Managing Healthcare Finances and Improving Your Fiscal Health

Healthcare in the United States is a bit of a mixed bag. We have great advancements, but access to care is exceptionally expensive. This limits who can get treatment in unfair ways, especially for lower-income Americans.

Unfortunately, health insurance doesn’t always help the way it should either. Although the Affordable Care Act (ACA) requires coverage for preexisting conditions and doesn’t allow higher prices for those who are ill, insurance companies have responded with expensive plans, less coverage, and higher deductibles.

To manage healthcare finances, you have to make wise decisions about what health coverage you choose and how you save for your health needs. Here are some tips to start with right away.

Find Community Healthcare Options

Community healthcare can help you in significant ways, whether you have health insurance or not. You can use the government’s “Find a Health Center” tool or contact your local Department of Health and Human Services.

Community health services often provide medical care, behavioral healthcare (including mental health and substance abuse disorders), and even dental care. The cost is based on a sliding scale, which helps make it affordable for everyone.

Apply for Medicare, Medicaid, or Health Insurance Assistance

You may be able to access affordable health insurance even if you are lower income. Applying for Medicare, Medicaid, or using to get assistance paying for health insurance are all options.

If you’re 65 or over or have a disability, consider Medicare. There are many parts to Medicare and you have a lot of options, so make sure you understand the details.

Medicaid allows you to get low-cost or no-cost care for a variety of needs. The program was expanded in many states, so even if you haven’t qualified in the past you may now. It certainly doesn’t hurt to try it! You can also see if you qualify for traditional health insurance with payment assistance through the ACA.

Focus on choosing a plan that works for you. If you need care regularly, it may be worthwhile to choose a higher monthly premium and lower deductibles and copayments. You’ll save overall. However, if you’re relatively healthy, you might want a lower-premium plan where you can save up for the deductible and out-of-pocket costs.

Reduce Financial Stress to Improve Your Health

Financial struggle has a significant impact on people’s health. There are links between financial concerns and depression, anxiety, and even substance abuse disorders. These problems then make it even harder to manage your money well, creating a downward spiral.

The best thing you can do for your health — and your access to healthcare — is get your financial health in order. Like most things, this is easier said than done. However, these ideas might help.

Plan for Necessary Expenses

Everyone knows that getting rid of expensive luxuries is part of budgeting, but what if you don’t have any expensive luxuries? That advice can ring hollow. Instead, list your necessities and when they’re due. Then, list your income.

Look at ways you can save up for expenses, especially if they’re occasional. Do you need to go to the dentist once a year? You can save up a little bit each month and then have the money available.

Earn Additional Income

Earning more money is not as hard as it used to be. Many positions allow you to work from home, either full-time or part-time. We learned a lot from our experience with COVID-19, and one of the biggest lessons was flexibility.

You can work virtually as a telephone representative or write blog posts for cash. If you work as a freelancer, you can choose your workload and hours. Consider looking for opportunities on sites like ProBlogger or Flexjobs.

Plan Meals at Home

When you’re working hard and stressed out, a sandwich for dinner from a nearby shop sounds like the perfect solution. Unfortunately, it’s a lot more expensive than making a similar sandwich at home.

Consider planning meals in advance and cooking at home. You’ll find it’s much less expensive to buy the ingredients for your favorite meals than to get them as takeout. If you plan your menu around inexpensive foods like rice, beans, and meats that are on sale, you can save even more.

Evaluate How You Think About Money

Your mental and emotional attitudes about money have big impacts on how you feel during tough times. If you’re working on improving your financial wellness during a difficult time, it might be helpful to uncover money beliefs and unconscious attitudes that affect your finances.

Sometimes a quiz is all it takes to discover some surprising roadblocks that exist in your own mind. Not allowing your emotions to take control of your decisions is another important skill to develop. 

The good news is that this internal work is entirely within your control. There’s no reason you can’t start today.

You Can Manage Healthcare and Finances

Keeping your finances healthy is a significant challenge. Fortunately, there are a lot of strategies you can use to access affordable healthcare and save up for important expenses.

