Ideal net worth by age X? Need comparison references

Question

Is there a website resource that gives suggestions for how much savings or net worth I should have at any given age, based on my education level and salary?

I'm in my 30s, have no debt, and have been maxxing out my 401k and contributed other personal savings for the last 10 years since I left grad school. I would like to know how well I am doing, particularly if I should be saving more.

I found a reference formula from the book "The Millionaire Next Door" that your personal net worth should be:

  Ideal net worth = Age * Pretax income ÷ 10

but that seems to be biased against (i) graduate/professional school students who graduated relatively late and (ii) people who get frequent raises.

And there are other sites (e.g. the one mentioned in this question), but the suggested ranges, such as $25K to $250K for my age bracket, seem to be too low.

Answer 1

You can compare formulas all you want, and you can compare yourself to your peers all you want, but that doesn't mean that the formulas are correct, or that the peers who are "losing" are actually any worse off than you are.

Consider yourself and your life. Consider how your assets would hold up against different stresses: marriage, children, medical problems, job loss, permanent disability.

Also, net worth does not equal income production. You'll need to consider what kinds of assets you own. $1 million in the bank might give you $15,000 of income per year, while $1 million in residential real estate owned free and clear could throw off several times that per year.

Being in the 90th percentile for net worth might make you feel good, but also remember that Americans as a whole don't save a whole lot.

Answer 2

I like Dr Stanley's work, "Stop Acting Rich" being my favorite. The equation above is lacking. A 20 year old can't have two years income saved, and by 50, one should have a bit more than 5 times. I wrote a brief saving spreadsheet, in which you can load your present numbers, saving rate and assumed rate of return. Part of the issue is how to decide on your end goal. If you start by assuming you'll need to replace 80% of your pre-retirement income, you'll need about 20 times your final pay to let you withdraw 4% per year. that may seem a lot, but after adjusting for social security, most people are in the 15x range (i.e. they need to save about 15 times their final earning by the time they retire). The spreadsheet shows this is an achievable number. Saving just over 10% from the time you start working and getting an average 8% return will put you there. (Obviously, the 8% is one man's guess, who can say what the next 40 years will bring?)

From a similar question What size "nest egg" should my husband and I have, and by what age? this is a snippet of the sheet I referenced. Keep in mind, it's more to illustrate the growth by age. It represents the numbers of years income saved at a given age. The income increases account for inflation. For the numbers I ran, the example shows at age 65, a savings of 15X final income which should replace 60% of final earnings. Social Security presumably will cover another 30-40% or so.

EDIT - A visit to Wolfram Alpha produced the graph above and its corresponding equation:

0.00739394x^2-0.303927x+3.44661

which, in my opinion, adds little value to the discussion. Although, it does show that the number isn't a straight line, and any attempt to produce an 'age minus X times Y' type of goal is going to be misleading. The spreadsheet approach, whether mine or one of your own creation, is going to be accurate and more important, tied to your own numbers.

Answer 3

This is great resource: https://www.networthiq.com/

You can see what many people of different income levels, professions, and age are worth on paper. Many users of the site make their profile's public and give their best advice of what they have learned. Some talk of their goals, some of the mistakes they made along the way, and lots of other useful tips.

It will give you a rough idea of many different types of people and their net worth. It will show you some of their debts/assets and where they place it. There are also graphs with net worth progress over the years.

Answer 4

See also this answer: Saving for retirement: How much is enough?

One issue with looking at your current investment balance is that market fluctuations might be moving it up or down 50%. Before saving less, I'd chop your balance in half and see if you can still save less.

Also, as mentioned on that other answer, there is a big picture "ideological" question embedded in any "rules" on this, usually the assumption is that you want to smooth your income in order to spend as much as possible throughout life, while retiring at 65. So you want to move just enough income forward in time through savings to retire at 65 and continue to spend as you did pre-retirement.

While that's reasonable, it isn't the only choice; maybe you would rather retire before 65, or maybe you hope to spend more in retirement, or maybe you have a goal such as leaving a lot of money for your children, or maybe you only plan to retire if you become disabled and otherwise work forever. All that should be considered, before taking a boilerplate answer.

Answer 5

The short answer: It depends.

How do you measure income? $250k in New York City buys a very different lifestyle than $250k in Albany, NY, about 3 hours north where I live.

What do you want to do? Do you want to retire comfortably and young? Or do you want to live an affluent lifestlye?

There's no single benchmark, because we're all motivated differently.

Answer 6

There cannot be such a formula for 2 reasons:

• The ideal NW is $∞.
• People want different things, so even "good enough" NW will be different.

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I can think of three obvious intents you might have that would lead you to seek such a formula:

1. You're planning to look at the formula, and spend/save more/less depending on what it says.
2. You want to look at the formula and feel satisfied about your life.
3. You want to impress friends with how successful you are.

All three are better addressed by other means.

For 1, you have to start by figuring out what your goals are. How much money do you need to have a lifestyle you're happy with? How much will you need when you retire? When do you plan to retire? Of the career options available to you, what of their income potential whether how much you would like doing them? There are many retirement calculators online that will help you crunch the numbers.

For 2, it is much easier to restructure your life philosophy so that you can derive intrinsic satisfaction from life, rather than to pick a number and hope that when you reach that number, you can let yourself be happy.

For 3, it all depends on who your "friends" are. If you live in a trailer park, even $0 NW might be really good. But don't expect that to draw any ahs at your local country club. If you mean showing off to strangers on the internet, usually comparing to nationwide statistics is good enough, since the baseline assumption is always that you're the "average person". If on a site with a certain focus, eg. leisure yacht owners, you would have to adjust for the user demographics.