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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: Re: Personal Finance Ratios Date: 8/27/2006 5:00 PM
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I'm 31, savings ratio of 1.2, debt ratio of 1.67, savings rate of 16.5%. That's quite a bit ahead of the curve on savings, pretty much on the mark on debt, and ahead on the rate. All of which is to be expected if my goal is to Retire Early rather than at 65. Looks like I'm ahead of the curve at this point!



But if you want to retire early, then you would need 12 times your salary at the age you want to retire--not 65. So you could re-calculate with this in mind to see if you would still be ahead of the curve.

However, I don't totally agree with the logic of this article.

I see one problem with the article's Savings-to-income ratio: it doesn't accurately reflect the status of folks who have have high incomes and save a high percentage of that income. Since they save a lot and spend little then they likely will not require a high percentage of their pre-retirement income.

For someone in this situation, I believe that a Savings-to expense ratio would be a far better gauge to analyze their financial health.

I'll give an example to illustrate. Let's say that a 55 y/o earns $100,000 per year, has annual expenses of $25,000 and has savings of $500,000.

Their Savings-to-income ratio would be 5, which is lower than they should have for that age. However, their Savings-to expense ratio is a very respectable 20.
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