As your financial health improves, it’s likely you’ll have fewer symptoms of depression, anxiety, and other health issues. This can make it easier to make good decisions, which then improves your health further.

If you’re ready to improve your health and finances, take action today!


Is LASIK Worth the Cost? The Answer Helps Explain How Stocks Work.

Is LASIK surgery worth the cost? Or am I better off buying contacts and glasses for the rest of my life?

Ok. Maybe you don’t wear contacts. Maybe you don’t care.


Because there are two reasons why this question matters to you.

  1. You can apply this exact problem-solving to other financial questions in your life.  
  2. The math used here is essential in understanding why stocks have value.

Let’s dive in.

The Cost of Lasik

“LASIK” is a laser refractive surgery used to correct vision problems. Surgeons use a precise cutting laser to change the shape of your cornea in order to permanently improve your vision.

The average cost of LASIK in 2021 is $2246 per eye, or $4492 total.

That’s a one-time cost.

But with contacts and glasses, I’ll be spending money for the rest of my life.

How do I account for that?

The Cost of Contacts and Glasses

  • I spend $300 on contacts per year
  • I spend $200 on glasses every other year

On average, I spend $400 per year on these products.

If I live another 50 years (age 81), I’ll spend ~$20,000 (50 years * $400/year) on these products.

So it’s an easy choice. $4492 for LASIK is WAY less than $20,000 for contacts.

But there’s a problem…

Future Dollars vs. Current Dollars

I pay for LASIK fully in 2021. But my contact/glasses costs are spread over 50 years.

That’s a problem. My simple analysis above doesn’t account for that.

You probably have a basic understanding that a dollar’s value changes over time. $100 in 1970 is NOT the same as $100 today.

So – how do we compare the future value of contact/glasses costs vs. the present value of LASIK costs?

Future Value of Contacts vs. Present Value of LASIK

One of the basic tenets of financial analysis is differentiating future value (FV) from present value (PV).

The PV of LASIK is easy and understood. It’s $4492.

But what’s the PV of the contacts? We don’t know. All we know is the FV of the annual contacts expenditures.

Converting FV to PV

How can we convert FV to PV? We need to answer two important questions.

  1. How will contacts/glasses costs change over time?
  2. How much money would I need today to pay for contacts/glasses in the future?

For #1, I’m going to look at inflation. Eyewear has experienced ~2% annual inflation over the past 35 years. Let’s assume that trend continues into the future.

If I pay $400 for eyewear in 2021, that same bill in 2031 will be approximately $488.

The math: $400 * [(1.02 per year) ^ (10 years)]= 400 * 1.219 = $488

If I need $488 in 2031, how much money would I need today?

To answer, we need to implement a process is called discounting. We need to discount the future value into today’s dollars.

Trivia: what’s the earliest known example of discounting?

Answer: “a bird in the hand is worth two in the bush.” -Aesop

He said the FV of two eggs is equal to the PV of one bird.

What Discount Rate Should We Use?

What sort of rate, or percentage, should we use to discount FV to PV? In big investing decisions, billions of dollars can be made (or lost) by using the right (or wrong) discount rate.

Small problems and small investors typically use the rate of return of the “next-best investment,” a.k.a their  “opportunity cost,” as their discount rate.

[If you’re curious, large investors/companies often use their cost of capital as their discount rate]

What’s my opportunity cost? If I’m not buying LASIK surgery today, what’s my “next-best investment?” It’s probably a diversified index fund.

What’s the average rate of return of a diversified index fund? Historically, stock index funds have provided an average rate of return of ~10%.

Let’s tie it all together. The problem now becomes, “How much money do I need to invest today in order to have $488 in 2031, assuming 10% annual growth.”

Answer: about $188.

Math: $488 / (1.10 ^ 10) = $488/2.59 = $188

The present value of my 2031 contacts/glasses is about $188.

Next, I need to repeat that process for all future years. What’s the PV of my 2022 contacts/glasses? How about for 2023? 2024? …All the way until 2070.

