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re: What’s a great net worth by 45?
Posted on 8/10/23 at 11:54 pm to meeple
Posted on 8/10/23 at 11:54 pm to meeple
You have to answer the question, what is a pension worth?
If you think of it in terms of a lottery win; you can never touch the principal, but you are effectively collecting monthly payments, spoken dividends, on the winning sum.
So me personally I retired from the military at 43; my retirement including disability check total about $5200 / month. I also get TRICARE (medical coverage for $60/months) forever.
So, using my example above, if you figure out how much money I'd have to have in the bank with a year in and year out average for that investment (probably 1.5% / yr) and treat the $5200 / month as a dividend, the amount needed to provide that would be about $4.16 M.
You can never touch the principal, but that is the goal with a retirement nest egg as you hopefully can take distributions without touching the principal, or if you do, hoping it outlast you.
If you think of it in terms of a lottery win; you can never touch the principal, but you are effectively collecting monthly payments, spoken dividends, on the winning sum.
So me personally I retired from the military at 43; my retirement including disability check total about $5200 / month. I also get TRICARE (medical coverage for $60/months) forever.
So, using my example above, if you figure out how much money I'd have to have in the bank with a year in and year out average for that investment (probably 1.5% / yr) and treat the $5200 / month as a dividend, the amount needed to provide that would be about $4.16 M.
You can never touch the principal, but that is the goal with a retirement nest egg as you hopefully can take distributions without touching the principal, or if you do, hoping it outlast you.
Posted on 8/11/23 at 7:12 am to dragginass
Really good post draginass.
Posted on 8/11/23 at 8:59 am to oneg8rh8r
quote:
I retired from the military at 43; my retirement including disability check total about $5200 / month.
Nothing against you, but this is ludacris and unsustainable. Bloated government pensions are a huge millstone around the neck of a budget.
I know I know, don't hate the playa- hate the game
Posted on 8/11/23 at 9:21 am to slinger1317
Yet we still can't meet recruiting goals and retention in critical military career fields is always a challenge. Those pensions are earned and needed to maintain a highly skilled military. Recent retirees spent their entire careers vulnerable to perpetual wars and frequent deployments.
Posted on 8/11/23 at 9:29 am to TorchtheFlyingTiger
I'm trying to dangle it in front of my kids.
I have 2 who don't want office jobs. They love their freedom.
What better freedom is there than retirement benefits at 45 years old?
And if you can fit the mold, the military will pay to train you to do whatever you want to do.
I have 2 who don't want office jobs. They love their freedom.
What better freedom is there than retirement benefits at 45 years old?
And if you can fit the mold, the military will pay to train you to do whatever you want to do.
Posted on 8/11/23 at 10:18 am to Covingtontiger77
I think $1mm outside of home equity would be good.
Posted on 8/11/23 at 1:41 pm to oneg8rh8r
quote:
oneg8rh8r
Only the government gets that kind of sweetheart deal, especially at that young.
Posted on 8/11/23 at 2:49 pm to dragginass
Couldn’t agree more. I could definitely make it to $10mm by 65 but what for?
So much more to life and giving of your time, talent and treasure.
By 55 (15 years from now) I should have at least $5m
That’s more than enough to live debt free on the rest of my wife and i life’s
So much more to life and giving of your time, talent and treasure.
By 55 (15 years from now) I should have at least $5m
That’s more than enough to live debt free on the rest of my wife and i life’s
Posted on 8/11/23 at 9:59 pm to oneg8rh8r
quote:
You have to answer the question, what is a pension worth?
quote:
So, using my example above, if you figure out how much money I'd have to have in the bank with a year in and year out average for that investment (probably 1.5% / yr) and treat the $5200 / month as a dividend, the amount needed to provide that would be about $4.16 M.
This estimation is pretty far off from reality and you are grossly overestimating the value of the pension. It would be more accurate to say the pension is worth $1.56M and even that is likely an overestimation (although this can't be accurately known until after the fact at which point who cares because you are dead anyways).
quote:
you can never touch the principal
You cannot because you have no principal really. When the benefit ends there is no principal left. It is more accurate to say you are actually completely depleting the principal down to $0 at the exact moment you die.
The big benefit of the pension is the lack of volatility and relatively known outcome. The other scenario where you are using retirement (IRA, 401k, etc.) and other investment accounts has a much larger spread of outcomes. A more accurate representation would be using the "4% rule" and assuming your yearly benefit is equal to 4% of the starting balance and then adjusted up for inflation (thus 25x your annual benefit for estimating the value). If you have no COLA in the pension then it is actually even lower than 25x.
One thing most people don't discuss are the wide possibility of outcomes. There is even a lot of discussion regarding the 4% rule being too high but in reality it may be too high for the worst case scenario but is actually too low for the vast majority of outcomes. The trinity study and the updated studies after showed that using 4% of the starting balance and then adjusting for inflation yielded like a 96% success rate (did not run out of money). The median case was that the ending balance was almost 3x your initial balance and the best case was like 12x the initial balance (maybe more I forgot the exact number).
Of course in the non-pension portfolio if you experience the worst case then estimating the pension worth based on 25x the annual benefit is an under estimation of the value. If you experience the median case meaning after 30 or so years the balance actually grew to 3x the initial balance even after you withdraw 4% per year and increased it with inflation. In that scenario then 25x is a large over estimation of value. In the best case scenario where your balance after 30 years is 12x the starting balance then the pension value is actually quite miniscule.
