Take this anonymous, short quiz to see whether your finances are on track.
These 10 questions evaluate various aspects of your financial health.
Note, these target ratios and benchmarks are no substitute for the careful detailed analysis we’d carry out as your wealth manager. But we would reference these benchmarks when assessing a client’s financial situation to help us recommend a course of action. So if you find you’re deficient in one or more areas, we encourage you to reach out to us for help.
TABLE A: INSURANCE NEED BENCHMARKS
| Age | Multiple of Gross Salary |
|---|---|
| 30 | 12x |
| 35 | 10x |
| 40 | 8.5x |
| 45 | 7x |
| 50 | 5x |
| 55 | 3x |
| 60 | 0.1x |
| Retirement | 0x |
Instructions: Find the age that’s closest to yours in the first column. The multiple in the second column of the same row represents a general estimate of your life insurance need. Note, if you are not meeting your savings accumulation benchmark, you may require higher insurance amounts. So think of these as minimum requirements. On the other hand, if you do not have anyone that depends on your income, you may have no life insurance need at all.
TABLE B: SAVINGS ACCUMULATION BENCHMARKS
| Age | Multiple of Gross Salary |
|---|---|
| 30 | 0.75x |
| 35 | 2x |
| 40 | 3x |
| 45 | 4.5x |
| 50 | 6.5x |
| 55 | 8x |
| 60 | 9.5x |
| 65 | 12.5x |
Instructions: Find the age that’s closest to yours in the first column. The multiple in the second column of the same row represents a general estimate of the total savings you should have accumulated so far. When counting your savings, make sure to include bank accounts, any passive investments, and the value of any businesses you own, too. This illustration assumes a $100,000 household income, a two-person household with no children, a single retirement goal, a balanced static portfolio allocation, and a high savings rate going forward. If you have additional household members, have additional goals, are more risk averse, and/or are not saving at least 25% of gross household income, you would need an even greater amount of accumulated savings at each age interval (and vice versa). Think of these estimates as minimum requirements.
Eric R. Figueroa, CFP®
I am a fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
The financial benchmarks discussed above are presented for informational purposes and should not be construed as investment advice. They only serve as rules of thumb based on a hypothetical client couple and generalized case developed by the financial planning profession or by Hesperian Wealth. The target financial ratios, insurance needs, savings rate, and investment assets appropriate for you may be significantly different where your situation deviates from the assumptions used. They should be adapted for your personal situation by a professional financial planner.
We ran a simulation in RightCapital’s planning software for a hypothetical couple earning $100,000 at age 30, 35, 40, 45, 50, 55, 60, and 65 to determine the assets necessary at each age to achieve an 80% chance of not running out of money by age 90/95 using the following assumptions: monthly expenses of $5,000 growing with inflation, they max one individual’s 401(k) with a 3% match each working year, they save a small residual amount after taxes in a brokerage account, 3% wage growth, 2.44% inflation, 4.88% medical inflation, they invest in a static portfolio of 60% US stocks and 40% US bonds (modeled with 1,000 Monte Carlo simulations anchored to Hesperian’s proprietary long-term return expectations—7.04% for stocks, 4.81% for bonds—at the time of the study), retirement expenses based on an 80% wage replacement ratio in the first year of retirement inclusive of $3,454 (in today’s dollars) annual out-of-pocket medical expenses per individual during retirement, $64,200 (in today’s dollars) in assisted living expenses in the last two years of life for each individual, retiring and taking Social Security at age 67, and a life expectancy of 90 years (first to die) and 95 years (second to die). All other assumptions use RightCapital’s default settings.
Based on this study, we estimated both the investment asset benchmarks and the unmet insurance needs for each age interval shown.