What should the savings be for an average professional

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skor99
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What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 7:32 pm

I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?

The Wizard
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Re: What should the savings be for an average professional

Post by The Wizard » Wed Aug 23, 2017 7:43 pm

Dollar amounts are subject to inflation.
I started as an engineer in 1973, so my dollars are less than someone who started in 2016.
Percentages matter.
Start by saving 15% of gross, including employer match, in year one.
Increase that up to at least 30% of gross by year 30.
You'll be in good shape then...
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avalpert
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Re: What should the savings be for an average professional

Post by avalpert » Wed Aug 23, 2017 7:48 pm

Assuming a smooth ride from $50k to $120k and 6% returns, a 15% savings rate would take you over $400k, 7.5% $200k. So it is definitely possible to get to $400k with savings discipline - but you can get a good sense of what people see as normal based on his response.

KlangFool
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Re: What should the savings be for an average professional

Post by KlangFool » Wed Aug 23, 2017 8:01 pm

OP,

So, in your example / average professional, they are not "House Poor". Aka, their investment asset is greater than the cost of their house. Sorry to say that. I do not think so. Most average professional that I know is "House Poor".

KlangFool

Runner01
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Re: What should the savings be for an average professional

Post by Runner01 » Wed Aug 23, 2017 8:07 pm

Definitely not average but at age 31 we have $155k in cash and investments with my wife staying at home with our child and a HH income of about $55k.

My son is 2 and has $4k invested in his UTMA, I'm not sure how he compares to his cohort :P .

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Re: What should the savings be for an average professional

Post by The Wizard » Wed Aug 23, 2017 8:10 pm

KlangFool wrote:
Wed Aug 23, 2017 8:01 pm
OP,

So, in your example / average professional, they are not "House Poor". Aka, their investment asset is greater than the cost of their house. Sorry to say that. I do not think so. Most average professional that I know is "House Poor".

KlangFool
Most people start out house poor for a few years after purchase.
That's why we look at Investible Assets rather than Net Worth in these threads.
I was house poor in 1976 and a while after buying my place for a whopping $44,000.
But after a few decades it was less of an issue...
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skor99
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Re: What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 8:11 pm

Yes, the sensible bogleheads ones are not house poor, at least after working 15-20 years, but the average ones might as well be. This started off as a generic conversation, but at the end it turned out to be pertinent as it roughly matched up with my friend's situation. I would guess that this would apply to quite a few people out there as well.

DanMahowny
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Re: What should the savings be for an average professional

Post by DanMahowny » Wed Aug 23, 2017 8:12 pm

In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth

skor99
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Re: What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 8:14 pm

Runner01 wrote:
Wed Aug 23, 2017 8:07 pm
Definitely not average but at age 31 we have $155k in cash and investments with my wife staying at home with our child and a HH income of about $55k.

My son is 2 and has $4k invested in his UTMA, I'm not sure how he compares to his cohort :P .
These numbers would put you way above average , congrats ! And your son is surely at the very top :-)

skor99
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Re: What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 8:17 pm

DanMahowny wrote:
Wed Aug 23, 2017 8:12 pm
In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth
Wow, that comes out to 504K with the numbers I had in my post ( 120K * 42 /10) assuming a person starts working at 22. So my rough approximation is not totally off base then.

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Re: What should the savings be for an average professional

Post by KlangFool » Wed Aug 23, 2017 8:23 pm

The Wizard wrote:
Wed Aug 23, 2017 8:10 pm
KlangFool wrote:
Wed Aug 23, 2017 8:01 pm
OP,

So, in your example / average professional, they are not "House Poor". Aka, their investment asset is greater than the cost of their house. Sorry to say that. I do not think so. Most average professional that I know is "House Poor".

KlangFool
Most people start out house poor for a few years after purchase.
That's why we look at Investible Assets rather than Net Worth in these threads.
I was house poor in 1976 and a while after buying my place for a whopping $44,000.
But after a few decades it was less of an issue...
The Wizard,

Maybe in your time period, as per my peers, after buying the 500K to 600K house, they remained "House Poor" for their whole life. They could not save money because of the house. Then, they have to pay for the kid's college and so on. If they are lucky and stay employed long enough, they get to keep the house. If not, at a certain point, they lost their houses. Their house will probably be their only asset.

