A formula for retirement. (Comment).The October October: see month. issue of Best's Review just filtered its way to my desk. I want to address the article, "Surveys Indicate That Workers Way Behind on Retirement Plans" (October 2002). For years, I have advocated the widespread use of a simple formula to help each of us determine how we are doing to prepare for retirement. Because of its simplicity, the formula could achieve acceptance as an effective rule-of-thumb. Many retirement planners may scoff at my formula because of its simplicity. However, I don't don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. intend for my formula to be used to circumvent cir·cum·vent tr.v. cir·cum·vent·ed, cir·cum·vent·ing, cir·cum·vents 1. To surround (an enemy, for example); enclose or entrap. 2. To go around; bypass: circumvented the city. the need for proper financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against . It can be used, however, to give each of us an idea if we are saving enough or if we should be saving more. The basic formula for what I'll I'll Contraction of I will. I'll I will or I shall I'll will ~shall call "Formula Net Worth" is this: Find the product of three factors: 1. Your age minus 20 2. Your current income minus $20,000 3. 20% This will show, over a wide range of ages and incomes, what your net worth should be to be on course to provide a secure retirement, when combined with Social Security. The basic premise of this formula is that you probably can't save much before age 20, so we'll forget about those years. Likewise, below a certain income level, you can't save much because all your income is going for necessities. After these thresholds, you should try to save at the rate of 20%. Now, admittedly, these thresholds are subjective. The $20,000 should be changed over time because of inflation. One could also debate how non-financial assets Non-Financial Asset An asset with a physical value such as land, property, or some type of object. Notes: Unlike financial assets such as stocks and bonds, which are intangible, non-financial assets are physical and have values based upon their physical properties. (home equity, cars, etc.) should be counted in net worth. I think such debate would be beneficial. Maybe it will result in a refinement of the formula. But for now, can we start with this formula in reporting how we are doing in our retirement plans? So that each of us can examine our own situation, it would be helpful to make a statement like, "Two recent studies show that the average household is at 37% of formula net worth, down from 42% just a decade ago. Financial planners Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. tell us that we should be shooting for 70% to 80% to have a secure retirement." To me, this is a more useful statement than the one in your article, "Two recent studies suggest that the average U.S. worker isn't saving enough." Bob Gabriel Second Vice President, Product Development West Coast Life Insurance Co. San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden . |
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