This is easily done with a spreadsheet. Here’s my Google sheet if you want to check out my work.

What’s the Answer?! Is LASIK Worth the Cost?

If I assume I live until age 80, and assume I continue wearing contacts and glasses as I am today, then the present value of all my future contacts/glasses is:

LASIK…not the same as laser eyes.


Whereas the present value of LASIK surgery is $4492.

LASIK is cheaper by about $900. LASIK, therefore, is worth the cost.

Aside: the Importance of the Discount Rate

Remember when I said, “billions of dollars can be made (or lost) by using the right (or wrong) discount rate.”

If I had assumed an 8% discount rate, then the PV of my contacts would be ~$6786. That’s even more in favor of LASIK.

But if I had assumed a 12% discount rate, then the PV of my contacts would be $4438—about the same as my LASIK. Suddenly, my optometry choice becomes much harder.  

Big decisions in financial markets are made based on PV and FV calculations. The discount rate makes all the difference.

Ok. What Does This Have to Do With Stocks?

Question: why does a stock have value? Great question, Jesse.

A stock is partial ownership of a company, and a company has value for two reasons.  

  1. The stuff that the company owns. Trucks, factories, conveyor belts, intellectual property, etc. As a stock holder, you own a fraction of that stuff. And it has value!
  2. The future profits of that company – from today until kingdom come! Those future profits have a value today. Do you see where I’m going with this?

#1 is easy to understand. Add up all the stuff, figure out what percentage you own, and voila.

But #2 is hard. How do we find today’s stock price when we’re depending on future profits?

Answer: we use discounting!

We have to make some assumptions. And the assumptions are where the real money is made or lost. A stock analyst needs to ask:

  1. How will the company’s profits change over time? (this is similar to our inflation question for contacts/glasses)
  2. What rate should we use to discount future earnings? (this is just like our PV/FV question for contacts/glasses)

You can find the value of a stock with the same math and logic used to make our LASIK vs. contacts decision.

Who knew blurry vision could help you learn about stocks?!

Other Risks?

Attentive readers might ask, “But isn’t LASIK potentially risk? What if there’s a complication? There’s a cost to that, right?”

It’s a fair point. Everything has potential complications. Economists call these “hidden costs.”

For example:

  • There’s a cost to fiddling with glasses and/or contacts every day.
  • There’s a cost to stumbling out of the bed with blurry vision.
  • There’s a cost to sticking my potentially-grubby fingers into my eye to place/remove contacts
  • There’s a cost to contacts drying out/falling out when I don’t want them to
  • There’s a cost to getting hit in the glasses, possibly damaging them and/or injuring my face.

Hidden costs are everywhere.

Are the hidden costs of LASIK worth eliminating the hidden costs of glasses and contacts?

I don’t know. What do you think?

I Can See Clearly Now…

I’ll tell ya – this analysis has me seriously considering LASIK surgery in the next few years.

And even if you don’t care about LASIK, you could apply similar logic to…

  • The cost of a dishwasher vs. the future time savings
  • The extra upfront cost of a Tesla vs. the future savings on fuel and maintenance
  • The extra cost of a “new” house vs. the future renovation costs when buying a “fixer-upper”

You can use FV and PV in your life.

Plus, you now know a little bit more about stocks.

Thank you for reading! If you enjoyed this article and want to read more, check out my Archive or Subscribe to get future articles emailed to your inbox.


P.S. – If you enjoy podcasts, check out the Best Interest Podcast!


Average Net Worth Targets by Age

Today, we’re going to compare net worth targets by age. Mean, median, and various percentiles.

How much money should you have as you age? How should your average net worth grow? Digest the 25th, 50th (i.e. median net worth), and 75th percentile data below.

Note: If you have some money but you’re unsure what to do with it, use the financial order of operations.

Apologies to my international readers—most of this data is pulled from or targeted towards U.S. readers. I suggest you use Numbeo to scale these values to your locality.

Let’s get started!

