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

[NW-Bound]

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.

Yes. $750K at 4% WR will provide $30K.

The conventional 25x factor is based on expenses, while this 10x factor is based on gross income.

And with heavily subsidized healthcare, and if one is reasonably close to SS age, it's doable.

It all depends on one's lifestyle.

 

[SnowballCamper]

I think this "rule of thumb" is a way to not think about how much you need to retire. A relatively simple way to actually think about how much you need to retire is to estimate how long your retirement will last. Then use your current annual spending (or an average over the last few years). Then the equation is

current retirement assets - years of retirement * annual spending = under or overfunded amount.

Of course this is an oversimplification...considerable thought and work are necessary to determine reasonable values for the variables in the equation. But it is a start to actually thinking about the problem.

 

[Time2]

45x last wage or expenses?

Expenses, yes, we over saved. I backed off to one day a week 3 years before a hurricane destroyed our business, that is what finally convinced my wife to retire. 2 more years and we will start SS, that will cover about 75% of our expenses, maybe more.

 

[COcheesehead]

Expenses, yes, we over saved. I backed off to one day a week 3 years before a hurricane destroyed our business, that is what finally convinced my wife to retire. 2 more years and we will start SS, that will cover about 75% of our expenses, maybe more.

I just wanted to clarify because the OP was discussing wages.
I am with you though. We are at about 38x expenses - 3 years into retirement. With everything going on, I am glad we have the cushion. We won’t take SS until 70 in 10 years.

 

[ShokWaveRider]

The REAL number should be: Total Expenses minus Fixed Income (SS + Pension) x Whatever number you are comfortable with. Ours is a multiplier of 35. Yours may be different.

 

[W2R]

I have no opinion on this one because honestly I do not have a clue. I didn't retire at a specific amount saved, but waited until I could officially retire with my (federal) retirement benefits including such perks as mini-pension, TSP monthly withdrawals, and retiree health insurance, all of which made a huge difference in those days before ACA existed.

I was 61.5 years old by that time, with a paid off house and car and no debts, and had 13x my salary in my portfolio. I would have retired with far less if I had health insurance but I didn't so I had to wait for that, and saved as much as I could while I was still working. The fact that in six months after retirement I could get SS if need be, was a nice safety net although I eventually waited until age 70 before claiming SS.

Today (at age 74.5), my portfolio is 20x-25x my final salary and 43x my present average annual spending. I don't need or want to spend any more; I'm comfortable with my present lifestyle.

 

[Willers]

We retired at 53 and 50 with right around 10X our income with no concerns because our expenses were significantly lower. If we were at 10X expenses there is no way I’d have even considered pulling the plug. I lived like a college student. I don’t miss it.

 

[aaronc879]

Yes. $750K at 4% WR will provide $30K.

The conventional 25x factor is based on expenses, while this 10x factor is based on gross income.

And with heavily subsidized healthcare, and if one is reasonably close to SS age, it's doable.

It all depends on one's lifestyle.

Also depends on life expectancy. People on here wanting 100% chance of money lasting to 95+ will be giving millions to their heirs in most cases. I want a 90% of money lasting to 75 since I don't expect to make it past 75 or not much past. I could retire at 49 with 25X expenses and be very content whereas someone expecting to live to 95 probably would not be.

 

[daylatedollarshort]

Our retirement number was DH's heart rate. Work was making it too high for him to be healthy. We found The Consumer Expenditure Survey and realized we had more than enough compared to most retired people if we could get a better handle on our expenses. We thought we might have to move to a lower cost of living location or downsize, but we optimized our expenses enough we could stay in same house and improve our same standard of living without any big moves.

What we made before is pretty irrelevant to our current spending. Kids are grown, we no longer have business expenses or job costs, don't pay into Social Security, have more time to cook from scratch, we made the home more energy and water efficient, price shop insurance, have a few seat filler memberships, and a few hundred other small changes that all really added up. We live pretty much the same these days, except for not having to work and going out much more often, on about one third of what we used to gross. For us, Expenses - (SS, pensions and a few beer money projects) = annual withdrawal amount (well over 100X in savings).

 

[MRG]

These recommendations are nonsense, as many posters pointed out, but guess what, they are just what the industry wants. If a few more people get the idea they need to save, the article is a success.

I retired at 56, with 12.5 times my salary and 25 times our lower-end expenses. When I start SS in another 4 years, our combined SS will provide that level of income.

 

[ShokWaveRider]

These recommendations are nonsense, as many posters pointed out, but guess what, they are just what the industry wants. If a few more people get the idea they need to save, the article is a success.

It is different for everyone. But I doubt whether it will work. Americans (for the most part) are programmed to be spenders not savers and to live in debt. If they were not, the economy would collapse.

 

[CRLLS]

If there ever was a true 10X, it may have been considering only one leg of the ol' 3 legged stool approach at age 65; Your SS, your pension and your savings. Considering those a 10x seems very conservative. Those days have left us. It is now the Wild West out there WRG to retirement. So many different types of pretax and nontaxed retirement accounts, pensions etc. are available now that were not back then.

 

[Andre1969]

I can see these multiples of income type rules of thumb being useful for most of the masses. I have a feeling most people are bad at tracking their expenses, so they have no idea how much they truly spend. Plus, spending can fluctuate wildly from one year to the next.

So, as long as you're at least putting something away into retirement, and not running up debt, I'd say some multiple of income could be used as a guide. A rough guide, but better than nothing. Just don't use 10x your income at age 55 as the Gospel, and a guarantee that you can go into the office the next workday and tell the boss to elf off, right then and there

 

[street]

I wouldn't have felt comfortable at 55yo and retiring with 10X salary. At 65yo could be a challenge if a person had unexpected expenses.