The whole point is that even using 25x the pension is still extremely likely to be an over estimation of the pension value but probably a fair assessment based on the general rule of thumbs. This also doesn't even take into account the probability the pension fund dissolves and you lose your benefit. For a government pension that is extremely unlikely but for a corporate pension it sure isn't 0%. You would likely want to discount the pension value based on some factor based on the health of the pension plan and probability of losing or lessened benefits in the future.
What is also missing is for people who do not qualify for SS due to their pension. We typically don't calculate our SS value in net worth. So if you are comparing 2 scenarios and using 25x your pension benefit (and don't get SS) and in the other scenario you value your SS benefit at $0, then you are likely way over estimating the pension scenario comparatively.
quote:
You can never touch the principal, but that is the goal with a retirement nest egg as you hopefully can take distributions without touching the principal, or if you do, hoping it outlast you.
I don't know why the goal is to never touch the principal. That is absolutely not the goal for most people. The goal is to not run out of money and to live the life you want to live. Some people may not want to touch the principal but unless your whole goal is to make sure your heirs receive a large inheritance that should not be your goal.
This post was edited on 8/11/23 at 10:02 pm
Posted on 8/12/23 at 12:37 am to biscuitsngravy
I am 54 and wife is 51 we are at 2m net worth now and honestly it never feels like it will be enough. My plan is to get out at 60.
I have 2 rental units that will be paid at 60 and they will bring in an additional 2400 per month. We have almost zero debt (1 rental and primary but both should be done in the next 6 years)
So overall
7500 per month to live
2400 in rentals
The rest on what should be about 1.85m in 401ks and 2 years which of expenses parked in cash.
I have 2 rental units that will be paid at 60 and they will bring in an additional 2400 per month. We have almost zero debt (1 rental and primary but both should be done in the next 6 years)
So overall
7500 per month to live
2400 in rentals
The rest on what should be about 1.85m in 401ks and 2 years which of expenses parked in cash.
Posted on 8/12/23 at 1:11 am to lynxcat
People act like they didn't have the same opportunity.
Everyone was able to sign up for something bigger than themselves, spend 24 years attached to 5 submarines and spend over 8 years physically underwater.
MOST DIDN'T.
You want to put a price on what I gave up for you? Good Luck.
Everyone was able to sign up for something bigger than themselves, spend 24 years attached to 5 submarines and spend over 8 years physically underwater.
MOST DIDN'T.
You want to put a price on what I gave up for you? Good Luck.
Posted on 8/12/23 at 6:01 am to oneg8rh8r
No one gives a shite about your service, dude.
Posted on 8/12/23 at 12:07 pm to oneg8rh8r
quote:
You want to put a price on what I gave up for you?
$5200 per month, apparently.
Posted on 8/12/23 at 12:27 pm to I Love Bama
quote:
anything over 1.5 mm is respectable at 45.
Posted on 8/12/23 at 1:22 pm to WestCoastAg
quote:
I am 54 and wife is 51 we are at 2m net worth now and honestly it never feels like it will be enough. My plan is to get out at 60.
I have 2 rental units that will be paid at 60 and they will bring in an additional 2400 per month. We have almost zero debt (1 rental and primary but both should be done in the next 6 years)
So overall
7500 per month to live
2400 in rentals
The rest on what should be about 1.85m in 401ks and 2 years which of expenses parked in cash.
Boom. This is how you calculate net worth in my opinion.
Posted on 8/12/23 at 1:48 pm to oneg8rh8r
quote:
People act like they didn't have the same opportunity.
Everyone was able to sign up for something bigger than themselves, spend 24 years attached to 5 submarines and spend over 8 years physically underwater.
MOST DIDN'T.
You want to put a price on what I gave up for you? Good Luck
Not entirely true.
quote:
The most recent data indicates that only 23-percent of Americans between the ages of 17 and 24 would meet the necessary qualifications to enlist.
Posted on 8/12/23 at 1:51 pm to Covingtontiger77
I disagree that Home Equity and 401K should factor into any net worth number unless they are valued at 50% or less. You are not going to sell your house or liquidate your 401k portfolio and not replace it with the likewise without huge tax burdens.
The way I figure worth is by earning assets x 3: business profits, rentals/dividends, salary, and current liquid assets. Also, I add 100k/year for every year minus 65 you can retire.
I.E (I'm not telling you mine)
250k net business profit
75k rental/dividends
60k salary
125k liquidity (no tax sheltered investments)
x3
1.53 million
retire at 50= 1.5 million
net worth: 3.03 million
When I tried it this way 10 years ago and saw how volatile my statement was, I changed strategy and it paid off. I was heavily leveraged into the market and my salary. I started investing in myself through business and earning assets(rentals, commodities, etc.)
Only leverage your time, mind, and work ethic. They will pay you back in early retirement, fresh ideas, and satisfaction. Try it.
The way I figure worth is by earning assets x 3: business profits, rentals/dividends, salary, and current liquid assets. Also, I add 100k/year for every year minus 65 you can retire.
I.E (I'm not telling you mine)
250k net business profit
75k rental/dividends
60k salary
125k liquidity (no tax sheltered investments)
x3
1.53 million
retire at 50= 1.5 million
net worth: 3.03 million
When I tried it this way 10 years ago and saw how volatile my statement was, I changed strategy and it paid off. I was heavily leveraged into the market and my salary. I started investing in myself through business and earning assets(rentals, commodities, etc.)
Only leverage your time, mind, and work ethic. They will pay you back in early retirement, fresh ideas, and satisfaction. Try it.
Posted on 8/12/23 at 1:56 pm to Sparetime
quote:
The way I figure worth is by earning assets x 3: business profits, rentals/dividends, salary, and current liquid assets. Also, I add 100k/year for every year minus 65 you can retire.
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