Tuesday, August 23, 2005

Long Term Goals

I'm really bad at long-term planning. Whenever people say "where do you want to be in 5 years" I don't tend to have a good answer. I'm still trying to figure out what I want to be when I grow up. When it comes to finances, I've had a vague long term goal about being able to "retire comfortably," whatever that means. But for the last few years I've gotten better at making short term goals-- I've been making net worth goals a part of my New Year's resolutions. (And these are the only resolutions I've really followed through on!) So after starting this blog and delving into the many other great sources of financial wisdom that are out there, I was inspired to run some numbers and think seriously about a long-term financial goal.

A lot of people focus on the goal of getting to $1,000,000 net worth. I guess it's as good a goal as any-- it's a nice round number. I played around with some estimates of my future earnings and expenses and came up with a goal of getting to $1,000,000 net worth by 2015. I think this is at least somewhat realistic. I tend to be fairly conservative and pessimistic in my expectations, short of assuming that an asteroid will hit New York. But if I can get another promotion or two, which I think I am well-positioined to be able to do, and if I can keep my current costs at a reasonable inflation level over the coming years, and continue to earn about what I've been averaging from savings and investments, I think it might work out. And if I revamp my portfolio and shift some money away from the funds that have been lagging, maybe I can do a little better.

However, even if I have $1 million by my mid- to late 40s, I'll still have to keep working until 2038 if I want to retire with any kind of decent income, as far as I can tell! $1 million isn't enough. But I never know what to think about the assumptions that go into these retirement income calculators-- inflation percentages, tax brackets, etc. And I always have to plug in a ridiculous number of years I'll be living off the retirement income. No one in my family ever seems to die before their mid- 90s! A friend of mine said I should consider myself fortunate to have a high likelihood of a long life, and I said, sure, that's all very well but how the hell am I going to pay for it?!

I'd love to know what goals other people have set, and how you calculated what you'd need for your retirement. And also, do you have an asteroid contingency plan?


Anonymous said...

I think $1MM NW by your mid-40's is a decent goal. As someone who achieved that goal before age 40 (starting with less than zero), I'll tell you my secrets (not really rocket science).

#1 - Maximize professional income. I know... duh, but really focusing on one's career and seeking oppty's to make more is important.

#2 - Tight expense control. I don't have to tell you this, since your blog seems to be all about that. IMO, you don't have to go crazy, but knowing where your money is going is key.

#3 - Maximizing appreciable assets and minimizing depreciable assets. I don't own a car or a boat or other expensive depreciable assets that are basically a waste of money. I rent these things when I need them. I do own a home, investment property, collectibles and antiques, heirloom quality furnishings, stocks and mutual funds, etc.

#4 - Asset balance. You can't time markets, but if you have balance, then a bust on any given market, presents an opportunity to acquire at the low point, while a boom in any particular market presents an oppty to leverage that inflated currency to aquire other assets. Hope that made since (I'm in a bit of a rush).

#5 - Be prepared to take calculated risks. There is no such thing as a sure bet, but if you are too conservative, you may not ever get anywhere. Sometimes, you gotta just do it, whether its investments, business ideas, career opportunities, etc.

#6 - Invest in education. We all need new skills, all the time in an ever changing world.

#7 - Travel. It expands the mind and refreshes the soul.

#8 - Give back. I believe in kharma.

My ultimate objective is to live a long, productive, and enjoyable life where I have financial freedom to pursue whatever course I choose to pursue.

Jose Anes said...

$1M can be a lot or too little.
Depends on where you live and what you qualify as a "decent standard of living".

I could retire with $1M right now.
I will probably work now and then, and invest then and now if that was the case.

Money and Investing

Financial Fruition said...

I really don't think $1 million will be enough to retire on. Therefore, your plan to try and save more would be a good one. Purchasing Power of a Dollar/Inflation really weaken what $1 million will be in the future. If you assumed a 3% inflation for 10 years (2015), your $1 million then is worth about $744,093 now (not taking into account any investment return). Could you retire on $744,093 today? I don't think I could.

My tentative goal is to have at least $3 million by retirement (35 years). I think that is the amount I could comfortably retire. But I have to run some more numbers and plan this out a little more (not married yet, no kids yet, etc.)

Financial Fruition

Anonymous said...

Financial Fruition,

I see from your blog that you are 26 years old. Did you mean that your goal is $3MM in 35 years (i.e. age 61), or is it $3MM by age 35. Big difference, with the latter not being very realistic unless you have got something pretty wild up your sleeves.

Caitlin said...

Rather than guessing, you can make use of several calculators out there aimed at helping you determine how much you will need based on your specific needs.

Try the Ballpark Estimate calculator. I personally am still vexed by how to guess at some of those inputs. But it *did* help.

Fidelity just recently launched an online retirement calculator that appears to be available to anyone. I found that useful too.

Quicken 2005 (and beyond I guess) has a pretty complex algorithm built in as a planning tool, but honestly it just kinda depressed me.

A lot of these tools ask you to predict what you'll be making until retirement (or at what percentage your income will increase...as if it always does) and try to help you predict what your expenses may be (who knows what will happen with healthcare) but they do leave you with a number to shoot for that is at least based on your answers.

Madame X said...

Caitlin, thanks for the calculator links. I have used the one in Quicken, but I'm never sure if I'm entering the right variables, or whether to trust the answer! maybe if a few other calulators spit out similar answers, I'll start to believe it!