Net Worth Benchmarks

[saltydog]

A few years ago I came across an article that gave benchmarks for personal net worth stated as "x" times your annual income. The benchmarks were stated for age brackets (30s, 40s, 50s, etc), and I vaguely recall that for someone at about 35, the benchmark was 3-5x gross income.

I know from the "Millionare Next Door" that the wealth accumulation formula is similar with (age*gross income)/10, but deosn't necessarily produce similar numbers.

Does anyone know of any similar personal net worth benchmarks?

 

[donheff]

I remember that about 40 years back the sign of a financial winner was to "make your age." Inflation made that a short lived big deal.

 

[Craig]

I think I'm being taxed my age ...

 

[jazz4cash]

I dug thru my archives and found a formula printed in Money Mag Dec '03, but turns out its based on Millionaire Next Door

So whats good or bad with this formula?

My problem with many of these benchmarks is that they usually use "household" data and I wish it was based on household size.

Average Net Worth (ANW) =Income * Age/10
The benchmark is 1.0 (Average)

 

[Nords]

I dug thru my archives and found a formula printed in Money Mag Dec '03, but turns out its based on Millionaire Next Door
So whats good or bad with this formula? 

The problem with that formula is that it was derived to fit Stanley's small sample of millionaires who bear little or no resemblance to the rest of society.

In other words it was a way of establishing a yardstick that was only applicable to the group of people who he profiled in his book.  If he had even suspected that the media and his readers would actually try measure their own performance by his formula then he never would have published it!

 

[WRBT]

Yeah that formula can really throw unrealistic numbers, it's far to blunt a tool.

Take someone who just got out of law school 26 years old just got first job making 85k. They're not likely to have a 220k net worth... it'll probably be negative by a good bit with student loans.

Can work the other way with someone who's recently downsized their income.

 

[haha]

As in most financial things, it doesn't matter how you compare to others. What matters is where you are on your personal journey to wherever you are going.

Ha

 

[Gumby]

HaHa;

You are a wise person.

Gumby

 

[BunsGettingFirm]

True, Haha, but sometimes when I was stuck in cubicle hell, I couldn't help but trot out the numbers if only to see how much more of a hell someone else with less money must be experiencing. Sad but true.

Now I find myself in school learning and doing the things I want to do, I don't trot out the numbers. Having tons of attractive women to talk to everyday doesn't hurt my mood either.

 

[haha]

Gumby, thank you for the kind words.

Buns- I know what you mean. I am in favor of anything that can help a person cope. All I meant really was that we all approach our goals differently, and often have very different goals. Much of the expensive things that some like to do I likely won't be doing. For the most part I would rather hang out and do things with friends in places that I am familiar with already, or maybe just read a book. So I might not feel that I need quite as much money as someone else.

OTOH, I make pretty conservative assumptions, so I might need more money to be able to be relaxed about it.

And I definitely agree with you that being around kind, attractive women is a real upper. 

Ha

 

[Hamlet]

Yup. His formula doesn't work at all for someone under 35.

The problem with that formula is that it was derived to fit Stanley's small sample of millionaires who bear little or no resemblance to the rest of society.

In other words it was a way of establishing a yardstick that was only applicable to the group of people who he profiled in his book.  If he had even suspected that the media and his readers would actually try measure their own performance by his formula then he never would have published it!

 

[Nords]

Yup.  His formula doesn't work at all for someone under 35. 

His "formula" doesn't work for anyone who wasn't interviewed for "The Millionaire Next Door"!

It's not a formula, it's a mathematical summary of the data he collected. It's like trying to value today's stocks using a chart from the year 1996.

Now everyone stop using it for a scorecard!!

 

[sgeeeee]

Here's a networth benchmark we considered some time back:

http://early-retirement.org/forums/index.php?topic=3621.0

If you are going to use this, you need to backout SS and/or pension income from projected expenses or convert those benefits to a present net worth and add them to your savings/investment net worth.

 

[jazz4cash]

Here's a networth benchmark we considered some time back:

http://early-retirement.org/forums/index.php?topic=3621.0

If you are going to use this, you need to backout SS and/or pension income from projected expenses or convert those benefits to a present net worth and add them to your savings/investment net worth.   

The first post under that link reads.........As far as I know, this FOM has no merit, but I wanted to try out the poll function. ........so what am I missing?

