How much should our networth be?

In the book The Millionaire Next Door: The Surprising Secrets of America's Wealthy, there is a formula which determines whether we are Prodigious Accumulators of Wealth (PAW) or Under Accumulators of Wealth (UAW). This formula first multiplies your age with your current gross annual income, followed by dividing by 10 to get the expected networth. If my current networth is more than two times the expected networth, i am a PAW. However, if my current networth is less than half the expected networth, i am a UAW. 

Example

Thommy is 50 years old now, currently earning $84,000 gross income per annum. His expected networth now should be $420,000. If his current networth is higher than $840,000, he is a PAW. On the other hand, if his expected networth is less than $210,000, he is a UAW.

I am sure many questions are forming in your heads now. Using this formula to see how we are doing financially now, ignores our future spending needs which is different for everyone. I can survive on cai peng everyday but not another person. I can be very able riding a bicycle as a means of transport but not another less able person. Many more questions! But as with all models, take it with a pinch of salt.  Imagine a fresh grad at 25 years old who has worked 1 year in investment banking and earning $150,000 a year, he would be a UAW! 

The PAW/UAW formula didn't fit what i was looking for. I needed to know whether i was on the right track in terms of whether i was having enough now.  To know that, i needed to project

• my estimated expenditure after retirement
• my annual contributions to my retirement fund till i retire
• the inflation rate
• my rate of return of my retirement fund if i had invested them

This retirement fund is to be used fully by the time i passed away.

The retirement age will be 63 ( as per Ministry of Manpower in 2022) and the date of passing away will be projected to be 86 (as per the female life expectancy in 2021 by Singstat). Females generally live longer than males who are expected to pass away at 81 (2021 by Singstat) and using 86 is a matter of prudence as life throws curveballs at us.

Example

Esther is 41 years old. She wonders if she currently have enough money to fund her retirement. She has been spending $4000 a month on her lifestyle and would like to continue her quality of living in retirement. Inflation has been hovering around 2% pa historically and she has been getting 5% pa on her retirement fund investments.

She has been contributing $24,000 a year into her retirement fund with ease and believes she can do this till retirement at age 63. 

Her networth now should be $201,222. 

A lot of things have to go right for Esther to be comfortable with $201,222. She has to be able to contribute $24,000 annually for 22 years to retirement by being gainfully employed, being healthy, not being scammed ,not facing a global financial crisis somewhere along the route to retirement e.t.c. As life do throw curveballs at us sometimes, it would be better to have much more that this networth to be comfortable.