Are You on Track to Meet Your Retirement Goals?

Net Worth Benchmarks Can Help Learn More About a Valuable Measure of Your Financial Health
Kathy Longo, CFP®, CAP®, CDFA® Tuesday, 03 December 2019

Are You on Track to Meet Your Retirement Goals?

Do you find yourself wondering if you’re on track to meet your retirement goals? Are you saving diligently but still unsure whether it’s enough? A valuable benchmark to help you answer these questions is your net worth: that is, the number you’re left with when you add up your cash and other financial assets, then subtract all your debts.

If you’re doing the math, assets are things like:

  • Cash value of your checking and savings accounts
  • Your home and any rental properties you own (current market value)
  • Investment accounts, including mutual funds, stocks, and bonds
  • Retirement savings accounts, like IRAs and 401(k) or 403(b) accounts

When calculating your debts, you’ll include things like:

  • Credit card debt
  • Student loans
  • Personal loans
  • Mortgage loans on a primary residence and any rental properties
  • Medical debts
  • Back taxes

It takes a bit of work but knowing your net worth is important because it’s a strong indicator of your overall financial health. It can be tempting to compare yourself to friends and family, but their habits aren’t necessarily good measures of your own financial footing. Instead, take a look at the net worth targets below that reflect where you should be based on your age.

Before Age 30: Take Small, Meaningful Steps and Focus on Debt Reduction

When you’re in your twenties and starting out in the working world, you don’t need to be overly concerned with net worth. In fact, you may be paying off student loans and carrying a negative net worth – and that’s okay!

Instead of focusing on the negative, take small steps that will lay a strong foundation for your future. If you haven’t established a monthly budget yet, make the time to do it. If you’re overwhelmed at the prospect of creating a spreadsheet from scratch, consider using a budgeting app like Mint or YNAB. You’ll also want to make sure you’re taking advantage of any retirement savings plans offered by your company. These often come in the form of a 401(k) or a 403(b), and some companies even match employees’ contributions, ostensibly giving you free money. In the absence of employer accounts, you can also open your own Roth IRA retirement account. All of these accounts make it easy to save and invest, and your money will grow and compound until you’re ready to retire.

Want to Get Started? Take These Steps

Set up an automatic transfer so that ten percent of your monthly salary goes into your retirement account. If your employer matches contributions, at a minimum shoot for maximizing your allowable matched percentage so you aren’t leaving any free money on the table.

Your goal is to get to a positive number by the time you head into your 30s.

Before Age 40: Hit Your First Net Worth Goal

In your thirties, with an established budget and retirement account, you should be on track to build your net worth. Your goal is to have twice your annual salary by the time you hit 39. So, if you are making $60,000 annually, you’ll want to have about $120,000 saved by the time you hit 39. This might seem daunting, but remember that you aren’t simply saving $120,000, you’re earning some of that through smart investing, too.

Need to Catch Up? Take This Step

Don’t fret if you haven’t met your age 39 net worth goal. Do the math to determine a monthly savings plan that will get you there in the next few years, then put that plan into practice as you head into your forties. If you’re able, take on a side hustle for a few years to help increase your net worth. You could freelance, start a service-based business or sell items on the web, to name a few.

Before Age 50: Up Your Game with Financial Planning

When you hit your forties, prevailing wisdom says you should have a net worth equal to about four times your annual salary. Hopefully, you climbed the salary ladder too. If you’re making $100,000 annually, your goal should be to have a net worth of $400,000 by age 49. This is also a great time to expand your perspective and build net worth outside of your salary.

Want to Diversify? Take This Step

Remember that growing your net worth isn’t just about increasing your assets – you can accomplish growth by decreasing your liabilities, too. If you’re carrying a credit card balance or still paying off a student or personal loan, you can refinance or make a plan to pay more than the minimum payment in order to reduce your debts more quickly.

Be mindful of your decisions to fund college versus retirement funds. It’s not a good decision to finance your kids’ education if you will not be able to finance your retirement.

Before Age 60: Watch the Compounding Magic Happen

By the time you turn 59, you should be well on your way to a net worth that is six times your annual salary. If you were earning $100,000, your target net worth goal should be $600,000. This sounds daunting but consider the magic of compound interest. If you began investing in your twenties, you’ve been earning returns on the money you’ve invested for decades – and you’ve also earned returns on those returns. If you started saving a bit later, there’s still time to catch up to where you’d like to be. Revisit your monthly budget, savings plans, and retirement account contributions, and get more aggressive as needed. Also, consider taking advantage of the catch-up contribution which allows you to contribute more to your retirement plan once you reach age 50.

Ready to Head Toward the Finish Line? Take This Step

Your retirement may be just a decade or so away, meaning its time to seriously take stock of the kind of retirement you want to have – and whether you’re on track to achieve it. Hitting recommended net worth milestones is great, but these are only guidelines. They do not reflect the specific, personal retirement goals you’ve set for yourself. Think about what your dream retirement looks like and get serious about making it happen. This may mean making changes in your asset mix and savings plan, or it could mean downsizing your home to reduce an existing mortgage liability.

As You Approach 70: Keep Your Eye on the Ball

Once you’ve reached age 69, your net worth should be roughly equal to ten times your annual salary, and you should have hit upon the budget, savings and investment plans that will properly fund the type of retirement you’ve dreamed of. Your lifestyle, zip code, and potential travel plans all play a role in determining what your personal net worth benchmark should be at this age, so think past this general net worth benchmark and get specific about what you’ll need to fund your life in retirement.

Want to Lock in Your Dream Retirement? Take This Step

Generally speaking, your retirement income should be about 85 percent of the amount you earned while working, adjusting for the lifestyle you prefer. If you’re looking forward to a quiet retirement, you may not need that much. If you’re planning to travel the globe, you may need more. At any rate, this is a good place to start, so make sure you have your ducks in a row so there are no surprise dips in your income once you leave the working world behind.

Breaking down your target net worth goals into a manageable timeline is a useful way to ensure your retirement plans remain steadily on track throughout each decade of your working life. Use the above benchmarks to measure your progress and adjust as necessary to meet your personal financial goals.

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About the Author

Kathy Longo, CFP®, CAP®, CDFA®

Kathy Longo, CFP®, CAP®, CDFA®

Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.

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