6 ms·

Not my opinion, but I once read somewhere that you should aim for a savings (+investments) of 1x salary by 30, 5x by 40, 10+x by 50.

by bherms 14y ago

itsybitsycoder 14y ago
Based on the 10x at 50 multiplier, I'm guessing that's for retirement savings/investments alone, not a net worth target. (It makes a big difference if you're planning on making any other big expenditures -- down payment on a house, helping the kids with college, etc.)
whichdan 14y ago
So someone with 50k/yr of expenses should be making 100k, 250k, and 500k respectively?
- bherms 14y ago
  I think you have it backwards. If your salary is 50k, they suggest trying to save up 50k by the age of 30, 250k by the age of 40, and 500k by the age of 50. Keep in mind this isn't direct savings. Stock and other investments count.
cm2012 14y ago
I believe this means you should have $50,000 in the bank or investments at 30 if you have a $50,000 salary by then, $250,000 at 40, $500,000 at 50 (if income doesn't change)
noname123 14y ago
Seems to me the most difficult is saving 5x between 30-40, especially at that age when a lot of folks get married, have kids and purchase property. How do you save up to 5x - which for a household income of $100,000/yr is half a million dollar; do you really get a lot of tax breaks on mortgages, kids and filing jointly? Also, at the current rate of US inflation; by the time I retire which is in about 40 years, $30K/year purchasing power will become $110K/year. Social security will not exist when I retire and a net worth of 1 million dollar, drawing down on principal will last me less than 10 years. For folks in your mid to early 40's, how are you guys planning for your retirement?
- svachalek 14y ago
  All of the classic planning advice is based on about a century of economic history, most of that time period having little resemblance to today and things are only getting weirder, faster. Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck, social safety nets are falling apart, and we're expected to work for much longer in a world where age and experience don't count for much anymore. In short I don't think retirement is something you can "plan" for if it's more than 20 years out or so. It's more like disaster preparation. Save as much as possible, live as far below your means as you can handle, keep your skills valuable. Keep your money diversified and expect your returns to just about keep up with the real and honest cost of living increases until the world economy feels like taking a dramatic shift for the better. We're still "unwinding" from all the previous crises so I don't foresee that happening anytime soon.
  - Wilduck 14y ago
    > Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck. This is nearly a self contradictory statement. That is, if inflation were getting out of control, we would see high interest rates accompanying that change. I'm not saying your advice it bad (savings are a good idea), although maybe a little extreme sounding (too much doomsday feel for my taste). I do, however, wish people would stop it with the "inflation is scary" rhetoric.
    - noname123 14y ago
      The issue is USD is losing its status as the reserve currency and declining exchange rate with BRIC countries are making consumer goods more expensive. Chinese RMB used to be 8:1 in the late 90's, now it's 6:1 and declining. Also due to several rounds of quantitative easing, the Fed injected a lot of money into the money supply. However, banks are not lending as much money to stimulate the economy which doesn't trickle down to ordinary folks; part of the reason being big banks such as BoA and Citi needed to bolster their capital reserve against their illiquid toxic assets from the real estate speculation bubble. As a result, QE1/2/3 caused real inflation to money supply while the stock market and personal savings account returns have remained anemic. I remember I was excited when I got a six-figure job, then I realized that 80K in 1998 amounted to 110K in 2011 and realized that inflation was real.
SonicSoul 14y ago
in light of these new guidelines i'll be getting a job with a drastically lower salary this year. definitely don't want to be behind on savings!
- fennecfoxen 14y ago
  The idea is that if you meet the guidelines with your existing salary, you can expect a lifestyle similar to the one you are already used to. If getting a lower-salary job lowers your lifestyle expectations, it could work. :P
dpeck 14y ago
That's nice, but honestly I'd be surprised if many were able to do that at all without a lot of generational wealth backing it up. Assuming you went to college and got out in 4 years thats only 8 years to put back 1x salary. Given that a lot of those first few years is invested into "setting up shop" getting things like furniture, a reliable vehicle, maybe buying a house, getting married, sometimes having kids, I don't think thats in the cards for many people.
- philwelch 14y ago
  You can't make a savings rate of 12.5% without "a lot of generational wealth backing it up"?

