How are you doing financially? Take this test

I hope you’re in the mood for a financial Rorschach test, because that’s exactly what you’re getting today.

So often, we’re tempted to seek out an unfiltered assessment of what we’ve done so far in our financial lives and what those doings say about us. I’ve toyed with different ways of helping people assess this common desire, and I believe I’ve landed on the ultimate way to put our financial lives in perspective.

Before I share this equally exhilarating and potentially devastating trick with you, it’s important that you understand the pressure accompanying this metric is both self-imposed and self-resolved. You might feel terrible and then immediately empowered.

I want you to calculate your total earnings, career to date, and examine how much you still have. That’s right — you’re about to learn a valuable lesson, steeped in financial lore: It’s not about what you earn; it’s about what you keep.

Now is as good a time as any to pepper you with disclaimers and caveats. Wealth is not the goal in life. Well, as far as I’m concerned, it’s not. I’ve spent 20 years studying money and how people react to it and treat it, and let me lay this one on you — you will be sorely disappointed if your definition of financial success is based solely on wealth accumulation. Additionally, the amount you’ve earned over the course of your career is nearly inconsequential. The point of the exercise is certainly not to have you obsess on the excitement of the sum.

One last note. If you don’t know exactly how your total career earnings is distributed from an average annual income standpoint, you can assume a 3% raise from the beginning of your career to the end of your career. If you earned larger raises than this, it might have been harder to retain more of your earnings. Big raises cause lifestyle creep and also allow people to max-out their employer-sponsored retirement plans. This causes people to stop saving money elsewhere.

Let’s get to it. Add ’em up. Add up your good years. And add in your bad years. Feel free to do this as a household or as an individual earner. Take your time. Guess if you must.

If executed perfectly, your assets at retirement will equal your career earnings. This means, if you earned $3.5 million over the course of a 45-year career, you should have at least $3.5 million at retirement.

I spent two weeks building a formula that would help determine what a person needs to do to end up with assets that match career earnings. As you might imagine, starting early is a major key to success. The modern career is considered to be 45 years, starting at college graduation at age 22 and ending at the full Social Security retirement age of 67.

If you were to invest a total of 12% of your annual earnings, which includes both your contributions and your employers’, from age 22 through age 67, and average an 8% rate of return, you would have 76% of your career earnings in assets at the end of your career (assuming you average a 3% annual raise throughout your career).

You need to know a couple of things about this initial measurement. First, 12% is the minimum amount a 22-year-old should put away. I’d prefer 14%. If you’re not 22 years old and you haven’t been putting in 14% annually, your number is higher.

It’s easy to read the last sentence and then move on with your life without acting. That would be a horrible mistake. Unless you have a pension, funding your retirement is all on you. Saving your pay increases is the easiest way to make up for lost time. The amount of income you save should increase at least 1% per year, especially once you hit 50 years old.

I was explaining this concept to a friend the other day and she asked if matching your career earnings with assets should be a legitimate goal for people. Good question. I think around 75% is a good goal for many people, and 100% of career earnings is a great goal for a few people. Now it’s up to you to determine how much you’ll be able to keep.•Peter Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com. Opinions expressed are those of the author.