Fidelity: Save 10x Income by 67!

[nvestysly]

I began to log in to my Fidelity account today and saw the quip shown below on their home screen:

From our experts

How much to retire?
Fidelity's rule of thumb: Try to save 10x your income by age 67

I continue to be amazed at how few financial planners/brokers/etc. want to talk about expenses. Yes, there are lots of ways to slice and dice the subject and at a young age you really have no idea what your expenses will be later in life. But come on Fidelity... Really? Is this the kind of advice that gives people a warm and fuzzy feeling? I guess it provides a goal - a target - and if you don't have any target this is better than nothing.

The problem is (and I'm preaching to the choir) income has very little to do with the matter at hand. If you're living off a small fraction of your income then 10x your income may be overkill in a big way. If you're maxing out expenses and spending every penny then 10x is not enough. If you're living way beyond your means and in over your head in debt then 10x won't be nearly enough!

Argghhhh! I'm a longtime Fidelity customer and will continue to use their services. Fortunately I don't need their retirement "advice."

 

[COcheesehead]

I have a feeling that they gravitated towards an income guide because many folks wouldn’t even begin to understand what their retirement expenses will be. If they did, do you think we’d see the “can I retire now?” type posts? Income is something most people can wrap their heads around.

 

[bobandsherry]

10x of what.... I'll be retired for 12 years by then, so 10x of my income in retirement? Seems to be rather baseless.

 

[COcheesehead]

10x of what.... I'll be retired for 12 years by then, so 10x of my income in retirement? Seems to be rather baseless.

The OP didn’t share the whole chart. They give guidelines for other ages too.

 

[MI-Roger]

I don't see anything wrong with it. It is easy to understand, Fidelity even calls it a 'Rule of Thumb', and undoubtedly intended for their early 30's clients rather than early 60's clients.

Also reveals the anticipated trend toward later retirements.

 

[nvestysly]

I didn't intend to withhold information... I simply didn't realize there was an entire article available on the subject. You can read it at the link below. No idea how long this link will be active.

https://www.fidelity.com/viewpoints/retirement/how-much-money-do-i-need-to-retire

Since the link will likely "die" at some point, one version of the larger chart as well as the fine print are shown below. Yes, I see they are providing a rule of thumb and I suspect I used similar rules of thumb early in my accumulation mode. The fine print does refer to living on less money than your final year of income and there are even varying degrees of savings needed depending on whether you aspire to a "below average" or "above average" lifestyle during retirement. Using their rules of thumb, DW and I are living a lifestyle that is much, much below average (based on our final year of income) and yet we spend as much now as we ever did. That simply reinforces my point that expenses, not income, are the true indicator of whether you have enough money to retire.





The table shown below is for DW and me. I made this several years ago, prior to retirement, when friends and family asked us how much we saved over the years. I didn't want to speak in terms of real dollars so I thought this table would be useful. In our early years we were behind on savings according to Fidelity but we eclipsed their rule of thumb by the time we were 50. I should add another line to the table. By the time we retired at age 52 the savings/expenses ratio was well over 33.

 

[Mdlerth]

For the saver who is all Thumbs

Consider that the advice is targeted toward a less sophisticated audience, one with a limited financial attention span. For such a customer, simple Rules of Thumb are likely to be the most effective form of guidance.

From that perspective, it's not bad advice. It starts by setting an achievable goal that doesn't scare away newcomers. Saving 10X one's pay is certainly less daunting than the 25X and higher ratios common here. Using the 4% Rule of Thumb, they could expect their stash to replace 40% of their income.

The article mentions age 67, the asymptotic Full Retirement Age for SS. The Social Security Administration estimates that the PIA will replace about 40% of the average workers income. Add those two forties and - Bob's your uncle! - the customer is looking at enjoying 80% of his career income in retirement. Again, right in the Rules of Thumb range.

Is this the optimum advice for every retiree? Of course not. But it doesn't need to be. It's a Rule of Thumb: simple, easy to understand, applicable to a wide spectrum of society.

 

[Clone]

Between my pension, my SS, DW's SS, and a 15 year renewable annual contract with Uncle Sam, and two real estate contracts for property that I am selling, I have more lined up than what my best year ever was. Ignoring RMDs!


FireCalc produces a number that I will have to put some effort into spending that much, I-orp says that I should keep working. Fidelity says that I am at a 145 score, which is pretty strong.



Nobody knows anything.

 

[jimbee]

Consider that the advice is targeted toward a less sophisticated audience, one with a limited financial attention span. For such a customer, simple Rules of Thumb are likely to be the most effective form of guidance.

