Financial Goals: Working Backwards
How to find the right trajectory to hit your financial goals
How many times have you heard someone talk about ‘targeting $1million for retirement’?
It seems to be the common benchmark used by so many, but it likely has no actual real-world analysis to back it up. $1 million just seems like a large number to many people and its a nice round number. There is a real and observed tendency for people to anchor on round numbers, fittingly called ‘round number bias’
Maybe $1 million isn’t your target, maybe it is more (or even less you froogal bastard), but for most of you, I’d bet it is some round number like $5 million or $10 million. How did you come up with that?
Probably some combination of ‘inflation makes $1million not enough so it needs to be a bigger number’ and ‘its a round number’.
Wouldn’t it be better to figure out a number that may better reflect your reality? Then you can work backwards to see where you should be today, in 5 years, and/or 10 years from now? (Look who is using round number bias in their example…I could have chose any number there, but anything other than 5 or 10 years in the future would read weird…imagine it being ‘…today, in 2 years, and/or in 9 years’, it just sounds weird).
This post will lay out how to work backwards from your target retirement age and see where you need to be at any age (round or not) in the future.