done getting a tuneup on the ferrari and install the $100,000 sprinkler system, I'm all done ! Yeah, right ! More like wash the truck and maybe, just maybe, mow the grass ( oh wait, it's winter, I don't have to yet !).

Probably like most people on this board, I like the equations, ideas, theories, and number manipulation provided by all sources, but the only drum I hear is my own, and to quote (sort of) Franky, "I'll do it my way !"

Cheers all, I need another beer now !

-pan-
 
You must log in or register to reply here.

Similar threads

A
I think I made it...for now, at least.
2
Replies
25
Views
2K
Andre1969
A
B
How much do you spend per month on fitness?
2 3
Replies
58
Views
978
badatmath
B
S
Crazy how much things can change in less than 10 years
Replies
13
Views
798
Surewhitey
S
2
Does my plan stack up?
2
Replies
34
Views
4K
2Old2DieYoung
2
N
Hi, I am new. Just hit 40. FIRE in 7? How am I doing?
Replies
17
Views
1K
brydanger
B

Latest posts

Back
Top Bottom