After publishing my When Can I Retire spreadsheet, I received emails from readers asking how much they should have saved based on their age. In this article, I’ll share my thoughts on how much you should have saved for retirement as a multiple of expected retirement expenses and geographic region in which you plan to retire. I’ll also show some retirement hacks you can implement if you’re not on track. I’ll substitute net worth for “saved.” I think this is a better way to capture the BIG picture.

Many financial firms come out with their recommendations for net worth targets by age but not location. JPMorgan Asset Management recommends that households have an amount saved based on their age and current household income (pre-retirement). For example, they recommend a 60 year old who has a current household income of $100,000  have 7x that amount saved, or $700,000. I think this may be too low, depending on the amount of your expected annual expenses in retirement. Go to page 15 on JPMorgan’s Guide to Retirement for the assumptions they use to get the multiplier.

My model is based on having 25x your retirement expenses saved for retirement by age 59 1/2. This model is not based on pre-retirement income. It’s based on how much you plan on spending annually in retirement. I chose a 25x multiplier because I believe this number will allow you to have a sustainable withdrawal rate on your portfolio in retirement. I chose 59 1/2 because this is the government’s magic number for withdrawing from your retirement account penalty free. I also think every American has the opportunity to (not the guarantee) retire at a relatively young age. Worries of running out of money in retirement are way overblown if you have a sizable net worth (yes, some millionaires are worried that all of their money will vanish and they’ll be stuck eating dog food under a bridge in retirement).

My model also adjusts for the cost of living in the area in which you’d like to retire. I use big data to accomplish this. Specifically for this net worth target by age and region, I use Medicare’s Wage Index data set. This data set is great because it includes actual cost of living data by geographical area. “1” is the base number in the data. A “1” represents the median cost of living area in the United States. A lower cost of living area would be less than 1 (Kansas City). A higher cost of living area is more than 1 (San Francisco).

Here’s the Net Worth Target by Region spreadsheet:

You can also access the Google Sheet version of this document.

How To Use the Net Worth Target Spreadsheet

Input your data into the yellow cells only. The spreadsheet works in two different ways depending if you plan on retiring in the woods or in the concrete jungle. If you put in Non-Urban in the second input box, the spreadsheet pulls in the cost adjustment factor based on the state you input. For example, if I chose “Non-Urban” and “Maryland” in the second and third inputs, the spreadsheet will automatically pull in my factor from the tab titled “Table B – Non-Urban”.

If you choose “Urban” instead, you’ll have to manually find your adjustment factor on the tab titled “Table A – Urban”. I was going to make this automatic but it’s difficult to do based on how Medicare sets up their data. My suggestion is to run a control find (CTRL + F) and input the city or county in which you plan to retire.

For “Annual Expenses in Retirement” use the amount you’ll need to spend annually in retirement in today’s dollars. Include things like property taxes, insurance, food, entertainment, charitable contributions, etc. etc.  You can reduce the annual expense amount by the amount you plan on receive from Social Security or in pension income. This works best if you’re close to receiving either Social Security or pension income.

*A note on spouses: Include your spouse’s expenses in “Annual Expenses in Retirement”.  This spreadsheet is your combined net worth target if you’re married. Use the oldest spouses age for calculation purposes.

The Net Worth Target Adjustment Factor

I like using an adjustment factor even though we’re inputting our expected annual expenses in retirement. The reason for this is that you will spend more or less during retirement based on your location. This is pretty obvious. What’s not so obvious is how to get to the number you need. That’s why I like the adjustment factor. I will need more money living in a higher cost area, even if I think that I will only need $X amount annually.

Look at the Non-Urban factor for California versus Puerto Rico (Table B). California has a 1.3 factor meaning that the cost of living is 30% higher than the base. Puerto Rico has a 0.4 factor meaning that the cost of living 60% less than the base factor of 1. For comparison purposes, Colorado has a base factor of 1.

Those folks living in California are going to face higher costs in their incidental expenses like gas, groceries, parking tickets, entertainment, etc. That’s why I like to have an adjustment factor in the formula, even though we’re inputting the annual retirement expenses. There are just some things you can’t estimate.

If you don’t want an adjustment factor, just input a “1” in the cell above the green highlighted cell. You may just want to focus in on your expenses and not worry with the adjustment factor. That’s cool. I think you should use the factor if it makes sense but don’t stress over it if it doesn’t.

