What Does Your Net Worth Say About How You’ll Retire?

Retirement will look very different for all of us. And one of the most significant factors in how we will retire is our net worth. Our net worth is a relatively simple calculation of assets and liabilities.

The result is what we are financially “worth.” The higher our net worth, the more comfortable our lifestyle will be after calling it quits from full-time work. Your net worth has a significant impact on your life and retirement. Here’s why.

It might seem complicated, but the net worth equation is quite simple. Net worth is calculated by subtracting one’s total liabilities from total assets. The resulting number is our net worth.

How Net Worth Is Calculated

Once the steady paychecks from a full-time job stop (typical in retirement), we are forced to live off the money we’ve saved and invested throughout our careers. Knowing your net worth gives you a good idea of how close you are to retirement.

Why Is Net Worth Important?

A long-standing study from Trinity University found that most of us can spend about 4% of our net worth with a reasonably good chance of never running out of money.

Of course, this number assumes most assets are invested (rather than sitting in a checking account or hidden under a mattress). But, coupled with your average yearly spend rate, you can use this 4% guideline to estimate when you have accumulated enough money to retire.

For instance, let’s assume you have a net worth of $1,000,000. Using the guideline from the Trinity Study, 4% of a million is $40,000. This means we can probably spend around $40,000 a year in retirement without running out of cash.

You can boost your income in any number of ways. Asking your boss for a raise or a promotion is a great way to increase your income. Investing that income will help to boost your net worth.

How To Increase Your Net Worth

Swipe up to learn more!