<<I was house poor in 1976 and a while after buying my place for a whopping $44,000.>>

How much was your annual income at that time? And, please note that salary income has not kept up with inflation over the last 10 to 20 years.

KlangFool

The Wizard
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Re: What should the savings be for an average professional

Post by The Wizard » Wed Aug 23, 2017 8:45 pm

KlangFool wrote:
Wed Aug 23, 2017 8:23 pm

<<I was house poor in 1976 and a while after buying my place for a whopping $44,000.>>

How much was your annual income at that time? And, please note that salary income has not kept up with inflation over the last 10 to 20 years.

KlangFool
My salary started at an incredible $13,000 in 1973.
By 1976, I was up close to $15,000 I'm guessing.
My ex wife was probably $10,000 salary or so but who really cares.

Point is, buy a residence young and don't keep upgrading every ten years and you'll be ok, on average...
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skor99
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Re: What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 8:57 pm

The Wizard wrote:
Wed Aug 23, 2017 8:45 pm
KlangFool wrote:
Wed Aug 23, 2017 8:23 pm

<<I was house poor in 1976 and a while after buying my place for a whopping $44,000.>>

How much was your annual income at that time? And, please note that salary income has not kept up with inflation over the last 10 to 20 years.

KlangFool
My salary started at an incredible $13,000 in 1973.
By 1976, I was up close to $15,000 I'm guessing.
My ex wife was probably $10,000 salary or so but who really cares.

Point is, buy a residence young and don't keep upgrading every ten years and you'll be ok, on average...
That seems very less even after accounting for inflation. Just out of curiousity, Was it for a professional line of work or some other job ?

Iliketoridemybike
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Re: What should the savings be for an average professional

Post by Iliketoridemybike » Wed Aug 23, 2017 9:14 pm

You will love this blog. It will give you the guideposts you are looking for.

http://www.financialsamurai.com/the-ave ... ge-person/

The Wizard
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Re: What should the savings be for an average professional

Post by The Wizard » Wed Aug 23, 2017 9:18 pm

skor99 wrote:
Wed Aug 23, 2017 8:57 pm
The Wizard wrote:
Wed Aug 23, 2017 8:45 pm

My salary started at an incredible $13,000 in 1973.
By 1976, I was up close to $15,000 I'm guessing.
My ex wife was probably $10,000 salary or so but who really cares.

Point is, buy a residence young and don't keep upgrading every ten years and you'll be ok, on average...
That seems very less even after accounting for inflation. Just out of curiousity, Was it for a professional line of work or some other job ?
I got my masters degree in engineering in 1973 and went to work for a good sized employer in that field.
I should note that inflation was starting to get nasty back then.
My mortgage was at 9.0%, well over $300 a month payment. .
;(
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sixty40
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Re: What should the savings be for an average professional

Post by sixty40 » Wed Aug 23, 2017 9:32 pm

skor99 wrote:
Wed Aug 23, 2017 8:17 pm
DanMahowny wrote:
Wed Aug 23, 2017 8:12 pm
In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth
Wow, that comes out to 504K with the numbers I had in my post ( 120K * 42 /10) assuming a person starts working at 22. So my rough approximation is not totally off base then.
Also from The Millionaire Next Door, you can also be a PAW (prodigious accumulator of wealth) or a UAW (under accumulator of wealth). A PAW doubles the values from the formula above and a UAW is half that. So in your example if you have a net worth of $1,008k ($504k x 2) you are in the top quartile of wealth and a PAW, and if you are at $254k ($504k/2), you are at the bottom quartile.

I too am an engineer and working in private practice. I started in 1988 at a lowly $18k per year, well below average and most of my colleagues in northern CA. I stuck with it hoping to one day be an owner of the firm. As my years and skills progressed my salary accelerated and became a partner and owner in the firm after 10 yrs. I am also cheap or frugal depending on who you talk to, but at least I am a PAW.

