Opinion – Grain in Grain: Discover your grade on the journey to retirement

Every student knows that the critical moment of the course is the exam period. Normally, there are two tests in the courses. One at the end and one in between. Although we want to postpone suffering as long as possible, the intermediate test is crucial for everyone to understand evolution and failures. The big problem in retirement is that, usually, most leave to take the final exam. In this sense, I propose a way for you to check your grade at an intermediate moment and know your grade.

According to the book ‘The Millionaire Next Door: The Surprising Secrets of the Rich Americans’ by Thomas Stanley and William Danko, there is a simple calculation to assess how far you are from your financial security.

According to writer Antony Robbins, there is a big difference between security and financial independence, when you reach the former, you have just enough to cover your most basic expenses.

Thus, I made an adjustment to the formula to adapt to the objective of financial independence and to consider that accumulation grows over time. After all, you want to retire comfortably, right?

To calculate how much you should have today in financial investments to know if you are on the right track, you will need three pieces of information: your current age, the age at which you intend to retire and your gross annual income.

Your current annual income is assumed to be sufficient to cover your costs. Therefore, equivalently, she would also be in retirement.

For the youngest, the income is lower, but so are the costs. As you get older and start a family, your income usually goes up, it has a higher cost, but it has had more time to accumulate.

The challenge is to control costs so they don’t rise at the same rate as income, and thus about enough to invest.

The calculation is simple. Simply multiply your age by your gross annual income and then halve the difference between your retirement age and your current age. I present the equation below.

For example, if you are 35 years old, intend to retire at 65 and earn the equivalent of BRL 10,000 per month (BRL 120,000 in the gross year of income tax), then your financial equity to have a grade 10 should be R$ $280 thousand.

The table below presents other examples.

To know your score, you must divide your equity by the Note 10 Equity and multiply the result by 10. If your equity is 50% of the Note 10 Equity, multiplying by 10, you find the score 5. If your current equity is 80% of Equity Note 10, so your rating is 8.

If you’ve accumulated wealth above the 10 rating for your age, congratulations. Keep investing as you can possibly anticipate your financial independence.

Here there is no reproof, for it is only an intermediate test. If you are short of what you want, you should look for ways to increase your savings to recover the grade.

The important thing is not to leave it to try to recover in the final test. The odds are low of passing the retirement journey if you’re not ready until five years before you retire.

This rule applies until you are five years away from retiring. Remember that it represents the intermediate test, not the final one.

I emphasize that this is a rule of thumb. Rules of this type are just a guide. The ideal is to build a plan that really considers its characteristics and objectives.

Remember, in the game of investing for retirement, whoever starts early, comes out ahead.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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