Age and financial position calculation?
- Thread starter Delilah
- Start date
You would combine income and age for the calculation.
Why is this difficult for a younger person?
Say you are 35 and earning 100K. That means your net worth should be 400K. Ok.. that may be not possible for many people.
BUT
Say when this person earns 150K when he turns 60. Then the net worth should be 1 Mill.
Now start working backwards. Say the property doubles every 15 years (worst case). That means you need to have investments of 1 million by the age of 45 so that you would have the 1 mill equity by that time you reach 60. You still have 10 years to do that!!
May be the formula is developed using a particular age group. With in a small range it may be linear but it is not true when you go a bit further.
Say you are 35 and earning 100K. That means your net worth should be 400K. Ok.. that may be not possible for many people.
BUT
Say when this person earns 150K when he turns 60. Then the net worth should be 1 Mill.
Now start working backwards. Say the property doubles every 15 years (worst case). That means you need to have investments of 1 million by the age of 45 so that you would have the 1 mill equity by that time you reach 60. You still have 10 years to do that!!
May be the formula is developed using a particular age group. With in a small range it may be linear but it is not true when you go a bit further.
It's all about pipeline in my mind.
For example; years #25, #26, and #27 may not see your 'worth' be huge, but remember, you are planting seeds that will grow and exponentially increase your worth over time. So, at age #33, your pipeline results in you being worth exponentially more, even though your salary and asset collection may not have expanded as much.
For example; years #25, #26, and #27 may not see your 'worth' be huge, but remember, you are planting seeds that will grow and exponentially increase your worth over time. So, at age #33, your pipeline results in you being worth exponentially more, even though your salary and asset collection may not have expanded as much.
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Problem is if you go younger.
Try calculate a 20 yr old on 60k as to what their net worth should be.
I was surprised the final figure was so low ... by the time you added up super, mortgage free ppor and a few IP's - none of which was risky dramas - we're exceeding the recommended calculated figure after only 14 years.
Ah - wish we'd started back in our 20's ... but we didn't know each other then.
Ah - wish we'd started back in our 20's ... but we didn't know each other then.
You can't simply extrapolate a study which is based on totally different sample. I believe the study was done on an older group.
Yup. Statistically may not be relevant for different age groups.
For example:
Combined age: 63
Household income: 112.5K
Net worth required: 63 * 112.5K * 0.112 = 793.8K
Actual net worth: estimated $150K (Property, cash and Managed funds)
OMG! We are so screwed!
Seriously though, should we be concerned?
Regards,
For example:
Combined age: 63
Household income: 112.5K
Net worth required: 63 * 112.5K * 0.112 = 793.8K
Actual net worth: estimated $150K (Property, cash and Managed funds)
OMG! We are so screwed!
Seriously though, should we be concerned?
Regards,
Daniellee, I don't see reason for you to be concerned due to a formula alone.
Also I don't think the way you have employed the formula is mathematically correct. If you calculate the formula for your partner and yourself individually and then compare it to your calc of 793k, I think you'll find the difference between the two combined totals is roughly 400k. Doesn't make sense.
If you're genuinely concerned, I'd suggest substituting this formula with some common sense retirement planning from a qualified / financially educated individual.
Without wanting to sound overly negative, I think this formula is a load of rubbish.
One of many issues I have is that it is not exponential and should be. Anything with constant growth or increasing growth (like your salary or return on assets) is an exponential scale. Due its linearity, it inherently overstates the number required for young people and understates the number for older people. I'm 25 and I'm supposed to have 180k saved up already? But based on the same formula I'm only supposed to save 7k a year?
If the formula is only works for 1 age bracket, why is age an independent variable?
Also I don't think the way you have employed the formula is mathematically correct. If you calculate the formula for your partner and yourself individually and then compare it to your calc of 793k, I think you'll find the difference between the two combined totals is roughly 400k. Doesn't make sense.
If you're genuinely concerned, I'd suggest substituting this formula with some common sense retirement planning from a qualified / financially educated individual.
Without wanting to sound overly negative, I think this formula is a load of rubbish.
One of many issues I have is that it is not exponential and should be. Anything with constant growth or increasing growth (like your salary or return on assets) is an exponential scale. Due its linearity, it inherently overstates the number required for young people and understates the number for older people. I'm 25 and I'm supposed to have 180k saved up already? But based on the same formula I'm only supposed to save 7k a year?
If the formula is only works for 1 age bracket, why is age an independent variable?
I've got this image of a gorilla looking at two astronauts thinking "I bet they can't fly either."
I will admit that I'm hairier than most but I'm no Gorilla.
