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.
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