**Note: I recommend using YNAB to track your progress. You and I both get a free month of YNAB if you end up signing yourself (or someone else) up with the link above. No extra cost to anyone involved. You get a 34-day trial, and then an additional free month. That’s two months to figure out if you like it.

The Good Stuff—Average Net Worth By Age

You didn’t come here to scroll to the end of the article to see the average net worth targets. Let’s get to the good stuff!

Data from the Federal Reserve, 2019
Note: units = thousands of $USD

And here are five expert viewpoints of average net worth targets by age. This initial plot is the 50th percentile, or median, net worth.

Where are these net worth targets by age coming from?


First, I pulled from Fidelity. Their recommendations are all relative to salary (e.g. “3x your salary by age 40”). I used the median American salary by age to convert salary targets into average net worth targets by age.

Note: Fidelity defines net worth as retirement savings only, and does not count other assets (e.g. your primary home’s value). The other methods below do include other assets beyond your retirement savings.


Next, I pulled data from DQYDJ. DQYDJ originally pulled of their data from the Federal Reserve Board’s Survey of Consumer Finances (labeled “The Fed” on the plot).

This Fed data is from 2019. This is the same net worth targets by age data in the table above.

This DQYDJ/Fed data is real data. It’s not a hypothetical target or subjective goal. In my charts today, you’ll see three sets of “subjective targets” and only one set of “real data.”

The Balance

Next, the financial aggregation site The Balance follows a similar formula to Fidelity. At particular ages, they say, your average net worth should aim for an ever-growing multiple of your salary.

Financial Samurai

The Financial Samurai, a.k.a. Sam, is a long-time financial blogger with a no-nonsense attitude about saving money. Sam’s lofty targets are for, he says, people who:

  • Take action rather than complain about an unfair system
  • Max out their 401k and IRA every year
  • Save an additional 20% or more after taxes and 401k/IRA contribution
  • Take calculated risks through investments in various asset classes
  • Build multiple streams of active and passive income
  • Work on a side hustle before or after their day job
  • Focus on the big picture and don’t nitpick with minutiae
  • Want to achieve financial freedom sooner with their one and only life

Fair enough, Sam! Sam’s high net worth targets are going to be far above average.

The Best Interest

And finally, I took my own stab at some average net worth targets by age. I did this based on deciles of American salaries, typical milestones in the average American’s life (various debts, children, growing salaries) and the savings rates that might rise and fall as a result of those life events.

  • A young couple might be able to save some money—but having children will put a dent in their savings rates.
  • As the couple’s salaries rise, savings will increase. But if/when they help their children with college, their savings rates might take another dip.
  • While young, one’s investments might be higher risk (and higher reward). But as someone ages, their portfolio is likely to trend towards safer investments.

Inflation Multiplier

I also took inflation into account. Net worth targets by age need to be adjusted for inflation.

The average 30-year old today might be making $40,000 per year. But the average 60-year old today was making $25,000 per year back in 1990 (i.e. when they were age 30). What are the consequences?

While the average 60-year old today might hope to have an average net worth of $800K (Best Interest opinion), that’s not what a current 30-year old should treat as their target or goal.

If we assume 2.5% annual inflation for the next 30 years (leading to a 2.10x total inflation increase), then a 30-year old today should target $800K * 2.10 = $1.68 million by the time they are 60.

Here are some approximate inflation multipliers based on the number of years you want to project into the future. For example, someone age 50 would want to look 20 years into the future if they want to see what their net worth target for age 70 should be.

Number of years in future Inflation multiplier
5 1.13
10 1.28
15 1.45
20 1.64
25 1.85
30 2.10
35 2.37
40 2.69
45 3.04

Looking at the table above, forecasting 20 years in the future requires an inflation multiplier of about 1.64. Make sure you account for inflation in your net worth targets by age.

Analysis of the Median Net Worth Targets

Let’s take another look at those median net worth targets by age. What conclusions can we draw?

median net worth targets by age

The non-Best Interest/Financial Samurai American net worth target numbers seem low to me.

