The financial independence subreddit is a bit of a mixed bag. You get some good articles and commentary here and there, but most of the posts tend to be either fairly wealthy people seemingly bragging about where they're at with their finances or freshly graduated college kids who appear pretty solidly fucked for the next 20-30 years.
In the interest of curiosity, and breaking through some common taboos about talking money with friends, I figured I'd start fairly light and just ask, "What is your current approximate net worth and at what age and what savings level are you aiming for at retirement?"
Taking my home equity and retirement savings into account, I'd figure my net worth somewhere between $200-300k. The bulk of that is split between 3 retirement accounts. I also have a whole life insurance policy that I sometimes question the validity of, but still keep and contribute to. My home equity is not where it should be, but I've done some pretty significant renovations and repairs and used my equity to pay for them. With most of that now hopefully behind us, we should start seeing significant progress towards getting down to only a mortgage in the red column of the spreadsheet.
It's been a couple months since I last did the math, but I recall that my magic number was somewhere around $2.25mil where my graph levels out a bit at retirement, then starts climbing again so I can be sure that when I die my kids will have tons of money to fight over. Or I can just order a larger than life statue of myself to place at my grave site.
All my plans are built around me retiring at 60 and my wife at 58. If things go well, I hope to nudge that number down to 55 or even 50, but I'll have to do better than average to achieve that. Of course, I also hope to someday start my own company so that will likely screw up everything, but hopefully for the better.
I have no children to worry about currently (and thus, no daycare dragging on my savings goals) nor any plans for them in the future (and thus, no need to have a rapidly-compounding nest egg to hand over upon my death). At my current rate, I hope to be able to enjoy a modest "retirement" by my mid-40s. Will I actually retire at that point? No, but that's not the definition of financial independence; FI means being able to retire if you damn well please.
The "magic number" I'm most concerned with is the amount at which my "modest retirement" is sustainable indefinitely, given an assumed annual return of 4% (the "safe withdrawal rate" that accounts for expected market returns minus inflation).
Originally Posted by Drewbie
In other words, if I think I can live on $30,000 a year without any issues (accounting for insurance, trips, etc), then I need to be able to withdraw that much without seeing my accounts shrink year to year -- so the number would be $30,000 divided by 4% (or times 25): $750k in this case.
Here's a link to a worksheet I created a while ago to help me answer questions like this, if anybody else is interested. I added instructions at the top, but basically, just fill in the red numbers.
Another frequent FI-related question: what percentage of your gross/net pay do you stash away for retirement? I've only been truly serious about my financial health for the last ~12 months or so, so I'm not sure of the actual numbers yet, but I'm aiming for at least 40-50% of my gross (pre-tax dollars).
Last edited by Macheath; 02-27-2014 at 02:31 PM.
Mint pegs me at just over $341k net worth. That's with about $258k spread over 3 Traditional 401(k)s, 2 Roth IRAs, an HSA, and a few taxable investments; about $53k in Home Equity; and about $28k in cash. Only debt is the mortgage and a 0% for 2-years financing deal on my wife's recent laser eye surgery.
I haven't really done any math or targeting for retirement other than saving a bunch and wanting to "beat Dad." He retired 8 days after his 50th birthday. Like Mac, I'm generally planning to use the 4% safe-withdrawal rule. $800k is the number that sticks in my head, though I no longer have the calculations to back that up. With a 4% withdrawal, that would cover annual expenses of $32,000. Assuming a paid-off house and reasonable spending habits, that shouldn't be too difficult.
Drew, I'm guessing your magic number is based on salary rather than expenses.
In regards to saving percentage: I haven't run the final numbers for last year, but napkin calculations say we hit about 40% of gross saved in 2013. I'm looking to bring that up in the coming years.
I had a kid so I am screwed. working till I am 70 )-:
We're around 250k across a few retirement accounts. I'm vested 100% into pension via my old company, but since it scales to number of years (and since I quit), it won't amount to more than 2k a year or so. We bought our house for just <200k about 12 years ago, but you know... housing market. We probably only have 15k or so equity in it since things started turning back around, and that probably includes all our updates (like fence, siding, etc).
Like Liuv mentioned, my "magic number" is probably based on salary, because I'm thinking we need like 1.5 mil to retire flat out. Now granted, that is in part because I have kids, and moreover because I have a kid that has, in the past, needed 50k chest surgery (that employer provided insurance has covered). In another 20 years we won't have that responsibility, but until then, I don't trust that if we stopped having emp insurance that private insurance wouldn't cost an arm/leg.
Mac, regarding your spreadsheet, shouldn't the contributions stop at retirement? Therefore you should only add E15 if your age is < or <= retirement age. Right? Or were you going for something else by leaving contributions in?
I'd heard about this app and site before, but never really looked into it. I fired it up last night and started getting accounts set up with it, but it's having troubles with some and doesn't seem to have connectivity with others. I'm planning to work with it a bit more this weekend, but I do like what I see so far.
Originally Posted by liuv
Some quick observations in what I can see so far:
- I eat out way the hell too much
- I'm socking away probably 20% at present, not including the whole life insurance portion
- I need to be more timely with turning in my work expenses so I'm not carrying that debt longer than absolutely necessary
Last edited by Drewbie; 02-28-2014 at 06:14 AM.
Hmmm, I'll take a look when I get to work. If I'm using the wrong column for income after retirement, that's my mistake obviously.
Originally Posted by Threnn
No, I don't think there's a problem. All the "final report" numbers on the right are based on "balance at retirement." I could edit the formulas to make that clearer. But there are no contributions coming in after retirement, only appreciation based on the interest rate you've set for an assumption (and the "safe withdrawal rate" of 4%).
Originally Posted by Macheath
If you're referring to the fact that the columns on the left side continue down the page unabated (even after your "retirement" age), that's because I couldn't find an easy way to hide/remove them. But they're not material to the final result, all the stuff on the left is just a lookup table: the numbers you probably want to pay attention to are in the green boxes. If you do look at the left, that will only serve you as a guide to how much you could have at retirement if you kept working for another (n) years and contributing at the same rate.
Edit: I see, you were thinking of the numbers in the left hand columns as more fluid than they are. You wanted to see how your balance would change, even after retirement. I guess we could do that, add in appreciation and then subtract your 4%. But the original intent was just to show what would make for a sustainable retirement at an arbitrary age, in terms of how much you could safely withdraw. I had no interest in knowing how many dollars there would be when I died.
Last edited by Macheath; 02-28-2014 at 12:08 PM.
Shit. didn't realize I was editing your form.
Can I have all the dollars left when you die since they're not important?
Originally Posted by Macheath