Featured in the Knoxville News Sentinel: May 29, 2018
How much is enough?
Obviously, it is a subjective question.
Enough to just get by? Or enough to be “comfortable?” According to a 2017 Charles Schwab survey, respondents said they would be financially comfortable with $1.1 million.
But really, when it comes to personal financial planning, how much is enough? How much is enough life insurance? Enough personal income? How much is enough for an emergency fund? Enough investment diversification? Enough asset accumulation for retirement? Enough rate of return on an investment?
With investment markets moving sideways this year, some investors may be wondering, “Am I still on track to enough?”
It gets more sobering: mutual fund giant Vanguard is forecasting 3.5 percent to 5.5 percent annualized returns for stocks over the next 10 years. In other words, it might be harder to get to “enough.” How can we control our financial success? Save more (highest impact). Work longer. Spend less. Minimize investment cost.
Short of a deep analytical dive, there are certainly financial planning guidelines and rules of thumb. A cash reserve of at least three month’s living expenses is a good standard to buffer you from large unexpected expenses. Total debt payments less than about 36 percent of your before-tax monthly income is considered reasonable.
There are guidelines for accumulating retirement savings; for example, by age 55, you should have ideally accumulated about 7 times your current salary.
My daughter just got married. She and her husband are early in their careers. If they start saving now, at least $200 per month, in a diversified stock mutual fund, by approximately their mid-60s they will have amassed $1 million or more. Considering inflation and their spending needs, that may or may not meet the future’s definition of “comfortable,” but they will have time on their side to plan for enough to be financially secure and independent.
For those of us approaching the retirement years, it is an increasingly important question: how much is enough? Talk about it with your spouse and your family.
“Enough” will depend on what is important to you, your values, your priorities, and your life goals. You don’t want a surprise – illness, accident, layoff, etc. – to upend your family’s financial security.
Run your numbers, make adjustments, make a plan for financial peace in your future.