Not my opinion, but I once read somewhere that you should aim for a savings (+investments) of 1x salary by 30, 5x by 40, 10+x by 50.

by bherms 14y ago

Not my opinion, but I once read somewhere that you should aim for a savings (+investments) of 1x salary by 30, 5x by 40, 10+x by 50.

itsybitsycoder 14y ago

Based on the 10x at 50 multiplier, I'm guessing that's for retirement savings/investments alone, not a net worth target. (It makes a big difference if you're planning on making any other big expenditures -- down payment on a house, helping the kids with college, etc.)

whichdan 14y ago

So someone with 50k/yr of expenses should be making 100k, 250k, and 500k respectively?

bherms 14y ago
I think you have it backwards. If your salary is 50k, they suggest trying to save up 50k by the age of 30, 250k by the age of 40, and 500k by the age of 50. Keep in mind this isn't direct savings. Stock and other investments count.

cm2012 14y ago

I believe this means you should have $50,000 in the bank or investments at 30 if you have a $50,000 salary by then, $250,000 at 40, $500,000 at 50 (if income doesn't change)

noname123 14y ago

Seems to me the most difficult is saving 5x between 30-40, especially at that age when a lot of folks get married, have kids and purchase property. How do you save up to 5x - which for a household income of $100,000/yr is half a million dollar; do you really get a lot of tax breaks on mortgages, kids and filing jointly? Also, at the current rate of US inflation; by the time I retire which is in about 40 years, $30K/year purchasing power will become $110K/year. Social security will not exist when I retire and a net worth of 1 million dollar, drawing down on principal will last me less than 10 years. For folks in your mid to early 40's, how are you guys planning for your retirement?

svachalek 14y ago
All of the classic planning advice is based on about a century of economic history, most of that time period having little resemblance to today and things are only getting weirder, faster. Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck, social safety nets are falling apart, and we're expected to work for much longer in a world where age and experience don't count for much anymore. In short I don't think retirement is something you can "plan" for if it's more than 20 years out or so. It's more like disaster preparation. Save as much as possible, live as far below your means as you can handle, keep your skills valuable. Keep your money diversified and expect your returns to just about keep up with the real and honest cost of living increases until the world economy feels like taking a dramatic shift for the better. We're still "unwinding" from all the previous crises so I don't foresee that happening anytime soon.
- Wilduck 14y ago
  > Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck. This is nearly a self contradictory statement. That is, if inflation were getting out of control, we would see high interest rates accompanying that change. I'm not saying your advice it bad (savings are a good idea), although maybe a little extreme sounding (too much doomsday feel for my taste). I do, however, wish people would stop it with the "inflation is scary" rhetoric.
  - noname123 14y ago
    The issue is USD is losing its status as the reserve currency and declining exchange rate with BRIC countries are making consumer goods more expensive. Chinese RMB used to be 8:1 in the late 90's, now it's 6:1 and declining. Also due to several rounds of quantitative easing, the Fed injected a lot of money into the money supply. However, banks are not lending as much money to stimulate the economy which doesn't trickle down to ordinary folks; part of the reason being big banks such as BoA and Citi needed to bolster their capital reserve against their illiquid toxic assets from the real estate speculation bubble. As a result, QE1/2/3 caused real inflation to money supply while the stock market and personal savings account returns have remained anemic. I remember I was excited when I got a six-figure job, then I realized that 80K in 1998 amounted to 110K in 2011 and realized that inflation was real.

SonicSoul 14y ago

in light of these new guidelines i'll be getting a job with a drastically lower salary this year. definitely don't want to be behind on savings!

fennecfoxen 14y ago
The idea is that if you meet the guidelines with your existing salary, you can expect a lifestyle similar to the one you are already used to. If getting a lower-salary job lowers your lifestyle expectations, it could work. :P

dpeck 14y ago

That's nice, but honestly I'd be surprised if many were able to do that at all without a lot of generational wealth backing it up. Assuming you went to college and got out in 4 years thats only 8 years to put back 1x salary. Given that a lot of those first few years is invested into "setting up shop" getting things like furniture, a reliable vehicle, maybe buying a house, getting married, sometimes having kids, I don't think thats in the cards for many people.

philwelch 14y ago
You can't make a savings rate of 12.5% without "a lot of generational wealth backing it up"?