Net Worth Scenario Tool (A Tale of Two Paths…)

August 14th, 2018 | Posted in Tools

Fill in the assumptions below to forecast your net worth over time in two scenarios. You can also create more detailed scenarios by opening the “advanced options”.

After that, you can click the “Share this scenario” button below the chart to get a shareable link for your custom scenario.

Illustrative Case Studies

To give you a sense, here are a few illustrative examples:

The Canadian Couch Potato versus the Mutual Funder (click the link to automatically populate the tool with these assumptions)

• The Canadian Couch Potato (CCP) and the Mutual Funder are both 25, and have a net worth of $15k. They both save $10k per year.
• The CCP earns a real return of 6% per year, while the Mutual Funder only earns 4% per year since they pay much higher management fees to the company in charge of their investments
• After 40 years, The CCP ends with a net worth of ~$1.7M, while the Mutual Funder has ~$1.0M
• 40% of the Mutual Funder’s investment portfolio has been eaten up by extra management fees; compared to the CCP, their standard of living in retirement will be 40% lower as a result

The Early Bird versus the Late Starter

• The Early Bird starts to save at age 22 as soon as they graduate from university, and saves $5k per year
• The Late Starter only gets started with saving at 35, but makes up for lost time by saving $12.5k per year
• Both would like to retire at age 60; by the time they get there, the Early Bird has contributed a total of $190k (38 years x $5k) to their savings, while the Late Starter has contributed $312.5k (25 years x $12.5k)
• Even though the Late Starter has made significantly higher contributions ($122.5k more), they end up with the same net worth as the Early Bird at retirement age (~$680k)

The Investor versus the Worrywart

• The Investor and the Worrywart are both 25 and have a net worth of zero
• The Investor saves $10k per year and earns a 5% real rate of return on their savings
• The Worrywart saves $30k per year, but doesn’t the trust the markets. They put their money in a savings account instead, earning no real rate of return (just matching inflation)
• Even though the Worrywart is saving three times as much per year as the Investor, they both end up with the same net worth at age 65 when they retire (~$1.2M)

The Silver Spoon versus the Grinder

• The Silver Spoon inherits $80k when they are 30, from that point on, they save an additional $5k per year
• The Grinder isn’t so fortunate; at age 30, they’ve just finished paying down debt and have a nil net worth. To compensate for that, they buckle down and manage to save $10k per year
• After 35 years of saving, the two end up with an equivalent net worth (~$900k), even though the Grinder had to hustle to save twice as much as the Silver Spoon

The Tortoise and The Hare

• The tortoise keeps it slow and steady; starting from age 25 they save $5k per year
• The hare sprints off at the beginning, saving $20k per year for 5 years; at age 30, the hare decides to coast along and doesn’t add / withdraw any money from their portfolio from that point on
• Both the tortoise and the hare earn a return of 5% per year on their money
• At the age of 65, the tortoise has contributed a total of $200k to their savings ($5k per year x 40 years), while the hare has contributed only $100k ($20k per year x the 5 years)
• Even though the tortoise has stashed away two times as much as the hare over this period, they end up with the same net worth at age 65 (~$600k)
• Since the hare socked away such a large amount in the early years, they were able to coast later in life, letting compound interest do the heavy lifting to meet their retirement goal

You can also use this calculator to see how your wealth would be impacted by major life events such as getting an inheritance, or needing to take time off of work to recover from an illness.

Let’s take the example of a 20 year old who saves $8k per year, and earns a return of 5%. If all goes well, they’ll have ~$970k at age 60.

However, what does it look like if they fall ill at 28 and need to take some time off of work?

As seen here, if we assume that they’d need to withdraw $25k out of their savings (paying the bills and paying for expensive medical procedures), instead they’d end up with ~$850k at age 60. This sickness has a real cost of $120k at retirement age.

Even though they only needed to withdraw $25k, this has compounded into a much larger difference by retirement age.

More calculators, tools, and charts

If you’d like to go further into the details, try out these comprehensive and easy-to-use spreadsheets:

• Budget tracking tool with dashboard
• Investment portfolio tracker
• “When can I retire?” calculator
• Rent versus buy calculator
• Cost of raising a child calculator

Other Random Notes

For those interested, I’ve posted the code for this tool on github. This was built with javascript & chart.js. I’ve been tinkering with web development and have just scratched the surface, but in the future I hope to post a few other interactive personal finance tools.

—

Header image credit: Wanderman in the Wilderness