While trying to find a good answer for "how much should I have saved for retirement at age X?" I came to a few conclusions:
1) Most Americans are way under on saving for retirement (so using averages as a benchmark is a BAD idea).
2) It depends on what you make. Someone living a life in the salary range of $300-500K isn't going to be very happy retiring on only $80,000 a year... but the average American at the $50K salary range would be living large on the same amount.
3) It depends on when you want to retire. As is the theme of this board... if you plan to retire early... you need a variable to tweak for speeding up the process.
Taking into account 1 & 2 I came across a novel concept that retirement progress should be a factor of both age and salary. In fact, age itself isn't a good one, but rather how long you'd been in the workforce. The simple equations that say subtract x from your age and multiple by salary... fall apart for someone in their 20's or 30's.
Assuming most workers start in the early to mid 20's its not unreasonable to set a path towards retirement on an assumption of a 35-40 year working career.
So here it is... RET ACCOUNT = ([2^(Y/7)] - 1) * Current Salary
Y = number of years working
(a lot easier than it looks when you break it apart)
Basically all this means is that you should have double your salary after you've been working 7 years and you should expect to roughly double that ratio of savings to salary every 7 years after that
So, someone making $50,000 a year that has been in the workforce for 10 years should have [2^(10/7)-1]*50K or $84,000 in their retirement. If they are making $70,000 when they've been in 25 years, their account should then be[2^(25/7)-1]*70K = $761,000.
The number SEVEN turns out to be a great factor to use in our equations for two reasons. Historically speaking, a 10% return in equities means that money invested over a really long time should just about double every 7 years. 1.10^7 = 1.95 (ok ok, so some decades you'll see less then that, but others you'll see more - we're talking 30-40 years total, whats the average going to be?). The fact that you're still contributing to it makes up the slack...
On this path your retirement account should be the following factors of your salary at the following working ages:
7 years on job = 1x salary
14 years on job = 3x salary
21 years on job = 7x salary
28 years on job = 15x salary
35 years on job = 31x salary (why are you still working
Obviously... if you follow this model there isn't much of a point to working much past 35 years (or even 33 years) because you'll have enough in retirement to hit the magic 4% rule where you can now withdraw your salary from your retirement account each year.
This also doesn't account for the fact that you probably don't need as much to live on in retirement as your working years... so you can adjust accordingly (maybe lower Current Salary to be 80% of Current Salary as you get closer to Retirement)
Also please note that it assumes you want to be 100% dependent on your 401K... in reality, you'll have SS and possibly a pension or house paid off to pad things even more for you. Factor those in accordingly.
You can also tweak this equation more by setting the number 7 to be larger or smaller. If you need more years working till retirement you might want to try using 8 instead, if you want to FIRE you could try fitting in 6 instead.
In fact, the best place to start is decide how long you wish to work... then fit it into this equation to come up with the number you should use in place of 7 in the equation: Years Working / 4.65
So if you want to retire after working for 30 years and plan for SS to account for 25% of your retirement spending, your value is 30/4.65 = 6.45 and your equation should be:
RET ACCOUNT = ([2^(Y/6.45)] - 1) * (Current Salary - 25%)
where Y = years you've been working. We've introduced the -25% to current salary to show how you can account for 25% coming from SS.
Like all the others... not perfect, but it is really simple and you can compute your target account value any time (even using fractions of a year working)... You can also change the equation itself based on changes in your life...
Anyone else have equations they've either come across or created themselves to help set milestones for retirement account savings?