Twenty times would be the least I would go at age 55 and even than it would depend on how long a person would live/expenses.

I just looked at my numbers and expense number, I used when retiring at 58yo. I padded the expense number by 20% and still had a 58X expense number.

Today that expense ratio to portfolio has almost doubled with last 6 years of expenses. I'm sure most here have experienced the same number grow because they have over budgeted, and the growth accumulated during ER.

One does have to equate SS and investment growth over that 30 plus life cycle.

 

[Taxman59]

My understanding of the 10X "rule" was that by the time you are in your mid 50s, you should have 10x of your income in retirement savings. This was the "track" you should be on, not the end goal to retire. 20-30x of earnings was the end goal for retirement at 65.

 

[38Chevy454]

If using the "100 minus age = % equities" rule for allocation, I am only 8 years old. According to that I have a long way to go before retirement

I do agree that the 10x salary for savings at 50 (or 55) is at best a guideline, and the real factor needs to be based on expenses. Such as the widely quoted 25x expenses for savings, which is just the 4% rule converted to savings. The problem with 10x salary or whatever multiple of salary is not factoring in the actual percentage of salary one currently lives on; or what percentage one is actually saving out of total salary.

The problem with any generalized rule is they do not take specifics into consideration. I do agree for general public, it does give a reasonable starting point for planning. But those individual specifics must be part of the total equation before making final decisions.

 

[Alex The Great]

The problem with 10x salary or whatever multiple of salary is not factoring in the actual percentage of salary one currently lives on; or what percentage one is actually saving out of total salary.

I do see a problem when someone use salary (or income) as a substitute for expenses. If someone has a habit to spend all income, how much savings that person would have?

 

[Major Tom]

Unusually for me, I haven't read the entire thread before commenting, but this is such a fluff piece that it doesn't really warrant putting in the time and effort required to post a thoughtful answer. One look at the site gives the hint that this will probably not be a detailed and useful article. This bit jumped out at me,

"If you earn $80,000 per year, the formula states you will need to have access to $800,000 to retire."

That's not a formula; it's a simple multiplier! Also, it's not a serious article either, though I imagine it hit the mark for the author, who hopefully achieved the required number of words, before moving onto her next assignment.

The problem with any generalized rule is they do not take specifics into consideration. I do agree for general public, it does give a reasonable starting point for planning. But those individual specifics must be part of the total equation before making final decisions.

+1

Perhaps a better guideline than 10x earnings, would be 25-40 x earnings, adjusting for tolerance for risk/volatility, and other income sources.

 

[TheWizard]

These recommendations are nonsense, as many posters pointed out, but guess what, they are just what the industry wants. If a few more people get the idea they need to save, the article is a success...

I tend to agree.
We can be pretty sure that most Americans age 55 do not have 10x gross salary saved in combined investments.
Once they get to that point, they can focus on more personalized details...

 

[TheWizard]

And again, I must protest mildly against the cadre of posters arguing for using immediate pre-retirement EXPENSES as the base for a 25x or 33x accumulation number.

You should be using Desired Retirement Income (= 1.5 x expenses or more).
Reason for this: it's much easier to grow expenses in retirement than to grow income...

 

[Andre1969]

I do see a problem when someone use salary (or income) as a substitute for expenses. If someone has a habit to spend all income, how much savings that person would have?

There's a good chance they won't have 10x their salary saved up by the age of 55, so they wouldn't be able to retire. So, this is one example of where this guideline actually works!

 

[gauss]

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.

+1 Yes I also remember Fidelity articles maybe 2 years ago with the 10x salary used.

I seem to recall that the 10x factor was to be used on the lower end of the income scale where SS replaces a larger portion of earnings and income taxes are lower.

The logic didn't seem too off base at the time

Can't remember off hand if they assumed homeowner vs renter.

P.s. I think this is the article, but the 10x factor was applied at age 67 not 55.

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

-gauss

 

[TheWizard]

10x gross salary is a good milestone for the general public, yes indeed...

 

[Unpaintedhuffhines]

My understanding of the 10X "rule" was that by the time you are in your mid 50s, you should have 10x of your income in retirement savings. This was the "track" you should be on, not the end goal to retire. 20-30x of earnings was the end goal for retirement at 65.

20x-30x earnings for me upon retirement would have been between $20M and $30M. Trouble with this is that it does not factor in the amount of your earnings you spend (or save). In our highest years, we did spend a bit more, but we saved a ton (and yes, our taxes were pretty high too). Our normalized spend is about $150K/year. $30M would have allowed us to spend $1.2M (ish)/year, which is ridiculous.

 

[rodi]

I read the whole thread and agree with several points people made.

Salary was not the metric I needed to use to figure out if I had enough. I was maxing out 401k contributions, making extra principal payments to my mortgage to get it paid off before I retired, etc. Our spending (including taxes, health insurance) was only about 40% of my gross salary. Spending (all in, expenses including taxes, health insurance, extras) was the figure I needed to figure out if I had enough.

So the idea of spending 1/2 of the preretirement salary is valid in our case. Because we were already doing that for a few years before retiring. But 10x isn't big enough of a multiplier for me.

I'm just glad our total annual spending - minus other sources of income (rental income, DH's SS, my super mini pension) gives us a 38x multiplier of withdrawals to our nestegg... and that will only get better when I eventually take SS.