And Fidelity says....

[SumDay]

(personally, I think this is low, but I'll let y'all chime in too)

Retirees need 8 times salary, study finds

Retirement savers need to set aside roughly eight times their annual salary in order to live comfortably if they retire at age 67, Fidelity Investments said in a report Wednesday.

The Boston firm is the nation’s largest manager of 401(k) retirement assets and is in the business of persuading people to save more. It offered a plan for arriving at the eight times figure, suggesting that workers should save an amount equal to a year’s pay by age 35. If they have three times their annual salary at 45, and five times at age 55, they would be on track.

Retirement savers need to set aside roughly eight times annual salary to live comfortably - Business - The Boston Globe

 

[jerome len]

Everybody has a theory but no one has a sure think. We could predict the future if we knew it would repeat the past. Who would have believed that CD rates, and used by so many retirees would be only paying around 1% if you're lucky. And, maybe Fidelity wants to sell you an annuity to guarantee a rate of return......then you have to pay high sales fees and forget about leaving anything to your kids.

To me, my main concern is worry.....and, I worry about my health, long term care when I get old, living longer than 25 years, helping my kids IF they have a true emergency.....and all of that plays on my mind and 4 to 8 years income saved isn't enough.

I have an account with Fidelity....and a bigger account with Vanguard. Why? their rates are cheaper.....it's not that their service is better. but, to each their own and if Fidelity to talk the non savers into saving 4 to 8 years income, I'm glad their doing it. But, everyone should be doing it anyways. I know....I'm preaching to the choir.....and I have kids I have to preach to as well. I've saved mine, I'm OK and I still worry just a little .........it's in the genes

Everyone......have a great day!

 

[David1961]

Personally, I think the amount should be based on your annual expenses, not your annual salary.

 

[dmpi]

Who would want to wait until 67 to retire?

 

[devans0]

I am interested in the number of years of income needed for earlier retirement.

 

[teejayevans]

Who would want to wait until 67 to retire?

Those who like living above their means? Those who love their job?
TJ

 

[teejayevans]

I am interested in the number of years of income needed for earlier retirement.

The problem is first you have to define what is ER. 62? 52? 42?

The only rule of thumb that I found somewhat useful is the 4% rule.
TJ

 

[rbmrtn]

Personally, I think the amount should be based on your annual expenses, not your annual salary.

It's all about what you spend more than what you make. These articles always miss that. I don't think my take home was more than about 60% of what salary was, after Feds, SS, medicare, state taxes, 401k deduction etc. and I lived on about 50% of that. If you spend everything you make then you have a problem.

 

[teejayevans]

It's all about what you spend more than what you make. These articles always miss that. I don't think my take home was more than about 60% of what salary was, after Feds, SS, medicare, state taxes, 401k deduction etc. and I lived on about 50% of that. If you spend everything you make then you have a problem.

Its a rule of thumb, it assumes spending is proportional to your salary, probably accurate for most people in the 50k-500K range. Note, ER forum readers are not normal. No offense
They probably assume you spend 50% of your salary, will continue spending 50% after retire and will retire full SS age. After all these assumptions, 8X salary is probably a fairly good estimate.
TJ

 

[scrabbler1]

It's all about what you spend more than what you make. These articles always miss that. I don't think my take home was more than about 60% of what salary was, after Feds, SS, medicare, state taxes, 401k deduction etc. and I lived on about 50% of that. If you spend everything you make then you have a problem.

Using a percent of salary would have meant zilch to me. After working full-time for 16 years, I reduced my weekly hours worked by nearly 50% in 2001 and by 40% of the previous amount in 2007. So tell me, which salary would have been appropriate to use in such a calculation?

It is all about expenses. not about salary/income.

 

[Khufu]

8 times salary?? Retirement requirement estimates based on salary levels seem completely idiotic to me. That would mean the more you make the less likely you can retire. How could that possibly be true?

 

[mathjak107]

because money is like water and usually seeks its own level.

the more you earn generally the higher your expenses and the more you need to maintain that lifestyle.

 

[foxfirev5]

Like everybody here I don't see much relationship between salary and cost of living. However the great majority of people out there don't have the same viewpoint. The spend what you make and beyond mentality makes retirement savings a moot point.
Last year my DW ER'd and our income fell by 40%. We did not notice it in our standard of living at all because like those on this forum we LBYM.

 

[flotsamandjetsam]

I'm pretty sure Fidelity knows that these calculations should be based on expenses and not income. But most people don't know what their annual expenses are. Everybody knows what their income is.

I have no idea what our expenses are. I have never tracked expenses. I just know if the balance in our checking account is going up or down. It mostly goes up.

 

[WestLake]

Say you make $50K, so you'll need $400K. No thanks!

 

[scrabbler1]

I'm pretty sure Fidelity knows that these calculations should be based on expenses and not income. But most people don't know what their annual expenses are. Everybody knows what their income is.

I have no idea what our expenses are. I have never tracked expenses. I just know if the balance in our checking account is going up or down. It mostly goes up.

Fidelity surely knows about expenses, as that is a major part of their Retirement Income Planning software in the website.

 

[Andre1969]

When I was 35, I think my retirement portfolio was about 5x my salary. Now, at the age of 42, it's about 11x my salary. So, hopefully I'm on course!

But, I agree with others in that I think that having 8x your salary saved up by age 67 is a bit low. Unless you have really low expenses. I guess social security will help somewhat, though. If I work until 67, my SS benefit would cover about 35% of my current salary.

 

[pb4uski]

Who would want to wait until 67 to retire?

+1

 

[Khufu]

I'm pretty sure Fidelity knows that these calculations should be based on expenses and not income. But most people don't know what their annual expenses are. Everybody knows what their income is.

Or Fidelity is engaged in scare-mongering to manipulate clients to invest more in risky assets such as the products they sell.

 

[H2ODude]

I've generally only known my salary +/- a few thousand a year. Really. However, since I was in late forties tracked expenses in Quicken and could dial up expense in a second. Salary was 30-40% more than expense, filling up a 457 and 401k. All I cared about was what did it take to retire in income. I'm well over that now, so no worries. If it matters, when I pretty much pulled the plug, assets were ~13x income and have a cola'd pension that is ~ 1/2 last salary. It's all about living below means. Now I have to figure out how to spend or use it for max enjoyment. It actually is difficult to reverse the flow when a buck actually has a value to you. I probably could have left earlier, but it would have crimped the pension substantially.

 

[Running_Man]

Say you make $50K, so you'll need $400K. No thanks!

Assuming that is the household income at age 67, the social security would be probably in the area of 24K for the worker and 12K for the spouse leaving 14K as the withdrawal from retirement savings or just under 4% per year of 400K. And that would be assuming all 50K was spent.

 

[RobLJ]

8 times salary?? Retirement requirement estimates based on salary levels seem completely idiotic to me. That would mean the more you make the less likely you can retire. How could that possibly be true?

fidelity outlines age-based savings guidelines

It's a hypothetical rule of thumb number based on expenses 85% of salary, and Social Security reduces that 85 more. It's also based on the worker working until full retirement age.
I think this is intended for younger and mid-career workers to focus on a benchmark to encourage early retirement savings, since there are also benchmarks for various stages.
Fidelity's retirement planning worksheets are pretty good.