Easy Way to Calculate Your Nest Egg

BusinessWeek has this online under Retirement.
Brett Hammond, TIAA-CREF's chief investment strategist, has designed an easy way for employees to check on retirement readiness based on their asset-to-salary ratios at different points in their career. "The big problem is that there is no magic number for the amount of money you need," Hammond says. "This is an attempt to address the needs of real people. If you tell me your assets, income, and age, I can tell if you're on track for retirement."

Hammond's calculations start with one of the basic tenets of retirement planning—that people need at least 70% of their pre-retirement income during post-working years. He states corporate employees with higher income might need 60% from their 401(k)s, with Social Security filling in the extra 10% gap. The wealthier you are, the smaller the percentage of retirement income Social Security will contribute.

How will you know if your nest egg will cover 60% of pre-retirement income once you stop working? If you're 35 and plan to retire at 65, you need 2.1 times your salary to be on track. By 45, you had better have 3.6 times. At 55, the multiple rises to 5.4 times. And by the time you retire, you'll want it to be 7.7 times.

Of course, there are some assumptions built in to Hammond's formula. He assumes a 10% contribution rate, including any employer matching contributions; 4% salary growth, a bit ahead of inflation; a 6% return on investments; and a 25-year retirement period to finance, which would be paid for by purchasing a low-cost annuity at retirement. Those are relatively conservative assumptions—except, perhaps, the 10% contribution rate.

So for example if you are earning $100,000 and are 45 years old, you should have $360,000 in retirement saving to be on track for retirement. According to this calculation I am on track for retirement but I am planning on saving even more to better my chances of a successful retirement.

How is your nest egg doing?

Top 20 Stock Holdings

Here are the top 20 stocks in my Dividend Portfolio as of 8/31/09 ranked by size of holdings.

1. Kinder Morgan Energy (KMP) USA
2. Barclays PLC ADR (BCS) UK
3. DCP Midstream Partners (DPM) USA
4. HRPT Properties Trust (HRP) USA
5. Johnson & Johnson (JNJ) USA
6. Procter & Gamble (PG) USA
7. General Electric Company (GE) USA
8. Penn West Energy Trust (PWE) Canada
9. American Capital (ACAS) USA
10. Aircastle Limited (AYR) USA
11. Exxon Mobil Corporation (XOM) USA
12. Diana Shipping Inc. (DSX) Greece
13. Banco Santander (STD) Spain
14. Deutsche Bank (DB) Germany
15. GlaxoSmithKline (GSK) UK
16. Cooper Tire & Rubber (CTB) USA
17. ONEOK, Inc. (OKE) USA
18. Newell Rubbermaid Inc. (NWL) USA
19. Seagate Technology (STX) USA
20. Duke Energy Corporation (DUK) USA

Here are the top 10 holding of another money manager I admire Tom Forester and his Forester Value Fund as of the end of 6/30/09.

1. Microsoft Corp (MSFT) USA
2. Johnson & Johnson (JNJ) USA
3. 3M (MMM) USA
4. Altria Group (MO) USA
5. Kraft Foods (KFT) USA
6. Hewlett-Packard (HPQ) USA
7. Heinz (HNZ) USA
8. Bristol Myers Squibb (BMY) USA
9. AT&T (T) USA
10. Travelers Companies (TRV) USA

August Dividend Income Update

My Annualized Dividend Income as of the end of August increased to $5,361 from $5,302 for the month. This means my dividend stocks will pay $5,361 in dividends over the next 12 months.

I made a few dividend stock purchases over the past month from the dividend distributions of KMP and DPM. Hopefully the dividend cuts will slow down for the rest 2009 as the economy is showing some signs of stabilizing.

My Dividend Income Goal for 2009 was $7,000 in yearly dividend income but due to the poor economy and additional dividend cuts, I will have to review that goal. I think $5,500 would be a much more realistic and challenging goal over the next few months.

Most of my stocks are held in my Zecco Trading account and the rest are DRIPs. The dividends from my stocks are reinvested but I am keeping track of the amount of income I could receive once I retire or choose to receive the dividends in cash.

August Net Worth Update

As of the end of August our Net Worth increased to $715,629 from $697,342 for the month which is a 2.62% increase. For now the markets look like the have settled but we will have to wait and see if the economy slowly starts to recover.

The breakout is as follows:
ASSETS
Retirement Accounts $342,413
Taxable Accounts $113,367
Cash $13,660
Home $205,000
Cars $10,000
Personal Property $3,000
Kids 529 Accounts $28,189

DEBT
Credit Card $0

Here is the summary for this month:

Our Net Worth increased the past month again due to the stock market increase and we paid off all our credit debt. We will continue to use our credit cards for rewards but payoff the balances each month. I received around $1,000 in dividends for the month and have used the cash from these dividends to make additional stock purchases of our dividend stocks but I have not been adding much extra money.

We will be building up our cash over the next few months to increase our cash reserves. You can click on my Net Worth graph on the right to see the changes in each category from the previous month. I continued funding our Roth IRA's each month.

I will post my Dividend Income Update on Wednesday.