 

[sgeeeee]

The first post under that link reads.........As far as I know, this FOM has no merit, but I wanted to try out the poll function.      ........so what am I missing?

the remainder of the posts? :

 

[ash]

The problem with that formula is that it was derived to fit Stanley's small sample of millionaires who bear little or no resemblance to the rest of society.

In other words it was a way of establishing a yardstick that was only applicable to the group of people who he profiled in his book. If he had even suspected that the media and his readers would actually try measure their own performance by his formula then he never would have published it!

While I agree with you that the formula itself isn't very applicable to a wide range of people, Stanley does indeed present it as though it is:

"Whatever your age, whatever your income, how much should you be worth right now?...A simple rule of thumb, however, is more than adequate in computing one's net worth...Given your age and income, how does your net worth match up?" (The Millionaire Next Door, pages 13-14)

And of course this advice is given under the heading "How to determine if you're wealthy." (emphasis added)

How can one read that and not think that the author intended anything but for the reader to apply that formula to their own financial situation?

I love the book by the way, and am currently encouraging my 13 year old to read it.

 

[MasterBlaster]

Here's another link to a discussion of net worth benchmarks

http://early-retirement.org/forums/index.php?topic=5883.0

here's the table that I posted in that thread. See the referenced thread for the finer points about this benchmark.

 

[Gone4Good]

Does anyone know of any similar personal net worth benchmarks?

1) Enough to retire

2) Not enough to retire

I can't think of any other benchmark that matters.

 

[youbet]

1)  Enough to retire

2)  Not enough to retire

I can't think of any other benchmark that matters.

So, you're still chosing to be a number two?

 

[Mudd]

Well today is my 34th birthday. I'm not sure if I meet certain benchmarks or not , but I think I'm doing o.k. I went to law school and didn't start my career until I was 25 with some SL's. Pretty much done w/ the loans now. My wife and I adopted our first child and those fees weren't cheap. So b/c of those two things we probably aren't leading the pack for 34 year olds, but I'm happy where we are at. We have approx 80k in retirement, 15 k cash(MMA), an affordable mortgage, college funds for both kids,and jobs we enjoy. I can sleep at night knowing I am doing my best to LBYM and enjoying life at the same time.

If you are reading on this board, you are probably ahead of the game. Can you retire at 37? 47? or even 60? Who knows. But if you're regularly reading this board, you're definitely ahead of the masses. Enjoy the ride, and keep working at it.


Mudd

 

[jazz4cash]

Well today is my 34th birthday.  I'm not sure if I meet certain benchmarks or not , but I think I'm doing o.k.  I went to law school and didn't start my career until I was 25 with some SL's.  Pretty much done w/ the loans now.  My wife and I adopted our first child and those fees weren't cheap.  So b/c of those two things we probably aren't leading the pack for 34 year olds, but I'm happy where we are at.  We have approx 80k in retirement, 15 k cash(MMA), an affordable mortgage, college funds for both kids,and jobs we enjoy.  I  can sleep at night knowing I am doing my best to LBYM and enjoying life at the same time.

If you are reading on this board, you are probably ahead of the game.  Can you retire at 37? 47? or even 60?  Who knows.  But if you're regularly reading this board, you're definitely ahead of the masses.  Enjoy the ride, and keep working at it.


Mudd

I like the sound of that!

 

[scrubradio]

I read the formula in the millionaire next door and decided
to see where it said I should be for fun. I got a good laugh.

I knew I wasn't the millionaire next door, that is why I bought
the book.

 

[tryan]

So whats good or bad with this formula?

...

Average Net Worth (ANW) =Income * Age/10
The benchmark is 1.0 (Average)

The "problem" is that the older you get the more out-of-wack (on the LOW side) the ANW becomes. For example, the formula says a 65 year old making 100k should have a NW of 650k .... I wouldn't want to be 65 retiring on 6.5 times my income. Heck a 4% withdrawl requires 25 times income/outcome.

 

[daystar]

I just set up my own personal, achievable benchmarks. I'm 27 with a net worth of $235K.

28: $250K
35: $500K
40: $1M
40+: Who Know's?

 

[dmpi]

I just set up my own personal, achievable benchmarks. I'm 27 with a net worth of $235K.

28: $250K
35: $500K
40: $1M
40+: Who Know's?

Don't let people tell you your aiming too high.

About 13 years ago, I Setup my personal benchmark & it was almost exactly like yours.
Except I said at 45 I'll have $2M. I hit the 500K & 1M but missed the 2M benchmark because of the dot-com bust. I did eventually hit it at about 46.5.