Net Worth Goals by Age

[OkiBum]

There are plenty of articles out there which put net worth targets by age groups but I am not sure if they relate to Japan in particular.

For example, some sites say that by the time you are 30, you should have around half your annual salary as your net worth. At 40, you should have double your annual salary. 4 times your annual salary by the time you are 50 and 6 times your annual salary by 60.

A quick check on average salaries in Japan by age gave me this: (It's 5 years old, but just using as a rough guidance)


By this graph this would total to: (roughly using overall average)
Age 30 - $20,000 or JPY 2,000,000
Age 40 - $95,000 or JPY 9,500,000
Age 50 - $225,000 or JPY 22,500,000
Age 60 - $420,000 or JPY 42,000,000

Of course, the amount of money you need when you retire depends on your annual expense etc. and there are rules that you should have approximately 20 times your annual expense as your net worth etc.

What do you guys think?
Are these numbers applicable to Japan?
What are the benchmarks you guys follow?
Do you have targets by Age? Are they similar to the above? Higher? Lower?

[mighty58]

Interesting topic. I think benchmarks like those might be useful to someone just getting started on their career, and who are expecting to work the traditional career until 60. If you hit those targets, and assuming you have a nice pension waiting for you, you should be all right. Not rich, but all right.

However, for those in their 30s/40s who are just getting started, or for those looking to retire early, it’s more a matter of saving as fast as possible. I fall into this group, so personally I prefer to look at the size of my stash (i.e. my investment portfolio) as a factor of my annual spending, and am aiming to save up 25x. As I’m still a fair ways off, I just stick to “save as much as possible”, and I’ll deal with the nuances and vagaries of whether 3.5% or 4% is the real sustainable withdrawal rate when I’m much closer to the goal. For now, just save.

As for net worth, I’ve never personally been a big fan of this metric, because if you own a house, the value of that house (minus your mortgage) is a huge component of the net worth, and gives you a number that isn’t particularly useful at the end of the day. The house is illiquid and you need someplace to live either way. Maybe it’s different in the US where HELOCs are a thing, but I don’t really consider the equity in my house “tappable”, so I effectively ignore it and consider housing an expense.

[TokyoWart]

When I see guidelines on amount of salary that should be saved by certain decades they always seem a bit over-optimistic but from what I understand the assumptions are usually:

1. Home equity is ignored for purposes of retirement planning. (I don't know that this makes sense in countries like the UK or US where you can downsize and harvest a lot of home equity in retirement but in a place like Japan where housing is a poor investment it does make sense to me).

2. The guidelines are made with an assumption that you are going to achieve some "X" times your terminal salary. That used to be 8x but has now moved to 10x-12x in a lot of guidelines because of lower interest rates and longer longevity. In any case, the terminal salary is going to be that high amount in the 50's or so and for some careers there is a large gap between income in the 20's vs 50's (e.g. in the corporate world) while in others there isn't as great a difference.

3. Probably need to think of the household (the couple) as a unit not individuals because one way or another (e.g. divorced or together) that couple has to live off those combined savings in retirement. Those Japan salary stats are for individuals not households so I am not sure that would be my starting point.

4. Averages are a poor guide to what is typical in income because there's a long right-hand tail distribution. Median would be better.

[RetireJapan]

I think any goals you set yourself can be useful, providing they are realistic. You will probably hit them earlier than you were expecting to (we have, in a big way!) and doing so will inspire you to doing more, better.

Not a fan of using salary for anything, it's a pretty pointless metric compared to your current or target spending.

We don't include the value of our manshon in our net worth.

[captainspoke]

I think any goals you set yourself can be useful, providing they are realistic. ...

Yes, goals are good, and in all ways, not just the salary multiples. Goals mean that you're paying attention to and evaluating what's going on, whatever the timeframe or aspect of your life that may be.

I/we started late--married and then kids when we were a little older--so the 20s-30s-40s mileposts didn't apply. I'd agree, too, that property should be excluded from the calculations.

As a dual income couple, my wife and I have been the wind at each other's backs, and the couple/household perspective that tokyowart mentions is another often-ignored aspect in charts or tables listing ages, incomes, and savings.

**

Separately, one of my sibs pointed out the stages of retirement: go-go, slow-go, and no-go (for early, middle, and late/end).

[OkiBum]

I think any goals you set yourself can be useful, providing they are realistic. You will probably hit them earlier than you were expecting to (we have, in a big way!) and doing so will inspire you to doing more, better.

I guess that is what I am trying to focus on. What defines a realistic target? Is it purely based on annual expenses? I don't want to set a target which is too low just to see that I over achieved it...

If it is based on annual expenses, is it only worth looking at the expected annual expense when you plan to retire?
For example, I think when I want to retire our annual expense will be JPY 4,000,000 which then multiplied by 25 would equal to JPY 100,000,000 (not taking nenkin into consideration here)

So use that as a target and work backwards? Is that what most of you currently do?

[fools_gold]

So use that as a target and work backwards? Is that what most of you currently do?

That's what I've been doing. My target is living expenses x 25. I then use a compound interest rate of 5% to work out what I should be investing each month and use that as an absolute minimum.

There's a pretty useful calculator here which lets you play with the numbers.

[TJKansai]

There are so many moving parts, it is hard to come down on a single rule.

Live well within your means and save 40-50% is the rule I have gone by. My rough, conservative goal is to have assets that bring in about double my current expenses.

I expect that my future expenses will fall a bit, but that is not a given.

International travel would probably lead to an increase, even if we stay in lower-cost countries.

Kids would be out of the house, but chipping in with grandkids would cost.

I agree with others that I do not include my Japanese home when I think about savings. The loan was a minus on my balance sheet, but it just got paid off (10 years early).

Owning property overseas is a different story. Housing in developed countries these days can be insanely expensive. My family home that my father bought for $5,000 in 1970 and sold for $50,000 in 1980 is now around $1,000,000.

My rent while living in Australia was double what a similar place would be in Japan. I hear the same stories from NZ and UK friends.

[RetireJapan]

I guess that is what I am trying to focus on. What defines a realistic target? Is it purely based on annual expenses? I don't want to set a target which is too low just to see that I over achieved it...

Well, you will find that your goals and strategy will likely change over time. This is normal as a response to your life changing, or you getting older and hopefully wiser.

So setting an achivable goal now and then a new one if you reach it is perfectly fine.

I found it useful to think about three levels of spending in retirement:

2-3m, which with a paid off home and some income from nenkin, etc. would be enough to live on
4-5m, which would let us live a similar life to the one we have now, with some international travel and supporting family
6m+ which would let us basically do whatever we want without thinking about money

You can then think about withdrawal rates from an investment portfolio:

3% is pretty conservative and seems safe
4% is the default that everyone uses (although the person who came up with it now thinks it is too low)
5% may be okay but a bit riskier

Other sources of income: pensions, royalties, part-time work should also be a big part of your calculations. The more of this you have the less work the investments need to do.

And then you can make a rough plan that will almost definitely change over the next few years

[Kanto]

2-3m, which with a paid off home and some income from nenkin, etc. would be enough to live on

4-5m, which would let us live a similar life to the one we have now, with some international travel and supporting family

6m+ which would let us basically do whatever we want without thinking about money

Sorry, are these figures Millions of yen per year in spending during retirement?

2-3 million seem pretty low.

A report released by the Financial System Council (part of the Financial Services Agency) states that in a one month period, the average senior couple .... receives an income of ¥209,198 but spends ¥263,718, leaving it ¥54,520 in deficit.

https://www.nippon.com/en/japan-data/h0 ... -woes.html