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Re: What should the savings be for an average professional

Post by skor99 » Wed Aug 23, 2017 10:18 pm

So the, it could be true that there are many people with such income levels with only 150-200K of savings after 18-20 yrs. That is kind of little to show for 20 yrs of work.

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Re: What should the savings be for an average professional

Post by Iliketoridemybike » Wed Aug 23, 2017 10:21 pm

DanMahowny wrote:
Wed Aug 23, 2017 8:12 pm
In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth
That seems low. I am almost 3x that number.

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Re: What should the savings be for an average professional

Post by The Wizard » Wed Aug 23, 2017 10:29 pm

Iliketoridemybike wrote:
Wed Aug 23, 2017 10:21 pm
DanMahowny wrote:
Wed Aug 23, 2017 8:12 pm
In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth
That seems low. I am almost 3x that number.
Yes, but many Bogleheads are PAWs...
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Artsdoctor
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Re: What should the savings be for an average professional

Post by Artsdoctor » Wed Aug 23, 2017 11:05 pm

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
At some point, you realize that it's about the expenses and not about the "magic number." A pre-retiree is going to have to ask, "How much will I have to be spending in retirement to meet my needs?" So re-read your question and you'll answer it yourself.

You say you've worked yourself up to a salary of $120,000 per year. Let's say a lot of that goes to supporting your kids and paying your mortgage. Hopefully, when your income stops and you'll be living off of your savings, you won't be paying for your kids and you will have paid off your mortgage. So: what will your expenses be?

What will it take to make you happy? $70,000 per year? You'll have to pay taxes on some of that. And you'll eventually have your social security income. If you work until 65, and say your social security income is what? $30,000 per year (did your spouse work or not? how much?)? So you might have to generate $40,000 from your own portfolio each year. If you're going to withdraw 4% from your portfolio, you'll need about $1,000,000 saved.

You can play around the numbers all you like. How much social security will you be getting? How much will your annual expenses be? What's your withdrawal rate? But most would at least start with a vague estimate of withdrawing 4% of your portfolio balance the first year. Your friend says that his number is $200,000? He can count on withdrawing $8,000 from his portfolio the first year. You'd like $500,000? Then count on withdrawing $20,000 the first year.

Do those calculations, and you'll find your answer.

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Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Thu Aug 24, 2017 6:44 am

skor99 wrote:
Wed Aug 23, 2017 8:17 pm
DanMahowny wrote:
Wed Aug 23, 2017 8:12 pm
In the Millionaire Next Door, author Stanley says something like this:
(age x income) / 10 = expected net worth
Wow, that comes out to 504K with the numbers I had in my post ( 120K * 42 /10) assuming a person starts working at 22. So my rough approximation is not totally off base then.
Not really, Stanley's formula includes home equity in their calculation. Yours does not.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: What should the savings be for an average professional

Post by jharkin » Thu Aug 24, 2017 7:39 am

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
As an anecdotal data point... I actually fit your average up until recently (now we are becoming a dual income family). Engineering degree, 21 years in the business, started at 45K and now a bit north of 160. married,one income until this year, 2 kids in HCOL and our savings outside home equity is just over 400. House is worth350-400ish with maybe 40% equity.

I could have done a bit better if I had found out about bogleheads in my 20s.... Followed lots of bad advice back then (active funds), didn't save enough %.

But I could also be far worse. I know lots of people at my income and higher with homes worth 1.5-2x what ours is who drive flashy cars that I bet are house poor and have minimal savings. Most dont have a clue what to do with their 401k. (fits your 'realistic' scenario)

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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 9:09 am

Thanks for the confirmation, Jharkin and congratulations for being in a good position. One thing that comes to mind is that dual income is obviously good to have, but not absolutely necessary to accumulate a significant nest egg. I would think that the second income would have to be 45-50K at the least to make a significant impact in long term savings, strictly from a numbers point of view. It does provide additional security for bad times, especially if it comes with health insurance, but at the cost of day to day hassle when both parents are working with young kids.
I always do wonder how people can let themselves get house poor, spend a ton on pricey cars and not save much with high dual incomes. Do they expect to work all their lives, are they counting on hitting the jackpot ... Judging by the money they make, These are obviously very smart people, so what is their thought process ?

