About 5 years ago I set a goal to have 100k saved for retirement by the time I was 30. I'm happy to say that I'm now 30 and have met that goal. I think setting that goal really helped me stay focused and forced me to watch my investments more closely. I would like to set another goal for the next 5 years but don't know what an appropriate amount would be.
Right now I'm married with no kids, a primary residence, and a rental property. My wife and I both work making a combined 100k annually (70k me, 30k her). Other than the 1st mortgages (15 yr) on both properties we have no debt. We plan on starting a family very soon so my wife will either cut her hours or stop working completely. As you can see I'm expecting our income to go down with expenses going up in the near future.
With that said, any recommendations on a retirement goal for the next 5 years?
Tue Oct 22, 2013 5:47 pm
oldguy Senior Member
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Good job on the $100,000 !!
When you say that your goal was to "save" $100k in 5 years - do you literally mean 'save' (in a savings account) or are you investing? Big difference - eg, $5k/yr for 30 yrs at 11%/yr is about a million. And $5k/yr in savings for 30 yrs is only $150,000. So make sure that you are invested in things that return about 11%/yr (a good allocation at age 30). The Rule of 72 says that you should double the $100k in 6 1/2 yrs.
Real estate - the amount of equity affects your wealth building. Eg, say that you have a $200k house that increases in value by 5%/yr, ie $10,000/yr. If you have a paid-for house you are getting only a 5%/yr return on your $200k. But if your equity is $20,000 (a $180k loan) then a $10,000 increase is a 50%/yr return on $20,000. So make sure that you have good long-term, low-rate loans so that you can build your wealth.
What is your Net Worth? ( Assets minus liabilities) That might be a better number to track than the $100k.
Wed Oct 23, 2013 2:08 am
Dustinmc15 New Member
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Thanks for the reply. The retirement savings I'm talking about is all invested, 50k in a 401k, 20k in a Roth IRA, and 30k in a brokerage account. I do have regular savings account in a bank with about 20k in it, but I don't consider that retirement savings more of just an emergency fund.
Both my properties have about 15 yrs left on the mortgage @ 3.25%. The income from the rental property pays the mortgage plus about $100 each month.
As far as my net worth is concerned, my primary residence has about 30k worth of equity, and the rental property about 20k. Other than my mortgages I don't have any debt. I'm not sure if vehicles/boats are counted towards your net worth but I own two vehicles and a ski boat probably valued at 50k all together. As mentioned, my retirement funds have 100k, savings 20k, checking 10k. That would put my net worth around 230k.
Should I be making goals based on net worth rather than retirement funds?
Wed Oct 23, 2013 3:02 am
coaster Senior Advisor
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quote:Originally posted by Dustinmc15 Should I be making goals based on net worth rather than retirement funds?
Yes, that's your goal, and that's your yardstick.
~Tim~
Wed Oct 23, 2013 4:30 am
Dustinmc15 New Member
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Excellent. Any suggestions on a net worth goal over the next 5 years?
Also, am I calculating my net worth correctly? I want to be sure I have a consistent way of determining net worth if I'm going to start setting goals and tracking it.
Wed Oct 23, 2013 5:29 pm
oldguy Senior Member
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quote: Excellent. Any suggestions on a net worth goal over the next 5 years?
Cash, no return
Stocks, 11%/yr average return
RE equity w/ 5 to 1 leverage, about 25%/yr
Vehicles, they will lose about $25k in value over 5 yrs. (as you can see, this gives you a $25k headwind that you must overcome before you can add new NW).
The key is to focus on wealth growth, appreciating assets. And avoid depreciating assets (I'm old & wealthy, we seldom own over $20k in vehicles). And we cap our EF at about $5000, that is enough 'dead' money to keep when you have a large brokerage account that is immediately available as a fallback.
BTW, I would not consider your investing to be your 'retirement' - it seems to be trendy to focus on that, but it is a faraway abstract concept that is demotivating - how about your "family wealth" account.