From that perspective, it's not bad advice. It starts by setting an achievable goal that doesn't scare away newcomers. Saving 10X one's pay is certainly less daunting than the 25X and higher ratios common here. Using the 4% Rule of Thumb, they could expect their stash to replace 40% of their income.

The article mentions age 67, the asymptotic Full Retirement Age for SS. The Social Security Administration estimates that the PIA will replace about 40% of the average workers income. Add those two forties and - Bob's your uncle! - the customer is looking at enjoying 80% of his career income in retirement. Again, right in the Rules of Thumb range.

Is this the optimum advice for every retiree? Of course not. But it doesn't need to be. It's a Rule of Thumb: simple, easy to understand, applicable to a wide spectrum of society.

Yep, plus they won't be paying 7.65% payroll tax.

 

[pjigar]

I guess it provides a goal - a target - and if you don't have any target this is better than nothing.

I have always been taught to "Aim higher/farther, not better" so if you miss then you will be still close to the target. Having an easy target means you will be a lot closer to the failure but then again everyone is taught to be "special" now a days. What do I know?

 

[Dtail]

I love Fidelity and it probably is a good guideline for the masses. However one's budget for expenses is much more important than that multiplier.
We cut our expenses by 60% our last 4 years and if we multiplied our final salaries by 10% for our savings number, I would never be able to retire.

 

[Filetmerlot]

I never liked those multiple of income guides. I get it that it is a rule of thumb and just a guide. I always wondered why wouldn't someone just stop saving at 35 if they already have 2x their income if they were going to retire at 67 anyway on 10x income? Even just a 6% return over 32 years would yield approximately 14x income.


I suppose it could be because someone could be making $40,000 at 35 and by 45 is making $80,000 and thus the goalposts have moved a bit.

 

[samclem]

I understand that it is just a rule-of-thumb. Is it useful? If a person is going to set aside money every month (i.e. deprive themselves of present spending), isn't it worth their time to "invest" a few hours to think about this issue and come up with a target they understand? This would seem important to make them comfortable in how the figure was derived and that it will meet their spending needs. It would also serve to to assure themselves that it is really buck-up their motivation to stick to the savings plan. How motivational is it to think "well, I read this rule of thumb. It doesn't have anything to do with my real projected spending and I don't know if it will be way too much or too little. I'll just stick with it and skip the vacation this year." Seems unlikely.

 

[GravitySucks]

MegaCorp had Fido running the 401K program. My last year there was the first time someone from Fido came by to give a presentation. (I choose to work and live in the corporate hinderlands) The rep gave a presentation on matching dollars (shocked so many co-workers left that money on the table.), 3 leg stool, the 80% rule, 25x rule etc.
He stayed around for private questions after and I explained my situation and how I didn't understand how the 80% rule worked. He said it's a simple rule of thumb they give as most people are overwhelmed just thinking of personal finance. The comment that stuck was "Half the people in the room today are not even contributing the full company matching amount. How can I expect they would be able to put together a detailed future budget. "
So these Rules of Thumbs aren't for those of us that run spreadsheets and multiple FirCalc and RIP runs, they're for those who don't want to put the time in on planning FIRE.
For what it's worth, I just looked at my latest budget estimates and it's real close to 80% of my last year's income.

 

[Which Roger]

We are not the target audience. We are the outliers. Our ratio of expenses to income is much lower than "normal". We understand finance much better than the masses. I see the Fido headline as a wake-up call for the masses. It will catch the attention of some, and they will be motivated to dig deeper, and maybe some of them will even become like us.

 

[nvestysly]

We are not the target audience. We are the outliers. Our ratio of expenses to income is much lower than "normal". We understand finance much better than the masses. I see the Fido headline as a wake-up call for the masses. It will catch the attention of some, and they will be motivated to dig deeper, and maybe some of them will even become like us.

I'm still struggling with the idea that I'm an outlier. I know it's true and I've come to accept it on some level but I have a difficult time understanding why everybody (well.. okay, most people) won't take time to give reasonable consideration to their financial situation in life. So many problems in our society stem from the fact that individuals are not financially solvent. I hope you're right and this Fidelity chart will wake up many people and they'll begin planning appropriately for their financial future.

While I initially chuckled about the save 10x by the time you're 67 rule of thumb on the Fidelity web site I may actually take time to send it to family members.

 

[Cobra9777]

I just read the fine print from post #6. Seems to be very comprehensive and well thought out. So, probably OK as a very general rule of thumb for people early in the accumulation phase. Certainly not intended for the already-retired financial geeks on this forum. I think many of the comments up to this point are very applicable to those in the 40-55 range and thinking about ER.