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Re: What should the savings be for an average professional

Post by Artsdoctor » Thu Aug 24, 2017 9:15 am

skor99 wrote:
Thu Aug 24, 2017 9:09 am
Thanks for the confirmation, Jharkin and congratulations for being in a good position. One thing that comes to mind is that dual income is obviously good to have, but not absolutely necessary to accumulate a significant nest egg. I would think that the second income would have to be 45-50K at the least to make a significant impact in long term savings, strictly from a numbers point of view. It does provide additional security for bad times, especially if it comes with health insurance, but at the cost of day to day hassle when both parents are working with young kids.
I always do wonder how people can let themselves get house poor, spend a ton on pricey cars and not save much with high dual incomes. Do they expect to work all their lives, are they counting on hitting the jackpot ... Judging by the money they make, These are obviously very smart people, so what is their thought process ?
Ah, as a doctor, I can answer that one: They don't think they're going to have any health problems and they think they're going to live forever . . .

You can ask yourself an even more worrisome question. How many people with small kids have actually made estate planning a priority? You can bicker all you want about whether or not saving 10%, 15%, or 20% is the best option. But try talking to someone who's got kids about what they have planned in case something happens to the parents and you're going to get blank stares 90% of the time.

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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 9:20 am

Doesn't one need an estate first to do any estate planning? 8-)

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Re: What should the savings be for an average professional

Post by emoore » Thu Aug 24, 2017 9:24 am

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
That is almost exactly my situation but I've only been and engineer for 15 years and I have a little more than $400k in my retirement accounts. I feel a lot more average on this site than the general public but that makes me want to save more.

skor99
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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 9:26 am

emoore wrote:
Thu Aug 24, 2017 9:24 am
skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
That is almost exactly my situation but I've only been and engineer for 15 years and I have a little more than $400k in my retirement accounts. I feel a lot more average on this site than the general public but that makes me want to save more.
So your total ( retirement + non retirement) would be more, good for you !

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Re: What should the savings be for an average professional

Post by InMyDreams » Thu Aug 24, 2017 9:39 am

Another way to view accumulation -
Bernstein recommends saving 15% of all earnings from the beginning of your career, and investing it.

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Re: What should the savings be for an average professional

Post by DaftInvestor » Thu Aug 24, 2017 9:47 am

One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.

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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 9:53 am

This would not make much sense for people whose income fluctuates from year to year.

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celia
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Re: What should the savings be for an average professional

Post by celia » Thu Aug 24, 2017 10:42 am

The Wizard wrote:
Wed Aug 23, 2017 8:10 pm
KlangFool wrote:
Wed Aug 23, 2017 8:01 pm
So, in your example / average professional, they are not "House Poor". Aka, their investment asset is greater than the cost of their house. Sorry to say that. I do not think so. Most average professional that I know is "House Poor"
Most people start out house poor for a few years after purchase.
That's why we look at Investible Assets rather than Net Worth in these threads.
I was house poor in 1976 and a while after buying my place for a whopping $44,000.
But after a few decades it was less of an issue...
+1 In 1976, we had just bought a house and our equity was 10% of the value. After 30 years, however, the equity is 100% of the value. [And since we live in California with increasing home values, our equity has always been worth more than the down payment and all the principal, interest, homeowners premiums, property taxes, and HOME REMODELING expenses we have ever paid. We noticed this was true even after we had lived in it for only a few years.]

In fact, by buying a house and not consciously saving except for the default employer plan contributions that are withheld from your paycheck, at retirement, most people can have:
100% home equity (if they did not re-finance to take equity out)
a Social Security benefit
an employer plan benefit

And that is without saving anything consciously!

Back when we started, the rule of thumb for being financially successful in life was for you to earn $1,000 times your age. So, if you were 35, your goal would have been to earn $35,000. Today, it is probably $1,500 times your age. When DH and I graduated from college and were credentialed to teach, we were in 7th heaven since we had met the requirements to be teachers and each of us could expect to earn $10,000 a year! (not paid during the summer)
skor99 wrote:
Thu Aug 24, 2017 9:20 am
Doesn't one need an estate first to do any estate planning? 8-)
Yes and no. If you don't own anything, there is nothing to give away at your death.

