Romeo Clayton from How We Prevent Wealth has come up with a cool way to figure out how much money we really need to retire comfortably. He’s calling it “The Wealth Number Challenge.” You plug in details like your age, current savings, expected rate of return, tax rate, how much you plan to save each year, and how long you think you’ll be retired to get your magic number.
Surprisingly, only about 24% of Americans have a savings buffer that lasts beyond six months, and another 24% don’t have any savings at all. This seems unbelievable, especially considering that at least half should have more than six months’ worth stashed away, right? And those who frequent this site probably aren’t living paycheck to paycheck.
The Federal Reserve’s Triennial Survey of Consumer Finance threw us a curveball, showing that in 2010 the median U.S. family’s net worth dropped to $77,300 from $126,400 in 2007, with $75,000 of that tied up in property. This leaves an average American with only a $2,300 safety net. That’s barely enough to cover one month’s rent for a modest apartment in San Francisco!
If you’re around 35 with only $2,300 to your name, it’s time to face the music: You’re on track to work forever unless you change your spending and saving habits fast. Having little savings means every unexpected bill feels like a financial earthquake. I recently felt this when I was slapped with a $98 parking ticket and had to fork over $1,400 for a burst water pipe. Without savings, these are the kinds of things that can really throw you into despair.
So please, start saving. Even a few thousand dollars is dangerously close to the edge of a financial cliff. Life throws curveballs, and you’ll need a cushion to dodge them without falling into debt or needing government help.
Now, about my Wealth Number: It’s kind of arbitrary due to my diverse income sources and depends heavily on when I plan to retire, which might be sooner than you think. I need my assets to generate about $5,000 monthly after taxes for the next 45 years, assuming a conservative 4% return and a 20% tax rate. That totals up to $1,800,000. Knowing this, I can track how much I need to save each year to meet this goal without having to sell off investments prematurely.
I’m not counting my rental or online income in this calculation because I want these to stand on their own by retirement, ideally adding another $10,000 a month to my income. It’s ambitious, but it keeps me from getting complacent.
I recommend everyone take the Wealth Number Challenge. It’s eye-opening to see the figures laid out, and it gives you a clear savings target. Once you know your number, share it, write about it, and get someone to hold you accountable. It could make all the difference in achieving financial freedom.
So, what’s your number?
