Here is an interesting little experiment to discover how much you have earned so far and determine what you have to show for it. We are about to participate in one of my very favorite activities…MATH. Ready?
Add up your lifetime earnings. This information is available at www.ssa.gov. (Along with your lifetime earnings, you will find your estimated benefits based on a variety of assumptions, and a bunch of interesting [and frightening] statistics about the financial security of your future social security benefit.)
Once you have added up your career earnings, look at your liquid bank balances and investment/retirement portfolio.
Go back and look at your cumulative earnings.
Okay, now look at what you have accumulated in real money again.
I had a client, age 61, recently do this and his career earnings were just over $2.3 million. His total liquid portfolio after earning $2.3 million and having nearly 40 years of potential compounding interest working in his favor? Less than $500,000. Assuming a 7% rate of return and an age 22 start date, you could accumulate $500,000 by age 61 simply by saving $200/month. That equals $93,600 of total savings out of the $2.3 million in earnings. 4%.
I generally encourage saving/investing 15% of your income. In the above example, if this gentleman had used the 15% methodology, he would have about $1.8 million dollars in his liquid portfolio. $1.3 million more than what he has today.
Assuming he wanted to retire today and he earns 5% in retirement and lives to age 92, the difference in what he could spend monthly between those two portfolios is shocking.
For the existing $500,000 portfolio, he could spend $2,600 each month until age 92. But, with the $1.8 million portfolio, that monthly number jumps to $9,500. Over a 31-year retirement, that equals $2.5+ million more to spend, give, or distribute however you please. It creates options.
Don’t worry if you have yet to hit that 15% number. You can start today and begin to get those earned dollars working for you.
Try the exercise above. Let me know how focused you plan to be going forward.