Thu Oct 24, 2013 1:31 am
coaster Senior Advisor
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quote:Originally posted by oldguy BTW, I would not consider your investing to be your 'retirement' - it seems to be trendy to focus on that, but it is a faraway abstract concept that is demotivating - how about your "family wealth" account.
Nicely put.
~Tim~
Thu Oct 24, 2013 5:38 am
littleroc02us Moderator
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assets - liabilities=Networth
Yes, boats, cars, student loan and cycles all count against your net worth.
I think your doing great, but I'd follow Old guy's advice regarding assets and avoid depreciating assets. A lot of people in our culture think that because someone lives in a very expensive house and drive fancy cars that they must have a high networth. Most of the time that means that have a big mortgage on their home, a high balance on their cc's, large car notes and not much saved for retirement in relationship to their income.
Risk comes from not knowing what you're doing. (Warren Buffet)
Thu Oct 24, 2013 2:05 pm
Dustinmc15 New Member
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quote:Originally posted by littleroc02us assets - liabilities=Networth
Yes, boats, cars, student loan and cycles all count against your net worth.
I think your doing great, but I'd follow Old guy's advice regarding assets and avoid depreciating assets. A lot of people in our culture think that because someone lives in a very expensive house and drive fancy cars that they must have a high networth. Most of the time that means that have a big mortgage on their home, a high balance on their cc's, large car notes and not much saved for retirement in relationship to their income.
Yep, I hear what your saying. All my vehicles are paid off and by no means extravagant. My wife drives an 08 Civic and I drive a 09 Ram pickup, we also have a small ski boat that is also paid off. We don't have any plans for new cars or toys for a long while.
Cash, no return
Stocks, 11%/yr average return
RE equity w/ 5 to 1 leverage, about 25%/yr
Vehicles, they will lose about $25k in value over 5 yrs. (as you can see, this gives you a $25k headwind that you must overcome before you can add new NW).
The key is to focus on wealth growth, appreciating assets. And avoid depreciating assets (I'm old & wealthy, we seldom own over $20k in vehicles). And we cap our EF at about $5000, that is enough 'dead' money to keep when you have a large brokerage account that is immediately available as a fallback.
BTW, I would not consider your investing to be your 'retirement' - it seems to be trendy to focus on that, but it is a faraway abstract concept that is demotivating - how about your "family wealth" account.
OK, how does this look as a 5 year goal as far as NW is concerned.
This includes current vehicle depreciation, RE equity increased by paying down principle with no assumption of an increase or decrease in property value, and a decrease in cash holdings due to an increase stock holdings.
Is everything accounted for here? Does is look like a reasonable goal?
edited to clarify quoted text's author
Thu Oct 24, 2013 4:59 pm
oldguy Senior Member
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quote: OK, how does this look as a 5 year goal as far as NW is concerned.
This includes current vehicle depreciation, RE equity increased by paying down principle with no assumption of an increase or decrease in property value, and a decrease in cash holdings due to an increase stock holdings.
Is everything accounted for here? Does is look like a reasonable goal?
Looks good. The stocks that you now have should grow to about $175k - and you should be adding new money monthly plus some of your savings - so it will probably be more than $200k in 5 yrs.
I would not discount property value growth, that could be a big factor in building wealth. Eg, if your two properties are in the $150k range, that $300k could/should be going up close to $25k/yr, ie, over $125k in 5 yrs. That bumps your $50k equity to $175,000. And that is non-actualized appreciation, no taxes.
You (and many others) make very conservative calculations to avoid being disappointed. Such as 'leaving out' appreciation, using 8% for stocks when they really expect 10%, etc. I use the 'most probable outcome' when I estimate, I don't skew it in either direction. IMO that can cause bad decisions. Eg, you might miss some real estate opportunities because you assume that it won't go up (or down).
also edited to clarify who said what
Fri Oct 25, 2013 2:59 am
coaster Senior Advisor
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