Most people have no idea how their finances actually stack up. Not because they’re not smart — but because nobody ever told them what numbers to look at. These five ratios I learned from CFP® professional education change that. You can run all of them in about 10 minutes.
Here’s what to calculate and what each number means for your retirement readiness.
These five numbers are ordered by priority. Start with Number 1. If you’re in good shape, move to Number 2. When you hit one that needs work, stop — that’s your top financial priority right now. No need to stress about Number 4 if Number 1 is broken.
1. Emergency Fund Coverage
Ideal: 3–6 months of essential expenses
How to calculate it:
Add up your liquid savings — money in checking, savings, or money market accounts that you could access without penalty. Divide by your average monthly essential expenses (housing, food, utilities, insurance, minimum debt payments).
Example: $42,000 in liquid savings ÷ $7,000 monthly essentials = 6 months
What it means:
This is the number that surprises most people who are close to retirement — because the instinct as a disciplined saver is to put every extra dollar into investments. That’s smart earlier in your career. But in the five to seven years before retirement, an underfunded emergency fund becomes a real liability.
Here’s why: if the market drops 25% the same month your AC goes out and you have no liquid cushion, you’re forced to sell investments at exactly the wrong moment. That sequence-of-returns risk is one of the most underappreciated threats to a retirement plan — and a healthy emergency fund is one of the simplest defenses against it.
If your number is below three months, building that buffer deserves to be near the top of your priority list, even if it means temporarily slowing contributions to retirement plans or investments. Investments do you no good if you have to sell them to pay for things. That’s why savings are the moat around your financial castle.
2. Consumer Debt Ratio
Ideal: 20% or less of net (take-home) income
How to calculate it:
This one excludes your mortgage. Add up only consumer debt payments — credit cards, car loans, personal loans. Divide by your net monthly income (what actually lands in your bank account after taxes).
Example: $1,100 in consumer debt payments ÷ $8,500 net income = 12.9%
What it means:
Consumer debt above 20% of take-home pay is a sign that lifestyle spending has gotten ahead of your income. Left unchecked, this interferes with your ability to save for retirement.
Keep a close eye on debt, it can be dangerous.
Brief note: People are often surprised how quickly car payments and a couple of credit card minimums push this number up. If yours is above 20%, even small payoff accelerations can move the needle quickly.
3. Housing Cost Ratio
Ideal: 28% or less of gross monthly income
How to calculate it:
Add up everything housing costs you each month — mortgage or rent payment, property taxes, homeowner’s insurance, maintenance, and any HOA fees. Divide that total by your gross monthly income (before taxes).
Example: $3,200 in housing costs ÷ $12,000 gross income = 26.7%
What it means:
If your number is above 28%, housing is quietly crowding out the retirement savings you could be building. That doesn’t mean you made a mistake buying your home — it just means the math is working against you in one corner of your budget.
Note: You can also use these ratios in reverse to estimate reasonable debt levels. Simply multiply monthly income by the ratio to get your benchmark to stay within.
For example, if your gross monthly income is $10,000 your ideal total housing costs would be less than $2800.
If your number is off: Look at whether any housing costs are temporary (like a short-term PMI payment or a balloon on a HELOC), or whether a refinance or payoff plan could shift the ratio in your favor before retirement.
Housing is most peoples’ largest expense. If your monthly budget isn’t working, it’s probably the first place to start.
4. Total Debt-to-Income Ratio
Ideal: 36% or less of gross monthly income
How to calculate it:
Add up every monthly debt payment you make — mortgage, car loans, student loans, credit cards, personal loans, anything. Divide by your gross monthly income.
Example: $3,800 in total debt payments ÷ $12,000 gross income = 31.7%
What it means:
A ratio above 36% isn’t a crisis in your 40s. But with retirement three to seven years out, it signals a real risk: carrying debt into a phase of life where you’re drawing down assets instead of accumulating them. Debt payments that felt manageable on a paycheck can become genuinely stressful on a fixed distribution.
Practical note: If your ratio is elevated, the question to ask is which debts you can realistically eliminate before your target retirement date — and in what order.
5. Investment Assets to Net Worth Ratio
Ideal: Greater than 50%
How to calculate it:
Add up all your investable assets — 401(k)s, IRAs, brokerage accounts, and any other liquid or semi-liquid investment accounts. Divide by your total net worth (everything you own minus everything you owe).
Example: $1,400,000 in investable assets ÷ $2,200,000 net worth = 63.6%
What it means:
If this ratio is below 50% as you approach retirement, a significant portion of your wealth is sitting in assets that can’t easily generate income — typically real estate equity or a privately held business. Those assets may be real and meaningful on paper, but they don’t pay the bills in retirement unless you sell them or borrow against them.
Home equity is a good example. A $600,000 house with a paid-off mortgage is genuine wealth — but it doesn’t deposit money into your checking account each month. If most of your net worth is in your home and your investment accounts are comparatively thin, that’s worth planning around now, while you have time to adjust.
Building a liquid investment portfolio offers growth along with the ability to supplement income in retirement. Our Cornerstone investment management service is designed to do just that.
Where Do You Actually Stand?
Most people who run these numbers find that one or two of them are surprising. That’s completely normal — most of us didn’t learn these in school, and there’s no annual checkup that flags them (unless you have a good financial advisor). They’re also not pass/fail scores. They’re conversation starters.
You’ve probably done a better job than you think. You’ve saved, stayed disciplined, and built real wealth. But if any of these numbers gave you pause — if one ratio raised a question you weren’t expecting — that’s the kind of thing worth talking through with a professional fiduciary who can look at the full picture.
My first call is always complimentary and there’s no obligation.