I think it's a bit unreasonable to expect a 29 year-old to research all the variables mentioned in the fine print, then put together a spreadsheet, run some Monte Carlo simulations, etc, etc... just to decide whether to "skip the vacation this year," as one poster put it.

For most young people, thinking about spending in retirement is tantamount to thinking about whether the universe has an edge. Student loans, marriage, kids, cars, mortgage, college for kids, career trajectory, relocation, will spouse keep working or stay at home?... Those are the things they think about and SHOULD be thinking about.

I just tell my kids to try and save at least 20% of gross income, invest in low-cost equity funds, and LBYM... resist lifestyle creep as income rises. I retired at 52 and both my kids are WAY better off than I was at their age. And I was one of the outliers with a Lotus 1-2-3 retirement spreadsheet at age 29.

My kids are 26 and 29. I know how their minds work WRT lifestyle. They're still figuring out whether to keep their conventional jobs and buy a house in suburbia or start an off-grid homestead in rural Idaho. The lifestyle norms and expectations of prior generations do not always apply to Millennials. So for them, right now, yes, rules of thumb are useful. Once they are 40-ish, yes, I would expect a lot more granularity around spending needs in retirement and less reliance on rules of thumb.

 

[Dtail]

I'm still struggling with the idea that I'm an outlier. I know it's true and I've come to accept it on some level but I have a difficult time understanding why everybody (well.. okay, most people) won't take time to give reasonable consideration to their financial situation in life. So many problems in our society stem from the fact that individuals are not financially solvent. I hope you're right and this Fidelity chart will wake up many people and they'll begin planning appropriately for their financial future.

While I initially chuckled about the save 10x by the time you're 67 rule of thumb on the Fidelity web site I may actually take time to send it to family members.

Think about it. It all starts in school with typically no personal finance classes. Wouldn't those classes be more important than economics for example?

 

[EvrClrx311]

Unfortunately the reason writers have to point out savings in such simple (and wrong) terms while avoiding the deeper mechanics is because the vast majority of people are so uneducated about financial mechanics in general.

The few articles that would actually explain the deeper mechanics would be tossed aside by the average reader, because our society as a whole prefers to have it's head in the sand when it comes to future planning and finances.

I believe these articles are written with the best intentions, in an effort to get people to start to think about important things. It's just the 9 out of 10 people don't care, or even know how to care, about their financial well being. Those people are not going to do the work to get to a better place, and no article is going to change that.

What we really need are financial education classes at the HS and college levels, that's the only way to start to change the interest and planning for those other 90% (or at least some portion of them).

 

[GravitySucks]

What we really need are financial education classes at the HS and college levels, that's the only way to start to change the interest and planning for those other 90% (or at least some portion of them).

Ha! I was at a party a few months ago where many guests were high school and Jr. high school teachers.I

I'd rather they didn't give financial advice to the next generation.

 

[COcheesehead]

Ha! I was at a party a few months ago where many guests were high school and Jr. high school teachers.I

I'd rather they didn't give financial advice to the next generation.

I am a firm believer that every kid should open and use an eBay account and invest in a mutual fund as early are legally possible. Those two things alone will teach him or her more about free markets/finances, supply and demand and the power of compounding more than anything else.

 

[scrabbler1]

I always get a kick out of any of those percent-of-income or multiple-of-income rules of thumb. As I have written many times in this forum before, twice I reduced my weekly hours worked in the waning years of my 23-year career. So, the obvious question I ask in this context is, "Which income should I use, my full-time income, my initial part-time income, or my extra-reduced part-time income?"

 

[Mdlerth]

The lesson here is to keep it simple

The few articles that would actually explain the deeper mechanics would be tossed aside by the average reader

+1

 

[Red Badger]

Think about it. It all starts in school with typically no personal finance classes. Wouldn't those classes be more important than economics for example?

I agree. Kids graduate and have zero knowledge of finances while living in a fairly freewheeling capitalist economy. I had to be the educator for my our son. Of course, my mistake was waiting until he was at the "parents know nothing" age. Now that he's been a working stiff for a few years, he gladly spends time with me learning LBYM and investing 101.

I say this with GravitySucks (post #20) in mind, that our current crop of educators are particularly unfit to teach family finances. That said, they might excel at same in a Marxist economy.

Combined with a lack of education is the multi-billion dollar marketing industry, filled to the brim with highly educated SME's, that are targeting these same kids with powerful messaging designed (quite successfully) to part them from their money.