Am I on track?

Since earning my CERTIFIED FINANCIAL PLANNER™ designation last year I have been asked numerous times by younger folks (I characterize “younger” in this instance to be < 40 years old) for help in determining if they are doing a good job with their finances.  Since these people typically haven’t been exposed to much long-term financial planning they often don’t have specific goals in mind other than they want to know “how they’re doing”.  As a planer “how I’m doing” is a relative measurement that is tough to evaluate.

I ran across an article in the “Ask the Expert” section of the June 2011 issue of Money Magazine win which a 31-year old asks the exact same thing.  I like the simplicity of the answer which followed:

*To quit working at 65 with a decent shot at replacing 80% of your pre-retirement earnings, you’ll need savings equal to roughly 12 times you income (that assumes you’ll collect Social Security but no pension).

*By 35 you should have 1.4 times your pay tucked away.  That ratio is 3.7 at 45, and 7.1 at 5….(the) math assumes you save 12% to 15% of your salary a year, including matches, and your investments beat inflation by 4.5% points a year.

*(If you’re not on track) you needn’t despair.  There isn’t a single path to pone retirement destination.  By living on 70% of your salary or working a few more years, you can cut the savings levels you must reach by 10% to 25%.

Keep in mind everyone’s situation is different and anytime you are investing there is risk and therefore no guarantee that everything will work out in the end.  If you’d like some more personal attention feel free to contact me.