This is probably an obvious (and biased) conclusion. My method comes up with higher numbers, so I’m going to be biased into thinking the other goals are low.

Let’s start by analyzing this data through the lens of the “4% Rule,” which states that you should take your annual spending and save ~25x that much for retirement.

The Best Interest target ($850K) allows for a retirement income of roughly $34K ($850K/25) per year, or $2800 per month. Financial Samurai’s targets lead to $40000 per year or $3300 per month. When you add in Social Security benefits, that’s a very reasonable allowance for the average American.

The other methods suggest median net worths of $500K, $300K, and $220K, for a monthly allowance of $1660, $1000, and $730, respectively. With the assistance of Social Security, it’s certainly possible to live off these amounts. But there’s more risk involved.

The average Social Security benefit in 2020 is estimated to be about $1500 per month. Let’s add that to the allowances from the previous paragraph.

Would you feel comfortable living off of $3160, $2500, or $2230 per month? Depending on your area of the country, cost of living, medical expenses, retirement goals, etc., it’s a scary question.

What happens if something goes wrong with your plans? Going back to work at age 80 is not an enticing prospect. Neither is asking your children for a handout.

Are these hyperbolic outcomes? I don’t think so.

How to Compare? Apples to Apples?

Does it make sense to set the same average net worth targets by age for both a teacher and a doctor? We know that their net worths targets by age will be dramatically different.

The average American doctor’s gross income in 2019 was more than $300K. Meanwhile, the average teacher’s salary was $60K. Of course, there are millions of people that will fall within and without this range. Does it make sense to compare average net worth targets when incomes are so different?

In my opinion, yes it does make sense to do this comparison. But it’s only one data point that you should use—not an end-all-be-all.

It’s just like a young track athlete comparing their race times to record holders. Of course, they’ll be slower than the record holders. But it gives them a target, an understanding of the gap, a percentage difference to track their progress against.

Besides, the comparisons I presented above are median net worth calculations. They account for the highs and the lows, and they let you know where the middle of that scale lands. Some people start from nothing and build net worth. Others benefit from large generational wealth transfer. This average net worth analysis does not discern between the two.

If you’re making a lower salary but you love to be frugal, then set your targets high! Aim for a high net worth that’s a decile or two above your salary decile.

If you’re fresh out of law school, you’ll probably be in a mountain of debt. You might be low on the scale now, but your long-term financial prospects are good.

Keep circumstances like that in mind as you review today’s charts. This is where age, work experience, education level, etc can all play important roles.

Location and Cost of Living

We’ve covered how inflation and income can affect your position in the average net worth plots. But we should also discuss how your cost of living can affect these results.

Life in San Francisco or New York City costs more than life in Rochester, NY. And life in Rochester costs more than life in rural Kansas. Rent, gas, groceries—all these commodities have different prices around the country.

Therefore, the average net worth benchmarks should change with location.

Use the crowd-sourced site Numbeo to do some of these comparisons. For example, here are some results comparing Rochester to Boston—where Numbeo suggests we need 50% more spending in Boston than in Rochester to maintain similar standards of living.

Numbeo uses New York City as a baseline, giving it an indexed score of 100. The United States as a whole has an index score of 56, suggesting that the average American has a cost of living that’s about 44% less than the average NYC resident.

Look up your city or region to compare it to the United States index score of 56. The percentage difference will give you another way to interpret the average net worth results.

For example, Philadelphia has an index of 62, which is 10% higher than 56. If a Philly resident is using today’s data for retirement planning, they should consider adding 10% to all of the data points.

75th Percentile Net Worth Targets by Age

75th percentile net worth targets

The plot above shows the same five experts’ opinions, but at the 75th percentile.

One interesting aspect of the 75th percentile net worth targets is that the Fidelity recommendation lines up well with the Fed data.

This suggests that people who earn more also save a larger proportion of their income, and people who save more are more likely to meet Fidelity’s thresholds. That’s real data lining up with Fidelity’s subjective targets.

These people have higher average gross income. They have a high net worth. They likely utilize a retirement savings plan. Or they might be the secret millionaire next door.

