Are you a super saver?

Can I Get Rich on a Salary posted about the story of Shawn Larsen who is 47 years old and planning to retire in a couple of years at age 50. He has accumulated assets of $300K in his retirement fund, $680K in mutual funds, plus he has some equity in his home (although it doesn't say how much, just that he's still paying off a mortgage. The average house price in the US would suggest he may have $200,000 or so in home equity). He also will get a $30Kpa pension, which is equivalent to having another $750,000 in retirement funds (assuming a conservative 4%pa withdrawal rate). So, his total deemed NW might be around $2m, which is pretty impressive for a 47 year old wage earner.

The Money article and Can I Get Rich appear to think that saving 50% of a $180,000pa salary is an amazing feat, but I don't think it's that much of an achievement for someone on a relatively generous salary - especially for a single guy with no dependents. It may indeed be extraordinary (after all, a lot of US and Australian citizens his age would have a negative or negligible net worth, and have a negative savings rate due to consumer debt burdens), but it isn't all that hard to achieve if your maintain a modest, but comfortable, lifestyle.

For example, I currently save $30Kpa out of my salary (35% of gross), or if you include the 9% compulsory employer retirement contribution (SGL) that we have in Australia, 40% of gross. And I'm supporting a family and paying off a mortgage on that salary. As my salary has increased over the years I've slowly increased the proportion I save, and we live comfortably enough now that any future raises above inflation could be added straight onto my savings.

DW currently works 2 days per week, and is saving 53% of her pre-tax salary into her retirement account, and another 35% goes towards our home loan repayments (which we split 50:50). That doesn't leave her with much "play" money, but since I pay the utilities, food, kids school expenses etc. she can still afford the odd indulgence.

So, if I was earning an extra $90,000+ on top of my current salary (like Mr Larsen) I'd be adding it all to our investments. It's very hard to save and invest if you're in a low paid job, but it shouldn't be a stretch for anyone earning above the average wage.

Copyright Enough Wealth 2008