What Is Your Safety Number?

There's an interesting number floating around from a survey that "the average amount American adults said they’d need to earn to feel in good financial shape was $128,000." Bloomberg noted the $128,000 contrasts with an average income it cited at $67,521.

The numbers in nominal terms are what they are, accurate or not but what is interesting is the perception that twice the average income would provide financial safety. Also interesting is the whole concept of what sort of dollars would make someone, anyone, you, me feel safe? I might replace safe with being on firm footing or able to withstand a negative financial shock.

While anyone would want a higher income, I've always thought of this sort of thing as how much I had in the bank...or more precisely in our joint brokerage account. We have qualified accounts but in a emergency situation I would certainly try to avoid the 10% penalty for taking out of qualified accounts (IRAs and the like) before 59 1/2. 

Over the years, I quit jobs with nothing immediately in front of me for a new job a few times. The first time was when I was 25. Back then I thought in terms of how many months of expenses I had set aside. Back in that first time, I had 6 or 7 months of expenses if needed. Fast forwarding a little, when I got laid off from Schwab in 2001, between savings and my severance check I think we could have lasted for close to two years. Fortunately, I never came close to exhausting those resources.

At some point a long the way I began to think in terms of do we have enough resources to make it until 59 1/2 (now three and half years away) for the reason mentioned above, what about taking Social Security early at 62 (a shade over six years away)? How far out could we last that would be least disruptive to our Plan A. What I mean by that is, if you plan to take Social Security at 68 and have to take it at 67, that might be a small bump in the road versus having to take it at 62. 

To the extent this is about financial resiliency, there's no wrong answer to what makes anyone feel secure but I think the road to this sort of financial security relates to what we talk about all the time here which is living below your means and having a high savings rate. I like to say that those two habits make every other aspect of life easier. 

Faced with some sort of external shock like a job loss (regardless of the reason), having modest monthly expenses and a lot in the bank relative to those expenses should make you feel financially secure, that is the reward for those constructive habits.