One thing this factor doesn’t do is account for the states that do not have state income taxes. I see that as a big part of the equation here that you may need to account for. As most of the spreadsheets I do, I like to put taxes in the “expenses” input fields. This spreadsheet is no different. You can input the amount you plan on paying in federal, state, and local taxes in the “Annual Expenses in Retirement” field.

Example of Net Worth Target

I base the multiple at 25x estimated retirement expenses for someone 59 1/2. I then adjust the multiple based on goal multiples at certain ages. The spreadsheet also considers that it will be harder to save up during your younger years and much easier to accumulate wealth in your 50’s. There are two main reasons why it’s easier to accumulate wealth when you’re older:

1) You will usually have a higher income as you get older up to a certain age.

2) The wealth that you’ve already accumulated will generate more and more yield (compounding).

Here’s the net worth multiple by age:

net worth target by age

Let’s say I’m a 50 year old living in San Francisco (a 1.77 factor city) and I expect my retirement expenses to be $50,000 annually. Based on the above chart I should have a net worth of at least $790,000 ($50K x 15.8). But wait! Since San Francisco is a 1.77 factor city, meaning that it costs 77% more than living in Colorado, I have to multiply the $790,000 times 1.77 to get a net worth target of approximately $1.4 million. This is my net worth target based on the cost of living adjustment and the multiple of my retirement expenses. That’s crazy, you say? Not at all. These are targets after all – goals that we should be striving to hit. If you run the numbers and are coming up short, there are ways you can get more retirement income. Or, you could look at retiring to a lower cost area. This is geo-arbitrage: make money in a high cost of living area, then retire to a low cost of living area.

Net Worth Target by Decade

The net worth target spreadsheet assumes that you’ll be able to save more in your 50’s than your 40’s, and more in your 40s than 30’s. The spreadsheet also assumes that’ll you’ll be able to save next to nothing in your 20’s. It’s very difficult for most 20-something’s to accumulate wealth.

There are a few different things going against people in their 20’s: 

1) They’re just starting out in their careers earning modest wages in most cases.

2) They’re more likely to rent than own a home (people who own homes have 45x greater net worth than renters, on average)

3) Student loans often given people in their 20’s negative net worth.

The good news is, people in their 20’s will eventually make it to their 30’s. I have a 2.7 multiplier for a 30 year old. It’s impossible to know what your retirement expenses will be when you’re 30 years old. It’s just an estimate. At an estimated annual retirement expense amount of $50,000, this spreadsheet gives you a net worth goal of $135,000 for a 30 year old. My net worth target spreadsheet assumes that people in their 30’s will start to take building their net worth more seriously.

People in their 30’s:

1 ) They’re more likely to buy a home and start building equity.

2) Their careers are starting to take off, which translates into higher wages.

3) By the time you get to the end of your 30’s, you should have a net worth of $460,000 based on estimated annual retirement expenses of $50,000 and a 9.2 multiplier. This sounds like a lot but remember, your net worth includes home equity. There’s major opportunity in your 30’s to save in a 401(k) and pay down some of your mortgage.

People in their 40’s: 

1) A lot of people are at the pinnacle of their careers in their 40’s. There’s great potential to increase your net worth in your 40’s. Income is directly related to your net worth, according to the Bureau of Labor & Statistics.

2) Expenses can increase for children in private school or college. It’s important to keep expenses in check and avoid lifestyle creep in your 40’s.

People in their 50’s:

1) High-income earners in their 50’s are usually eligible for accredited investment options which allow them to expand their wealth even more.

2) One of the greatest weapons for those in their 50’s is home-equity arbitrage. Taking the money out of your home and investing the proceeds has many advantages that you should seriously consider. I believe that most people in their 50’s should carry a big long-term mortgage, even in retirement (especially those reading this site who have a higher than median household income).

3) Your net worth target is 25x your expected annual retirement expenses when you’re 59 1/2. Achieving this number will allow you to retire and withdraw money from your asset base at a sustainable rate. And of course, there’s no early withdrawal penalty once you hit 59 1/2!

People in their 60’s:

It’s time to relax and enjoy the fruits of your labors. You’ve earned it! Make sure to strategically collect Social Security so you can make the most of your benefits. Your net worth will still likely increase in your sixties.

This spreadsheet is for illustrative purposes only and must not be relied upon to make investment decisions. Please consult a competent fee-based financial advisor to figure out how you should invest to achieve your goals. Whether you have a financial advisor or make your own financial decisions, make sure you’re using the right tools to track your net worth.