But if you would be leaving a spouse and minor kids behind, you would be smart to provide for them through life insurance.
Last edited by celia on Thu Aug 24, 2017 10:57 am, edited 1 time in total.

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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 10:51 am

100 % equity in a home is useless if somebody loves their home that they have spent years in and have fond memories. They would have to sell to benefit from the equity

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Re: What should the savings be for an average professional

Post by bigred77 » Thu Aug 24, 2017 10:58 am

skor99 wrote:
Wed Aug 23, 2017 10:18 pm
So the, it could be true that there are many people with such income levels with only 150-200K of savings after 18-20 yrs. That is kind of little to show for 20 yrs of work.
I would be willing to wager well over half of the population of average earning professionals has less than 200k outside of home equity by the time they're 40. If they're in a single income family, the numbers will be even worse.

Remember. It's a self selecting population here. Bogleheads is not the norm.

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Re: What should the savings be for an average professional

Post by celia » Thu Aug 24, 2017 11:01 am

skor99 wrote:
Thu Aug 24, 2017 10:51 am
100 % equity in a home is useless if somebody loves their home that they have spent years in and have fond memories. They would have to sell to benefit from the equity
But compare that to someone who didn't /own a house.

Or look at it as their living expenses in retirement are less since they don't have to pay rent.

IMO
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Re: What should the savings be for an average professional

Post by IMO » Thu Aug 24, 2017 11:13 am

skor99 wrote:
Thu Aug 24, 2017 10:51 am
100 % equity in a home is useless if somebody loves their home that they have spent years in and have fond memories. They would have to sell to benefit from the equity
Actually there was a very good post on reverse mortgages that seems a reasonable financial planning tool. (Don't have the link). So the thought that one (who meets requirements on age, etc) can't tap their home equity for an income source in retirement not accurate. So one can very realistically stay in the home they love/have fond memories until death or forced to leave due to health reasons to a assisted living facility.

UncleBen
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Re: What should the savings be for an average professional

Post by UncleBen » Thu Aug 24, 2017 11:14 am

These are the guidelines from the book "Your Money Ratios". I don't remember all the criteria the author used but they seemed reasonable to me at the time I read it.

AGE/CAPITAL TO INCOME RATIO
25/.1
30/.6
35/1.4
40/2.4
45/3.7
50/5.2
55/7.1
60/9.4
65/12

So a 45 year old making $120k should have 3.7 x $120k = $444k saved.

Grt2bOutdoors
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Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Thu Aug 24, 2017 11:16 am

skor99 wrote:
Thu Aug 24, 2017 10:51 am
100 % equity in a home is useless if somebody loves their home that they have spent years in and have fond memories. They would have to sell to benefit from the equity
That is not correct. If you own your home outright, you are benefiting from the value of imputed rent. Imputed rent is the value for which you would have to pay to live in comparable living space to someone other than yourself. There is optionality in owning a home even if it appears the equity is locked up which it really isn't as there are a variety of methods to access it that don't require you to sell the home. Primarily, use of a reverse mortgage and/or a home equity line of credit.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

skor99
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Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 24, 2017 11:18 am

Grt2bOutdoors wrote:
Thu Aug 24, 2017 11:16 am
skor99 wrote:
Thu Aug 24, 2017 10:51 am
100 % equity in a home is useless if somebody loves their home that they have spent years in and have fond memories. They would have to sell to benefit from the equity
That is not correct. If you own your home outright, you are benefiting from the value of imputed rent. Imputed rent is the value for which you would have to pay to live in comparable living space to someone other than yourself. There is optionality in owning a home even if it appears the equity is locked up which it really isn't as there are a variety of methods to access it that don't require you to sell the home. Primarily, use of a reverse mortgage and/or a home equity line of credit.
My mistake - Yes that is correct

Grt2bOutdoors
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Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Thu Aug 24, 2017 11:20 am

skor99 wrote:
Thu Aug 24, 2017 9:20 am
Doesn't one need an estate first to do any estate planning? 8-)
Owning a life insurance policy would create an estate as the premium paid transfers the risk from you to insurance company. Upon redemption, monies transferred become the estate. Further, estate planning is more than just about the dollars......guardianship of child, power of attorney, healthcare proxy, etc.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mayday23
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Re: What should the savings be for an average professional

