Lifecycle Leverage Calculator

Target leverage — FAQ

What is 'target exposure', and how is it different from the Exposure & Leverage Ratio Calculator?

The Exposure & Leverage Ratio Calculator measures what you're actually exposed to right now. This tool estimates what you should be aiming for. Lifecycle investing argues that when you're young, your net worth is only a small slice of your true lifetime wealth — you still have years of future income (human capital) that belongs in your risk capacity. You can't literally invest tomorrow's paycheck today, so leverage is the closest practical way to approximate that target.

I don't know my 'lifetime total wealth' — what do I do?

Click "estimate it for me" next to the input, and a small wizard asks a few simple questions — annual income, savings rate, how stable your job is (zh-TW users can also pick their industry to auto-fill income) — then fills an estimate back into the main field, which you can still adjust by hand. The formula behind it: job risk coefficient × annual income × savings rate × years remaining gives human capital, which gets added to your current net worth.

Why isn't the target 100% of lifetime wealth — why multiply by a 'Samuelson share'?

Because stocks carry volatility risk, putting your entire wealth — including human capital you haven't earned yet — into the market isn't the risk-adjusted optimum. The formal Samuelson (or Merton) share formula is risk premium ÷ (risk aversion × return variance), which needs market expected return, volatility, and personal risk aversion, and varies by person and by market. This tool simplifies it into a slider you can move yourself, defaulting to 71% (a conservative Taiwan case from 0050's realized 1994–2025 volatility); the US benchmark is around 83%; a more optimistic Taiwan parameter set can reach about 99% — there's no universal answer, and higher means you can tolerate more volatility.

Why does the leverage ceiling default to 2× (200%)?

2× is the commonly cited safe ceiling in lifecycle investing and in this site's exposure-ratio article: at L× leverage, a market drop of just 1/L wipes out your net worth, and 2× means it takes a 50% drop to zero you out. In this tool it's an adjustable guardrail, not a fixed rule — dial it up or down based on your own risk tolerance.

I don't know my annual income — how do I estimate it?

Pick the closest match from the industry dropdown and the tool fills in Taiwan DGBAS's official 2024 median annual total compensation for that industry. It's an official median, not your personal number, so treat it as a reasonable starting point you can still overwrite.

Why does the target leverage fall as you get older?

Human capital (income you haven't earned yet) shrinks as years remaining drops, while net worth typically grows over time. That shifting ratio pulls the target — total wealth times the Samuelson share — back down relative to net worth on its own; it's the mechanical reason lifecycle investing says to lever up early and delever as retirement nears, with no separate taper rule needed.

Does this target mean I should adjust my holdings right now?

No — treat it as a reference point, not an instruction. Whether and how fast to move toward it depends on your loss tolerance, the tax cost of your current holdings, borrowing rates, and liquidity. Check your actual current leverage with the Exposure & Leverage Ratio Calculator first, then close the gap gradually rather than all at once.

How do I choose the job risk coefficient?

'Stable' fits civil-service or large-company salaried roles with low volatility and low layoff risk. 'General' is the default for most employees. 'Volatile' fits commission-based work, freelancing, startups, or cyclical industries where income can swing with the market or the economy. If your day job's income is itself highly correlated with the stock market (brokerage, real estate agency), picking 'Volatile' — or manually lowering the coefficient further on the slider — is more conservative and closer to lifecycle investing's spirit that your job may already BE a form of exposure.

Sources

• Lifecycle Investing, Fully Explained — Atticus (Chinese) — The direct source for this tool's simplified job-stability discount and Samuelson share — their site also has a fuller calculator where you can set the underlying market parameters yourself.
• DGBAS: 2024 Median Annual Total Compensation by Industry — Source for the industry salary auto-fill, released under Taiwan's Government Open Data License.
• Lifecycle Investing — Ian Ayres & Barry Nalebuff — The theoretical basis for this tool's age-based leverage taper: using leverage to bring forward savings you haven't earned yet.