T,

How did you come to that number (what formula)? Just curious. Not testing you. 

http://www.retireearlyhomepage.com/millbook.html

There is a "rule of thumb" formula discussed based on current age and income. 

good catch, thanks

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

For example, if Mr. Anthony O. Duncan is forty-one years old, makes $143,000 a year, and has investments that return another $12,000, he would multiply $155,000 by forty-one. That equals $6,355,000. Dividing by ten, his net worth should be $635,500.

Given your age and income, how does your net worth match up? Where do you stand along the wealth continuum? If you are in the top quartile for wealth accumulation, you are a PAW,or prodigious accumulator of wealth. If you are in the bottom quartile, you are a UAW, or under accumulator of wealth." Mr. Duncan in the example above is an AAW, or average accumulator of wealth

The authors have developed a simple rule of thumb: if your net worth equals the average calculated by the formula above, you are an AAW, if your net worth is twice the average, you are a PAW, if your net worth is half the average, you are a UAW. Whatever your income, if you want to Retire Early you must be a PAW.

Twin.......

A 40YO couple planning to retire in 25 years without any other source of income but that derived from their investments looking to enjoy a reasonable retirement full of travel and fun, and some peace of mind will need about 4-5% of $3.5- $4M in assets in 25 years..

Plus, those assets will have to be invested to 'increase it's payout' to meet inflation + during their long retirement, which will probably last much longer than 25 years! 

200K @12% for 25 years = (about) $4,000,000

========================= 

sTaRt eArLy....:-)

t

PS:

a further sad truth: $4-5 Million in assets in 25 years will make one no more than a beer and pretzels millionaire...........:-)

To answer this requires knowing several pieces of information and making reasonable assumptions....and then doing careful time-value-of-money calculations. In my travels, few know how to do this.

The problem with the rule-of-thumb estimates is they leave out critical variables, such as the existance of pensions, Social Seucrity, retirement age, life expectancy, inflation and so forth.

BruceM

Chris,  I used to mentally ask the same question of myself.  Stopped  asking it a long time ago.  After all, how are you really going to "know" the right answer.    Even if you could "know" the answer,  what would you do with that knowledge?  Alter your spending (to spend more or less) depending on whether you are ahead of, or behind that number?

That's probably not a good idea. 

And so many variables -- (hyper-)inflation,  another bad decade for stocks,  or bonds, or both ahead?  Who knows?  But future rates of return will in part determine whether you have saved enough today -- and nobody I know can predict those.   How secure are your spouse and your own jobs?  That is another big question mark?  Will future savings be reduced due to other commitments?(e.g. kids' education, downpayment for a house,  unforeseen/uncovered medical expenses or disability,  protracted unemployment etc. etc.)

If you have the income to save more today, than save more TODAY.   (Don't use the excuse that you are "on track".)      If you do not have the income to save more, than cutback on unnecessary expenditures, or go about seeing if you can find a job(s) which pays more. 

I don't talk about it much, but I was raised by a very low income family.  I felt poor when I was a kid, especially in my teen years.   But I got a degree, landed a decent job out of school, rolled with the punches, kept focused on doing right by my employers, and kept getting raises (or better "next" jobs).    I "stayed hungry" even though I was doing quite nicely.   Some 20 years out of school, while I am not rich, I am "comfortable" in an empirical sense, but I still have a "poor" mindset (no  $5 starbucks,   no new cars every 3 years,  a decent, but not ostentatious home).  -- I don't worry about "keeping up with the Joneses" -- scr#w the Joneses, they are probably up to their eyeballs in debt maintaining a lifestyle their income really cannot support.  I will save as much as I reasonably can.   I don't care whether I am "ahead of the curve or not" (though I suspect that I am, by a fairly wide margin).

My point is :  Stay hungry.    Assume you are far from your goals  Don't necessarily save til it hurts, but come close.  Err on the side of savings, not spending.   After all, most "things" we have to spend money on are junk and trinkets. All "Made in China".   

Good luck.

You told me one / more of these things

1) I cannot retire

2) I cannot live long

3) I cannot retire and live long

Me and my wife will never reach $4,000,000. Besides I think college for 2 kids is going to set us back, what? 0.5 Million? Hmmm...Kinda understand the number of suicides in 1929 now...

Savers think some of their money belongs to their future self; spenders think it all belongs to their present self.

I previously came up with the following relatively simple accumulation approximation formula which at least tries to account for the nonlinearity:

Accum/Salary = Years * Rate * (1 + Years/40)

where:
Years = how long since you started working (reached adulthood)
Salary = your current salary
Rate = what fraction of current salary you save each year


Most people cannot keep their saving rate constant over their career and investments returns can vary considerably, but at least this gives you a target trajectory.

At the old recommended rate of 10% (when most people could count on SS and company pensions), you would accumulate about 8x final salary over 40 years. With a hopefully sustainable annual withdrawal rate of 4%, that would provide a withdrawal of about 1/3 of final salary in retirement to fund your retirement along with any SS and pension income.

With a 15% annual contribution rate you would reach 8x salary about 10 years earlier or after 40 years you could increase the annual retirement withdrawal to about half of final salary with the same 4% withdrawal rate.

By working 45 years with a 10% contribution rate you reach about 10x salary. With a later retirement possibly allowing you a higher 5% retirement withdrawal rate, you could then withdraw about half your final salary each year. With a 15% annual contribution you reach 15x after 45 years allowing you to withdraw about 75% of final salary with the 5% withdrawal rate. Alternatively you reach 10x about 10 years earlier.

yrs 10% 15% 20%
--- --- --- ---
00: 0.0 0.0 0.0 x salary
10: 1.2 1.9 2.5 x salary
20: 3.0 4.5 6.0 x salary
30: 5.2 7.9 10. x salary
40: 8.0 12. 16. x salary
45: 9.6 14. 19. x salary

If you add an additional 1% to the rate of return during accumulation, which is what many bad 401k plans siphon off, you accumulate 20% more over 35 years and nearly 30% more over 40 years.

Traditionally most people got the majority of their retirement income from SS and pensions - personal savings was the "third leg" of the stool. However, as company pensions are eliminated and SS benefits get reduced, the 3-legged stool turns into a pogo stick and the demand on personal savings will be much greater than people are expecting. Many people just won't be able to afford to retire at the early age they feel entitled to or with the retirement lifestyle they feel entitled to when they do retire.

What are you trying to get to? What percentage of income and at what age?

Another Rick

Modified from what I originally posted in thread: 33766 on Vanguard Diehards Forum