Post by mayday23 » Thu Aug 24, 2017 11:32 am

I'm 40. Started out at $48K and earn $150K as single earner with wife at home with 1 kid and a $500K house with mortgage

we have little cash savings - enough to cover monthly expenses, but not to cover job loss or something severe
Retirements: $493K

Looks like i'm average on 401k with bogglehead that i'll take, but certainly not on the cash side.I agree that most of the population probably has less than $200K in retirement accounts in the 40 yr old range.

thangngo
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Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 24, 2017 11:33 am

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
At the very least, one individual should be able to save close to $1M (not counting growth of the portfolio). Here's the math for an average professional:
18,000 retirement account 401k
5,000 + Roth IRA
2,000 + brokerage/savings
--------------------------
25,000 = average annual saving
40 × years of working
--------------------------
1,000,000 =

Following a general guideline: 1/3 pay the tax man, 1/3 savings, and 1/3 spending:
Start salary at 60k: 20k tax, 20k savings, 20 spending
At 5 year mark, salary at 100k: 30k tax, 30k savings, 30k spending
At 10 year mark, salary at 160k: 48k tax, 48k savings, 48k spending, and so on.

If you live below your means, the more money you bring in, the more money you should be able to save.

If you live below your means, know your annual budget from the general guideline, then make decision on your life style and purchases.

So, 500k savings after 20 years of working s/b a conservative number since you don't count any growth of the portfolio.

avalpert
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Re: What should the savings be for an average professional

Post by avalpert » Thu Aug 24, 2017 12:02 pm

celia wrote:
Thu Aug 24, 2017 10:42 am
Back when we started, the rule of thumb for being financially successful in life was for you to earn $1,000 times your age. So, if you were 35, your goal would have been to earn $35,000. Today, it is probably $1,500 times your age. When DH and I graduated from college and were credentialed to teach, we were in 7th heaven since we had met the requirements to be teachers and each of us could expect to earn $10,000 a year! (not paid during the summer)
$1,000 back in 1976 is the same as ~$4,400 today - so you may be underestimating what that rule of thumb translates into.

rkhusky
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Re: What should the savings be for an average professional

Post by rkhusky » Thu Aug 24, 2017 12:09 pm

The cost of our house was about 3x gross salary 20 years ago. It is now worth about 2x gross salary.

likegarden
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Re: What should the savings be for an average professional

Post by likegarden » Thu Aug 24, 2017 1:50 pm

I was such a professional, worked for 35 years, married, one child, paid all college bills, now 15 years retired, stocks went up and up. We were never big spenders and saved what we did not spend. For net worth you can get 10 times last salary, including house.

randomguy
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Re: What should the savings be for an average professional

Post by randomguy » Thu Aug 24, 2017 2:04 pm

thangngo wrote:
Thu Aug 24, 2017 11:33 am
skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
At the very least, one individual should be able to save close to $1M (not counting growth of the portfolio). Here's the math for an average professional:
18,000 retirement account 401k
5,000 + Roth IRA
2,000 + brokerage/savings
--------------------------
25,000 = average annual saving
40 × years of working
--------------------------
1,000,000 =

Following a general guideline: 1/3 pay the tax man, 1/3 savings, and 1/3 spending:
Start salary at 60k: 20k tax, 20k savings, 20 spending
At 5 year mark, salary at 100k: 30k tax, 30k savings, 30k spending
At 10 year mark, salary at 160k: 48k tax, 48k savings, 48k spending, and so on.

If you live below your means, the more money you bring in, the more money you should be able to save.

If you live below your means, know your annual budget from the general guideline, then make decision on your life style and purchases.

So, 500k savings after 20 years of working s/b a conservative number since you don't count any growth of the portfolio.
Sure and the more money you save, the less living you do. Saving 33% is great if you want to retire at 50. A lot of people are more willing to save 15-20% and retire at 60. It is easy to say save as much as possible. But you always have to be aware of the costs of doing so.

