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 | 19x |
| 35 | 17x |
| 40 | 14x |
| 45 | 11x |
| 50 | 9x |
| 55 | 6x |
| 60 | 4x |
| 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 do not have anyone that depends on your income, you may have no life insurance need.
TABLE B: SAVINGS ACCUMULATION BENCHMARKS
| Age | Multiple of Gross Salary |
|---|---|
| 30 | 1.5x |
| 35 | 3x |
| 40 | 4.5x |
| 45 | 6x |
| 50 | 8x |
| 55 | 10.5x |
| 60 | 12.5x |
| 65 | 15.5x |
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 single retirement goal, an aggressive portfolio allocation, and a high savings rate going forward. If you have additional goals, are more risk averse, and/or will not save at a high rate, you would need an even greater amount of accumulated savings.
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.
Life Insurance Coverage Benchmarks by Age
We used the Human Life Value method to estimate the prudent life insurance need of a hypothetical couple earning $100,000 with the following assumptions: 4% wage growth, 2.19% inflation, 25% tax rate, 1.41 equivalency ratio to estimate the deceased’s consumption, and retirement at age 67.
Investment Assets Benchmarks by Age
We ran a simulation in RightCapital’s planning software for a hypothetical couple earning $100,000 at aged 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: they max one individual’s 401(k) with a 3% match each working year and spend the rest after taxes (a 25.5% savings rate in 2023), 4% wage growth, 2.19% inflation, 4.38% medical inflation, invested in a rebalancing portfolio of 80% stocks and 20% bonds using Hesperian’s proprietary return expectations (7.51% for stocks, 4.78% for bonds) at the time of the study, requiring 80% wage replacement in retirement, $3,299 (in today’s dollars) additional annual out-of-pocket medical expenses per individual during retirement, $54,000 (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.