If we go back to the average net worth chart, we notice that the Fed data lags behind both Fidelity’s targets and the Balance’s targets. In other words: average real-world saving does not meet the average expectations of Fidelity and the Balance.

It takes above-average earning and saving to meet the Fidelity and Balance targets. This is an important point.

It’s not ideal, but it’s reality.

In general, systems that require above-average effort in order to obtain average goals (e.g. to meet suggested average net worth thresholds for retirement) are bad systems.

A good system would only require an average effort to achieve average results. But this is where the Stockdale Paradox is important. Don’t find yourself ten years in the future having not taken action today.

25th Percentile Net Worth Targets by Age

And to make matters worse, check out the 25th percentile chart below.

Here, three of the subjective net worth targets are all in family. Fidelity and my Best Interest targets line up very closely to each other, with the Balance falling 20-30% lower.

But how does the real net worth data compare? At retirement age, real people’s net worths are only 15% to 25% of where they “should” be.

It’d be nice to reach Financial Samurai’s targets, but many people do not have the means to maximize their savings accounts to the extent he recommends.

Let’s put a face to this data. It’s 25th percentile, meaning that one out of four people in the U.S. falls on or below this graph. Dunbar’s Number suggests that the average human can comfortably maintain 150 meaningful relationships–which would suggest that you (yes, you) closely know ~40 people (on average) on or below the 25th percentile plot.

Real people, real lives, real worry. For a 60-year old, to retire on a $50K net worth (or less) is likely impossible to do. On DQYDJ, I looked at the 25th percentile net worth for 70 year olds—it’s $56,000.

25th percentile net worth is meager all the way to the end of life. That’s a sobering fact.

The Wealth Divide

What might be causing this household net worth disparity? How do people have negative net worth, or lower-than-needed net worth?

Rising expenses and wage stagnation is an easy cause to point to. The lack of financial education hurts. So does poor financial health—like having a low credit score and paying high interest rates. Student loan debt and credit card debt suck.

Some people are behind from the start. Your first net worth out of college is likely to be negative. Many people wake up 10 years later and find their net worth hasn’t grown. That’s the python-squeeze nature of debt.

Wealthier college graduates don’t have to battle that python. It’s not their fault—that’s just how it is. Without that student loan debt, their average net worth increases rapidly.

After 10 years of work, they’re likely to be debt-free. They’re likely to own real estate. They’re more likely to be collecting passive income or contributing to their retirement account. What do all these activities have in common? They all increase net worth!

Sure, annual salary matters. Total household net worth is a function of salary—just ask the Federal Reserve.

But the net worth divide we’ve seen today starts at the beginning of people’s careers and often never closes. It’s there at age 30, age 40, age 50, age 60.

Why Do Net Worth Targets by Age Matter?

I’m just another personal finance writer, but I think average net worth benchmarks are an important metric of financial health.

Your current net worth isn’t make or break, but it let’s you know how you compare to your age group. Age 30 millennials should think about their financial future. Age 60 retirees should be aware of their cash, stocks, bonds, mutual funds, etc.

Personal net worth is like your blood pressure. It’s a good metric of health.

If you’re behind, you need to take action. While something like wealth transfer inheritances usually helps, you probably shouldn’t rely on one. Instead, increase your savings rate. Utilize your 401(k) i.e. pretax income.

Your financial future will grow from your financial present.

What Counts as Net Worth? And What Doesn’t?

Let’s do some housekeeping. What actually counts towards net worth? The answer is subjective, but it comes down to assets minus liabilities.

In general, I considered the following as contributors to net worth (i.e. liquid net worth contributors).

  • Bank accounts
  • Retirement accounts (401k, IRAs, etc)
  • Investments (stocks, bonds, REITs, etc)
  • Other saving vehicles (e.g. Health Savings Accounts, 529 college savings plans)
  • Equity in real estate (e.g. your home value)
  • Common debts—mortgage debt, credit card debt, average student loan debt, etc.
  • Pension and social security

Note: Fidelity’s targets were based solely on retirement account funds.