How much should you be saving? Enough so that you can meet your retirement goals. Those goals are very personalized. The road along the way is going to be very individual. Imagine Person A + Person B have the same exact job and pay raises along the way. But person A gets married a 25 and has 2 kids by 30. Person B gets married at 35 and has 2 kids by 40. When you look at their financial numbers at age 40 or 45, do you expect them to be remotely the same? A has brought spending forward earlier and will be able to save a lot more money after 50 when the kids are gone. Person B on the other hand is going to be paying for the kids til 60. On the other hand he had agess 25-35 where he could save a lot more.

In the end your friend is 100% right. Few 40-45 year olds making ~120k or so have ~500k in savings unless they have tons of house equity. You can debate if that is good or not but it doesn't change that few people save that much. Don't let the bogglehead echo chamber blind you to what the real world is like.

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Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Thu Aug 24, 2017 4:44 pm

randomguy wrote:
Thu Aug 24, 2017 2:04 pm

Sure and the more money you save, the less living you do. Saving 33% is great if you want to retire at 50. A lot of people are more willing to save 15-20% and retire at 60. It is easy to say save as much as possible. But you always have to be aware of the costs of doing so.
Don't worry, inflation and low returns are the equalizers. You can save and invest, but if the returns fail to show up but inflation does you'll find that you aren't that far ahead as you might have assumed.

How much should you be saving? Enough so that you can meet your retirement goals. Those goals are very personalized. The road along the way is going to be very individual.
Enough that you have options. Those who have no money, have less options than you, especially if they have obligations.

In the end your friend is 100% right. Few 40-45 year olds making ~120k or so have ~500k in savings unless they have tons of house equity. You can debate if that is good or not but it doesn't change that few people save that much. Don't let the bogglehead echo chamber blind you to what the real world is like.
Agree, the real world is totally different and don't let outward appearances lull you into the false sense that everyone is rich or earning a good living. There are plenty of charades being played. What's the Warren Buffet quote "you know who's been swimming naked when the tide goes out". Couldn't be any more truer than that.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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DaftInvestor
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Re: What should the savings be for an average professional

Post by DaftInvestor » Thu Aug 24, 2017 5:02 pm

avalpert wrote:
Thu Aug 24, 2017 12:02 pm
celia wrote:
Thu Aug 24, 2017 10:42 am
Back when we started, the rule of thumb for being financially successful in life was for you to earn $1,000 times your age. So, if you were 35, your goal would have been to earn $35,000. Today, it is probably $1,500 times your age. When DH and I graduated from college and were credentialed to teach, we were in 7th heaven since we had met the requirements to be teachers and each of us could expect to earn $10,000 a year! (not paid during the summer)
$1,000 back in 1976 is the same as ~$4,400 today - so you may be underestimating what that rule of thumb translates into.
I never heard this one. For most careers it doesn't work out this way as salary increases aren't really linear - in many fields you can get very big increases early in career and less so later in career (sometimes with a sliding backwards compared to inflation once you are in your 50s). The salary graph typically looks more like a logarithmic function than a straight line.

JBTX
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Re: What should the savings be for an average professional

Post by JBTX » Thu Aug 24, 2017 5:16 pm

We have always wondered how much peers save. They have comparable incomes best we can tell but have bigger houses and many have SAHMs. It isn't something you talk about so you have no idea what the numbers are.

I've seen various quoted statistics but the ones on wealth tend to vary dramatically and often aren't adjusted for age.

BanquetBeer
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Re: What should the savings be for an average professional

Post by BanquetBeer » Thu Aug 24, 2017 5:54 pm

I save around half my income and have never felt like I'm sacrificing - be content with what you got.

But I do talk money with my friends: I know lots of people who earn <50% what we do and drive fancier cars, more expensive houses, etc. people

When people carry 20k in credit card debt, 2 car payments, mortgage payment, and various other financing you can live quite well on paycheck to paycheck. To me, the current limitation on life experience is related to time while having small kids/babies.

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gasdoc
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Re: What should the savings be for an average professional

Post by gasdoc » Thu Aug 24, 2017 5:58 pm

It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc

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