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May 03, 2010


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The goal of any investor is to compound capital at the highest rate possible for their given level of risk tolerance. The capital/income ratio seems to be one benchmark for measuring if enough assets are being accumulated for retirement. Everyone wants to know what their magic number is for retirement.

I love benchmarks, but this one seems a little low, right?

My husband and I make about $78,000 a year jointly and have a CIR of 0.3...that means we should have $23,400 saved up, right?

That seems REALLY low to me...maybe our early retirement goal pushes us a little harder but we have more than $73,000 combined from cash, my 401k, our Roth IRA, and our stocks. I'm even ignoring what's in my husband's pension plan since I'm too lazy to look it was a little more than $10k last year. That's more than 3 times as much as the benchmark states.

I'd love to say "whoo-hoo, we kick butt", but I think it's a benchmark error more than a personal success. If we only had $23,400 saved up, I'd be very worried about our future.

This post just reinforces the idea that saving any amount when your young will be very helpful towards achieving your retirement goals by the time you are 65. Its never to early to start, and that is the motto i live by.
Preferred Financial Services

Hmm. It's interesting to learn and play with ratios like this one, but what does it mean in real life terms? Isn't it possible for someone who make $20k a year and someone else who makes $200k a year to both have the same CIR in the same age group, and yet, end up with very different results in real life?

Perhaps that's not the point the author is trying to make, but just the same, I think it's worth noting.

Isn't it much easier to just say "Save 15% of your gross income every year?" I mean, if you are earning 5% on your money, and you get a 2% raise each year the math of the CRI chart above works pretty well to end up at near a 12 CRI in the end anyway if you put 15% of your gross income each year. The key here is starting at 25 or earlier. Starting early is hammered in by almost every financial advisor and pretty much all material you read about saving for the future.

I'm curious why they think that 12 CRI is good enough to and replace 80% of your income. They don't really go into how they plan to stretch the capital into retirement years. I expect thats in a different chapter.

Budgeting Fun Stuff: The ratio is pretty low in the earlier years likely because it assumes that people are going to have relatively lower income in their 20's, they are saving for homes, paying off college debts, having babies, etc. So I think its fairly normal for people in their mid 20's to have very little in the way of cash savings accumulated. I was in debt at age 25. If you're doing considerably better then that then you're ahead of the curve. And no I wouldn't be considerably worried if I "only" had the amount this benchmark cites. But of course everyones different. An Electrician may have good cash savings by age 25 and an Electrical Engineer may be in debt in student loans still. The engineer will likely pull ahead in later years.

Triciatim : Save 15% is a goal (a good one). This measure is more like a benchmark. The idea here is to take a snapshot of your current state and compare it to where you 'ought to be' at that age.

I really like this guide and way of thinking about the "number." One thing that I always find challenging with formulas that take into account your current income is that my income today has only been by income for the last few months. My income in previous years was a lot lower, so obviously my savings are a lot lower and I've been living on less for years, but I'm still supposed to use my current income as a benchmark.

I'm glad I came across this today. :)

I'm 35 years old and almost exactly on target in terms of CRI.

I'm definitely above my capital to income ratio, due to getting on board with the 401K programs at whatever job I was with at the time. Then again, my C to I ratio is 2.4, and I average about 10,000 a year now, LOL. So whatever amount I had saved was when I made around 20,000 a year. Now, I just manage to stay out of debt, but can't save much, so by the time i get to the next ratio bracket, I'll probably be behind.

Per the formulas outlined I am way behind. However, if I were allowed to include my secondary home and investment real estate it would be ahead. So, why is real estate considered to be a non-capital asset ? While I cannot argue it has taken a tumble, select RE is still a good investment if you invest wisely. I consider it to be part of my overall balance in portfolio management.

[email protected] - I think the formula excludes your primary residence but does include any equity you have in investment properties.

At 69, I had $78k in my 503b. I did not start saving until I was 49 and a good deal of the time I was putting in 25%. Shocked me, as I had never been able to save much. In fact, we had been up to $34k in cc debt.

Luckily, I still am ok. I have SS & 2 small retirements. I need to only take out the minimum each year to use on my home or on visiting family. But the best news is, since I only take it out annually, I have taken out around $15k since 2006 (none in 2009)and yet, by the end of this year, I will have approximately $76.5k in my account.
This is only a savings account type of retirement, so I did not lose anything in the downturn except a now much lower interest rate.

They had informed me that if I took a monthly payment of $468, with an interest rate of 4% my money would last for 20 years. See what monthly compounding can do for you?

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