The 10X rule to have enough to retire by age 55?

[explanade]

Never heard of this but it's a rough approximation or starting point for thinking about how much to save for retirement.

To figure out just how much money you need to save to retire by 55, Doe suggests using a common rule of thumb: take your current salary and multiply it by 10. Keep in mind that this is just a jumping off point — there are many other factors you'll need to consider. To that end, Doe takes this formula and builds off of it. She offers the following example:

"If you earn $80,000 per year, the formula states you will need to have access to $800,000 to retire. Now, keep in mind, if you are planning to retire at 55, you will (heaven willing) need to have enough saved for 20 years or more. Using the formula I just shared, that means you will be living on $40,000 per year or half of the salary you were accustomed to ($800,000 over 20 years). For some people, this would not be enough. Or, $40,000 per year may be enough if you choose to retire in a part of the world where the cost of living is [lower than you're used to]. My suggestion is to use the formula to set a baseline. Then, do research on what it would cost to live the lifestyle you wish to experience in retirement."

https://www.travelandleisure.com/tr...lctg=d60154956f69ab584141e6d0bf753000a604385b

No assumptions about returns or inflation or references to Social Security, other retirement savings like 401k or IRA.

$80k is a decent salary so $40k a year may not be too little to maintain a similar lifestyle.

If someone made say $200k, then $100k is still a healthy budget but maybe when making $200k, it funded a bigger lifestyle.

She gives just a very broad description of FIRE:

Want to make it to retirement even sooner? There are ways to do it, but it means putting in a lot of effort. Doe suggests looking into the F.I.R.E. approach; F.I.R.E. stands for Financial Independence Retire Early.

"The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25-50 percent of your income," Doe explains. "With the extra money you have, you invest it into low-fee funds such as index funds."

Then suggestions of side hustles and passive investment such as rental properties.

In the broadest outlines, retiring at 55 fits in with what this travel magazine site promotes, in a way.

OTOH, they want to promote tourism so even if this "financial wellness educator" touted LBYM principles, that would go against what the site is promoting, because they're trying to get its readership to spend on travel both before and after retirement.

 

[Sunset]

It suggests retire at 55 and have enough money to get by for 20 yrs, that only takes a person to 75. Then it's cat food

And if someone made $40K per year, they would only need to save $400K, and then live on $20K...

hmmmmm I think I prefer the 25x rule, When you have 25x your salary it's safe to retire.

 

[UnrealizedPotential]

Just some thoughts. Assuming in all probability, this is in a taxable account , then this could possibly work for some people for a time. But then inflation will start to bite, and that is when those reinforcements like t-ira,roth and later SS
needs to start coming online, otherwise things could get iffy.

IMO, the only reason my plan so far is on track is because I have those reinforcements coming . The earliest one is in 6 years and then at some point afterwards is SS for me. But to me the biggest obstacle is making it to my t-ira money if I need it 6 years. So far I am fine and it looks good, but once I make that, it looks much better because of the money coming online at that time and shortly thereafter.
If all I had was my taxable account, I would be in trouble long term because of inflation.

 

[RobbieB]

Ten times your salary to retire at 55? I wouldn't do it by choice.

 

[RetiredAt49]

hmmmmm I think I prefer the 25x rule, When you have 25x your salary it's safe to retire.

I made $240,000 annually (plus bonuses and RSU’s) so that would be $6M, which I don’t have nor need but agree that 10x your salary might be a stretch.

 

[oldie]

I made $240,000 annually (plus bonuses and RSU’s) so that would be $6M, which I don’t have nor need but agree that 10x your salary might be a stretch.

It should be 25x your annual spending, not salary. At this salary level, most of it goes to savings and mortgage anyway, unless one has expensive hobbies.

 

[Navigator]

This is only valid for someone living on 40% of their salary or less and is certainly not a valid “rule of thumb”.

 

[TheWizard]

10x salary is a nice waypost on your path to retirement, not necessarily at age 55.

Careful on targeting retirement income equal to annual spending. What if energy prices double a few years after you retire?

Better to target Desired Retirement Income > Annual Expenses...

 

[TheWizard]

...hmmmmm I think I prefer the 25x rule, When you have 25x your salary it's safe to retire.

Or maybe 25x your Desired Retirement Income...

 

[donheff]

I hope this financial "educator" isn't charging people 1% of assets for her advice. The whole article is incoherent. There is no 10x rule of thumb (except her own) and a 20 year retirement horizon at age 55 is ridiculous.

 

[SecretlyFI]

I agree with the points above which are counter to what’s presented in the article (especially planning to only live 20 years past 55!).
I also don’t agree with this: “The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25-50 percent of your income”. LBYM, yes, but not this extreme version. I reached FIRE easily, without going to this extreme.

 

[Andre1969]

Interesting. I've heard that 10x your salary at 55 as a guideline for showing that you're on track to retirement, but NOT for retiring at 55!

I've seen it in conjunction with the presumption that you're retiring more like at 65, and will keep saving until then. And by then you'll either be taking SS, or close to taking it.