And what doesn’t count towards net worth?

  • The value of common possessions (e.g. a car, a computer)
  • Illiquid or non-transferrable assets (e.g. airline miles)

And what is a maybe? These are assets that are fairly subjective and up to you.

  • Collectibles, jewelry, art—how liquid are they? And are you sure you’d want to sell them?
  • Business ownership—again, how liquid is it? If you can sell shares, that’s good. But if you own a gas station, is that part of your net worth?
  • Accrued annual vacation days or PTO, unless transferable to cash at future date.
  • Future inheritance. Probably ok to count if you’re sure you know what you’ll be inheriting.
  • Life insurance policies. Does it count as net worth if it only comes true after you die?

Today’s values account for a single person. The average American family’s net worth is likely ~double what we’ve presented today. I.e. average household net worth = 2x average individual net worth.

How to Calculate the Value of a Pension or Social Security

This involves a little bit of math. First, I’ll ask you to come up with four important numbers. Then I’ll show you two important equations. And then we’re going to work through an example together.

The four important numbers are:

  1. [N] The number of years you estimate you’ll be retired. If you’re retiring at 60, a safe number to use here would be 25 (assuming you live to the above-average age of 85) [ 85 – 60 = 25 ]
  2. [M] The number of years until you retire. I’m currently 30. If I retire at 60, then the number I’ll use here is 30. [ 60 – 30 = 30 ]
  3. [R] The rate of return of the pension plan or Social Security. Here are some good sources for pension plan historic data and SS historic data. If you want to be safe, use less than 6% for a pension or less than 5% for Social Security.
  4. [P] The assumed annual payment once you retire. For Social Security, here’s a convenient calculator. For pensions, each specific fund will likely have its own rules. Example: a typical pension pay-out might be equal to 50% of a worker’s average salary during their final three years of work.

Equations for Pension/Social Security Value at Retirement and Discounted Current Value

The two important equations are:

Fund Value at Retirement = P * [(1 – (1+R)^(-N)]/R

…we’ll call this Fund Value at Retirement the FV. Next, we need to take the FV and discount it backwards to today’s Present Value, or the PV.

Present Value = FV/[(1+R)^M]

Example: Calculating the Present Value of a Pension Fund

Wallace is a 35-year old teacher. He’ll likely retire at 60. And he’s going to be conservative in estimating that he’ll live to 82.

We now know that N = 82 – 60 = 22 and that M = 60 – 35 = 25.

Being conservative again, Wallace is going to use R = 7% as the fund’s rate of return.

And finally, Wallace knows that his pension will pay him 55% of his final year’s salary. He’s currently making $55,000 and assumes he’ll get a 2% raise for each of the next 25 years. His final year salary, therefore, will be about $90,000. And 55% of $90,000 is $49,500 per year = P.

We now know N, M, R, and P. Let’s plug them into our equations. I like to use Microsoft Excel to help keep track of my values and (if needed) easily change them to adjust my final values.

Future Value = FV = P * [(1 – (1+R)^(-N)]/R = $49500 * [(1 – (1+7%)^(-22)]/7%

FV = $547,531

Present Value = PV = FV/[(1+R)^M] = $547,531/[(1+7%)^25]

PV = $100,882

So, if Wallace wanted to include his pension value in his current net worth calculation, he’d use $100,882.

Retiring for Today

We’re at the 95th percentile for this article. I hope the average net worth comparisons today did not steal your joy, but instead opened your eyes to the wide gradient of net worth targets by age in the U.S.

Net worth targets by age are not an extrinsic competition. They’re intrinsic: will I be able to set up my loved ones and myself for fulfillment today, tomorrow, and for the rest of our lives? At least that’s how I think of it.

Looking at net worth percentile data simply helps gauge whether you’re on track, making progress, or need to change behavior. It’s important to realize—ideally at a younger age—that many people in this country are struggling against themselves in their intrinsic race. I hope today’s post might help you avoid that struggle.

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