I just read an interesting article on the average American household savings. The author seemed to suggest that people use these averages to create some sort of financial plan.
Dumbness.
Why is this dumbness? Well, if I target the medium (which means 50% of households are above and 50% of households are below), that would give me…hhhmmm…an $83,400 nest egg (excluding home equity) at the age of 65. At a generous 10% return, a whopping $8,340 a year or $695 a month to live on.
Yikes!
Maybe doable (without a mortgage, which since home equity is not included in the calc, might be the case) but definitely not enjoyable (no cabana boys for me). I certainly wouldn’t recommend that as a goal (maybe a milestone but not an end goal).
No, I don’t wish to be the average person. I am not the average person. The average person doesn’t blog about finances and the average person certainly doesn’t read blogs on finances. That means that you’re not the average person either.
So forget average. Forget what other people are doing. Set your own goals.
I would recommend basing it on cash flow (income minus expenses) rather than net worth. I have stocks currently in the dumper, worth only a fraction of what they were, because they aren’t “hot” right now. These stocks don’t contribute much to my “nest egg” figure.
But who cares? These steady eddy stocks (the jill’s and bob’s of the stock world) are paying about 15%. I only need $55,600 worth to get me my $8,340 a year. That’s 33% less than the average joe has.
At the end of the day, it’s about paying the bills and funding dreams. Your bills. Your dreams. Not the average person’s.
Comments (2)
The article actually suggests you should try to reach a net worth of at least $1,000,000. It then compares that goal to the averages to show that if you do do this you'll be in the top few percent of Americans and if you start early the savings rate needed isn't so great....
Posted by moom | November 22, 2006 8:47 PM
Posted on November 22, 2006 20:47
Really?
I find the author implies that this isn't necessary, what with calling them the "super-saving" couple (if $1 million is the bare minimum then why would the couple be called "super-saving"?) and pointing out that "You, of course, may need a lot less or a lot more, depending on how much you plan to spend, any pensions you might get and how long you expect to live."
All in all, I think by bringing attention to the averages, the author downplays what is really required for a comfortable retirement.
Posted by Kimber | November 23, 2006 3:23 PM
Posted on November 23, 2006 15:23