No… I’m not trying to pick you up,
Yes, I would like to know your number… your goal net worth number that is…
What’s YOUR Number?
In a fairly recent series of ING commercials, individuals walk around town carrying their “numbers.” Their number is the retirement amount that they require to live the life they want during said retirement. I see values in their commercials ranging anywhere from $500,000 to $2,500,000, which is a significant range.
Check out their commercials below, the first I thought was fairly funny… how much is a Gazillion dollars anyways?
Do you need a number?
Is a number a necessary goal? Should you focus on achieving the goal of X dollars by a certain retirement age? I think it’s a wise idea because it’ll force you to consider what things you’d like to do in your life and create goals accordingly based off how much those things cost. Oddly enough a lot of people don’t do this, yet I find it to be one of the funnest things in the world! Your number will be tangible, real, and if the beginning point for you to work backwards. Breaking it down using a time value of money calculator will show you exactly what you need to do today to reach that number. So yes, I’d argue you need a number so you at least understand how much you should be investing today, because the only action you’re going to take, is going to be in the moment you’re in… today!
How do you calculate your number?
In the simplest way to figure this possible I would say figure out all the stuff you want to do while living only on passive income during the course of a year. When you’re retired how much will your lifestyle cost while living off your number? $30k, $50k, or maybe $70k. Whatever that number is go ahead and divide it by .03 which is a very safe rate of return for your number. If you needed $50k a year in retirement that would mean:
50,000 / .03 = 1.67 million is your number
This may sound overly simplified, but in reality all you need to do is figure out how much you need to live off in any given year. If you’ve been using a budget worksheet, you should have a pretty good indication as to how much you need during an average year.
My Number…
At the moment I’m shooting for $50,000 by the age of 26 in terms of retirement accounts. A lot will hinge on how investments do, but with a 10% growth rate, which is fairly aggressive, the $50,000 would grow to about $2.25 million by the time I’m 66 (43 years from now). At a safe rate of return of 3% that nest egg would earn $67,500 a year. However, if we estimate inflation to be 3% a year that would mean that the $67,500 is worth about $20,000 in today’s dollars. Not a lot of money, but enough to get by if you live frugally, which hopefully I’ll be a pro at with 43 years more experience!
I will obviously invest more in my lifetime, but this is what I consider laying the foundation and the funds I’ll never touch until I reach retirement age. The ones that are the worse case scenario and that will pay for basic living expenses if that’s all I have left. My number is based only off what I need and is the groundwork to an overall strategy and of course, it may work for me but not for you, this is only my personal opinion!
Do you have a number? If so, what is it?
Do you think everyone should have a number?
Image from lrargerich
Just clarifying….you are saying by the age of 26 you want to have 50,000 invested toward retirement?
I am not sure what my number is…I think somewhere above 2 million. This may be a dumb question by why do we divide the yearly amount by the return rate? (it’s still early in the morning!)
.-= Meghan´s last blog ..Awareness Saves Money: Electric Style =-.
Dividing he yearly amount by the return rate works because multiplying the number times the percentage equals the yearly number. Since you are going the opposite way, you would obviously do the opposite of multiplication and divide. Then, because that division took the numbers down decimal places, you simply add the decimal places lost, and you get the number.
My number is $1.2 million now, but only $600k once my mortgage is gone using the 3% rate.
However, I like dividend paying stocks, so I’m comfortable with investing there to generate 4-5% yield, which would drop my number even more (and the dividends usually do a nice job of keeping up with inflation).
My number isn’t determined by net worth per se, Ryan. But it is determined by what I call Cash Flow. A figure that I consider more reliable than net worth. The problem with net worth is that the majority of assets that count towards it isn’t as valuable as you list it. One good example would be doodads like boats, cars, and golfing club. They lose 25% of their value the instant you pull them out of the shop. The second problem is that in the event of house, the market value is unreliable. It’s either higher or lower, so… Read more »
I haven’t thought of a number, but I’ll say $4,000,000 for giggles. I am not saving as much as I need to towards this number, but once I actually am able to get as close as possible to automating my savings, I’ll have a more accurate number.
.-= Investing Newbie´s last blog ..Remember Me? =-.
those are some pretty funny commercials and they do a great job of painting a very clear picture of what it really takes to have the necessary money at retirement. they also do a great job of pointing the finger at people who have no idea what their retirement goals are which i guess is very eye opening to some.
and at the end of the day a great way for ING to attract new customers.
I think this has always been my problem, I don’t have a number! I’ve put off saving for retirement, but it is a goal I have this year. As for my retirement years, which are approaching me much more quickly than you ;), I think I’m hoping on passive income. That is something I am aggressively working on.
.-= Little House´s last blog ..Tuesday Tips, Week 7 =-.
… I don’t even have a number. Save for the obvious 1-900-IAM-BROKE joke… I’m really digging how you’re focusing on the long term (retirement money) without sacrificing in the short term. I know so many people who are so driven by building a nest egg that they forget to enjoy the best years of their life… and by “Best” I mean “Able-Bodied.” The story that keeps popping into my mind is a dear friend’s grandmother. Both grandparents worked their asses off their whole lives to save up for a giant around-the-word retirement vacation. These folks never even called in sick… Read more »
It’s certainly tough to work hard all your life for retirement knowing there’s a possibility you might not ever ever get there. However, if you don’t save for retirement and you do make it to these year’s, you’ll be in really bad shape. That money also can be helpful for your heirs. It’s possible, though, to work hard, save for retirement, and still have fun. You don’t necessarily need to spend a ton of money to be happy. Saving for the goal isn’t extremely hard. As Ryan says, if he invests $50,000 already by age 26, he’ll be in pretty… Read more »
I think of it constantly. I do not have an exact number but something like that.