No way in Hades I'd considering retiring at 55, if I only had 10x my salary saved up and wasn't taking anything else (SS, pension, spouse's earnings, inheritance) into account. At the end of 2021, I was around 27.8x. If I still had roughly that same ratio by April 2022, when my 52nd birthday rolled around, I was seriously considering retiring. I'm around 23.8x now, which doesn't seem too far off. But, thanks to inflation, my salary doesn't get me as far as it used to, so even 23.8x that salary, doesn't seem so grandiose anymore, either.

 

[Andre1969]

I also don’t agree with this: “The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25-50 percent of your income”. LBYM, yes, but not this extreme version. I reached FIRE easily, without going to this extreme.

I think this is what's known as "revisionist history", created by the more recent crops of young'uns who think that "FIRE" is something they discovered. Never in my life, did I ever equate it to cutting expenses drastically and living bare-bones, just so I can drop out of the workforce early. That might be one way to do it, but not the only way.

Simply put, it's no deeper than "Financially Independent/Retire Early". How you get there is up to you, and there are plenty of ways to do it.

 

[COcheesehead]

30x annual expenses if you retire “early”

 

[Dtail]

Fidelity at one time used this multiplier type of rule, but it really depends on what type of spending lifestyle one desires in retirement.
My retirement investments were nowhere near 10x my last year of earnings when I retired. However, we were saving a chunk of that income.
Additionally, although many desire the same lifestyle as pre retirement, that is not always the case and it doesn't mean that there is a "loss" of lifestyle.
For example, we used to buy expensive clothing, eat expensive dinners and have expensive entertainment on a regular basis, but have no desire for that lifestyle anymore.
Pensions and Social Security also can play a major role in how much investments are needed.

 

[Ronstar]

10 times is too low. 25 to 30 times should work.

It all depends on how much you spend, not how much you make

 

[Unpaintedhuffhines]

This is ridiculous. How does your salary have anything to do with how much you spend? How about multiplying your car value by some factor? That would make as much sense.

 

[aaronc879]

It suggests retire at 55 and have enough money to get by for 20 yrs, that only takes a person to 75. Then it's cat food

And if someone made $40K per year, they would only need to save $400K, and then live on $20K...

hmmmmm I think I prefer the 25x rule, When you have 25x your salary it's safe to retire.

25X Expenses, not salary. Salary is meaningless when determining how much you need to save.

 

[aaronc879]

That is what Fidelity tells people then they repeat it to other people. I actually makes me mad that such bad advice is being given and passed around to so many people. Spending is what matters, not income. 25x spending should be good, go higher if you are more conservative or retiring really early.

 

[FREE866]

This is ridiculous. How does your salary have anything to do with how much you spend? How about multiplying your car value by some factor? That would make as much sense.

Exactly.....many "rules of thumb" , like "conventional wisdom" are downright awful....


My favorite is "put your age in bonds"

 

[dunkelblau]

Many years ago I recall seeing this in a Fidelity magazine article about gauging whether one's retirement savings is on-track given age and income. I don't remember the details, but there were milestones in multiples of salary, maybe it was 1x at age 30, 3x at 40, 5x at 50, and 8x at 60? A lot of important factors are omitted in this estimate, but it's simple enough that pretty much anyone whose primary income source is W2 should be able to calculate it with minimal effort. I assume this withdrawal represents total expenses minus pensions, social security, and income from sources not included in the nest egg. I would agree that a 20-year time horizon is inappropriate for someone retiring at age 55; for most of us this should be either 30-year or 40-year.

If we believe that safe withdrawal rate is what matters, in this case it appears to be 5% (half annual salary on a 10x nest egg). From the graph shown here:
https://engaging-data.com/visualizing-4-rule/
it appears that a backtest of a 20-year 80/20 allocation spanning 1870-2000 would fail about ~5%, mostly in the intervals that begin in the late 1960s. This failure rate balloons to ~25% if the time horizon stretches to 30-years, but at 4% SWR it drops to only 4/120 with the worst case 3.7% occurring in 1966 (model assumes zero taxes and 0.3% annual investment expenses).

So if the prospect of a 25% 30-year failure risk is unacceptable, this can be brought down to ~3% failure if the nest egg target is raised to 12.5x final salary, and to ~0% at 15x final salary. Again this assumes an annual spend (less SS+pensions+etc) of half of final salary.

 

[Time2]

I peaked at just over 45 times, I'm down to 37 times with the market drop and 4 years of spending. 10x would not have been good.

 

[COcheesehead]

I peaked at just over 45 times, I'm down to 37 times with the market drop and 4 years of spending. 10x would not have been good.

45x last wage or expenses?

 

[Letj]

10X salary could work depending on your current salary. If you made $80K a year but consistently spent $30K, then all you need is $750K which is lower than 10x salary.

 

[Badger]

Years ago I used to read articles about what to save for retirement then I quit. I just focused on putting away as much as I possibly could and hoped that I would do a good job. My squireling away the money (half of our modest joint income) and frugal living was the best I could do. After that I crossed my fingers. What else could I do? We retired at 64. Fortunately it worked out to be 28X. Our parents were kind enough to leave us an inheritance so now it is up to 50X. We are still frugal and happy with our lives so it looks like the 2 grown children, if they are wise to follow our example, will have a chance to rest a bit after they retire.

Cheers!