I merely believe that this "square peg" formula only fits a few square holes and not the wide spectrum of incomes, ages, length of retirements etc that people would want to use it for.
My preference would be to work out how much you need for retirement based on the income you want for retirement and the return you expect to be generated from your assets to create that income (e.g. if you want $50k p.a. and expect to earn 5%, you will need $1,000,000). You can then work out how you're tracking by how close you're getting to your final goal and how long you've got to get there.
I think at this point I've made it pretty clear that I don't like the formula
I merely believe that this "square peg" formula only fits a few square holes and not the wide spectrum of incomes, ages, length of retirements etc that people would want to use it for.
My preference would be to work out how much you need for retirement based on the income you want for retirement and the return you expect to be generated from your assets to create that income (e.g. if you want $50k p.a. and expect to earn 5%, you will need $1,000,000). You can then work out how you're tracking by how close you're getting to your final goal and how long you've got to get there.
I think at this point I've made it pretty clear that I don't like the formula
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Read it ages ago, and yes, is worth the effort.
Formula seems about right.
Summary points from the book here:
http://www.evancarmichael.com/Business-Coach/4807/The-Millionaire-Next-Door-Summary.html
Formula seems about right.
Summary points from the book here:
http://www.evancarmichael.com/Business-Coach/4807/The-Millionaire-Next-Door-Summary.html
if i have worked it out correctly im running about on schedule
whatever that means
does that factor in that you have had low wage beforehand though?
llke if you earnings just jumped from nothing your expected to be that but if you have always earnt about that then it would be more correct...?
whatever that means
does that factor in that you have had low wage beforehand though?
llke if you earnings just jumped from nothing your expected to be that but if you have always earnt about that then it would be more correct...?
Don't know why this is important.
Where I am now matters. Where I want to be matters. How I'm going to get from where I am now to where I want to be is the most important.
Where someone thinks I 'should be'? Meaningless. How I measure up to my peers? Also meaningless, unless it's to learn from them.
If you have all the cashflow to fulfill all your goals, and someone else thinks you're poor, does that matter?
If you haven't reached your goal yet, but other people (because there are always those better and worse off than you) think you're rich, does that matter? Does it matter to you that someone else is a billionaire? Not really. It only matters in the general sense that the average affects you relatively, but individuals don't.
In the same vein, if you haven't reached your goals yet, saying 'well, it's because I used to be on low pay' doesn't help. Making excuses to yourself is the worst thing you can do.
Where I am now matters. Where I want to be matters. How I'm going to get from where I am now to where I want to be is the most important.
Where someone thinks I 'should be'? Meaningless. How I measure up to my peers? Also meaningless, unless it's to learn from them.
If you have all the cashflow to fulfill all your goals, and someone else thinks you're poor, does that matter?
If you haven't reached your goal yet, but other people (because there are always those better and worse off than you) think you're rich, does that matter? Does it matter to you that someone else is a billionaire? Not really. It only matters in the general sense that the average affects you relatively, but individuals don't.
In the same vein, if you haven't reached your goals yet, saying 'well, it's because I used to be on low pay' doesn't help. Making excuses to yourself is the worst thing you can do.
I have attached something close to what you asked for
Inputs go into the yellow cells (all in Col B).
Cell B17 is where you can experiment.
Age & Year cols will be shaded in green if you have enough investments.
I had to zip the file because the system didn't let me upload xlsx.
Hi, exponential says it all. If you're 'normal' with family that requires your pay packet, your profile is like this:
25: net worth 0
35: net worth negative something [mine was negative $65K]
45: wake up call net worth $35-$139K
55: net worth $1M
An American book I read traces wealth through the decades.
I was frighteningly 'average'.
That was when I realised 2 IPs was not going to cut it.
Put the wage on the foot pedal, invest furiously.
Think BIG, then multiply by 2, better yet, 3. Leave some room.
Enjoy.
KY
25: net worth 0
35: net worth negative something [mine was negative $65K]
45: wake up call net worth $35-$139K
55: net worth $1M
An American book I read traces wealth through the decades.
I was frighteningly 'average'.
That was when I realised 2 IPs was not going to cut it.
Put the wage on the foot pedal, invest furiously.
Think BIG, then multiply by 2, better yet, 3. Leave some room.
Enjoy.
KY
I have attached something close to what you asked for
Inputs go into the yellow cells (all in Col B).
Cell B17 is where you can experiment.
Age & Year cols will be shaded in green if you have enough investments.
I had to zip the file because the system didn't let me upload xlsx.
Devank - nice spreadsheet. I have a customized one that's not as neat, but looks at IPs, shares and super.
Just a broad guide but seems to be tracking well,
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