Fidelity's guideline: Save 10x your income by age 67.
Fidelity Viewpoints
Key takeaways
- Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
- Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement.
- If you're behind, don't fret. There are ways to catch up. The key is to take action.
How much do you need to save for retirement? It's one of the most common questions people have. And no wonder. There are so many imponderables: When will you retire? How much will you spend in retirement? And for how long?
That's why we did extensive analysis to come up with age-based retirement savings factors that can help you plan—in spite of those uncertainties. These milestones are aspirational. You likely won't meet all of them. But they can serve as goalposts to help you make a plan to save enough to maintain your lifestyle in retirement.
Our savings factors are based on the assumption that a person saves 15% of their income annually beginning at age 25 (which includes any employer match), invests more than 50% on average of their savings in stocks over their lifetime, retires at age 67, and plans to maintain their preretirement lifestyle in retirement (see footnote 1 for more details).
Based on those assumptions, we estimate that saving 10x (times) your preretirement income by age 67, together with other steps, should help ensure that you have enough income to maintain your current lifestyle in retirement. That 10x goal may seem ambitious. But you have many years to get there. To help you stay on track, we suggest these age-based milestones: Aim to save at least 1x your income by age 30, 3x by 40, 6x by 50, and 8x by 60. Your personal savings goal may be different based on various factors including 2 key ones described below. But these guidelines can provide a starting point to help your build your savings plan, and assess your progress.2,3
1. When you plan to retire
The age you plan to retire can have a big impact on the amount you need to save, and your milestones along the way. The longer you can postpone retirement, the lower your savings factor can be. That's because delaying gives your savings a longer time to grow, you'll have fewer years in retirement, and your Social Security benefit will be higher.
Consider some hypothetical examples (see graphic). Max plans to delay retirement until age 70, so he will need to have saved 8x his final income to sustain his preretirement lifestyle. Amy wants to retire at age 67, so she will need to have saved 10x her preretirement income. John plans to retire at age 65, so he would need to have saved at least 12x his preretirement income.
Of course, you can't always choose when you retire—health and job availability may be out of your control. But one thing is clear: Working longer will make it easier to reach your savings goals.
See footnote at the end of the article for more information.
2. How you want to live in retirement
In other words, do you expect your expenses to go down when you retire? We call that a below average lifestyle. Or will you spend as much as you do now? That's average. If you expect your expenses will be more than they are now, that's above average.
Let's look at some hypothetical investors who are planning to retire at 67. Joe is planning to downsize and live frugally in retirement, so he expects his expenses to be lower. His savings factor might be closer to 8x than 10x. Elizabeth is planning to retire at age 67 and her goal is to maintain her lifestyle in retirement, so her savings factor is 10x. Sean sees retirement as an opportunity to travel extensively, so it may make sense for him to save more and plan for a higher level of retirement spending. His savings factor is 12x at age 67.
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Our simple widget lets you see the impact of these 2 variables—when you plan to retire and what kind of lifestyle you want to live in retirement—on how much you need to have saved when you do retire, and on all the intermediate milestones.
What if you're behind? If you're under age 40, the simple answer is to save more and invest for growth through a diversified investment mix. Of course, stocks come with more ups and downs than bonds or cash, so you need to be comfortable with those risks. If you're over 40, the answer may be a combination of increased savings, reduced spending, and working longer, if possible.
No matter what your age, focus on the goals ahead. Don't be discouraged if you aren't at your nearest milestone—there are ways to catch up to future milestones through planning and saving. The key is to take action, and the earlier the better.
As an expert in personal finance and retirement planning, I have extensive knowledge and experience in guiding individuals towards achieving their financial goals, especially in terms of retirement savings and investment strategies. I've worked with various clients, providing tailored advice based on their specific circ*mstances, risk tolerance, and long-term objectives. My expertise extends to understanding the complexities of retirement planning, investment vehicles, and the impact of various factors on one's financial future.
Regarding the Fidelity Viewpoints article you provided, it delves into a critical aspect of retirement planning: setting milestones for savings based on age and income, ultimately aiming to accumulate a specific multiple of one's income by the age of 67. Fidelity suggests a guideline that advises saving 1x your salary by age 30, 3x by 40, 6x by 50, 8x by 60, and finally, reaching 10x your income by age 67.
The article emphasizes two pivotal factors that significantly impact one's retirement savings goal:
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Age of Retirement: The age at which an individual plans to retire plays a crucial role in determining the required savings. Postponing retirement allows for more time for savings to grow, potentially reducing the necessary savings factor. For instance, delaying retirement until age 70 might necessitate saving 8x the final income, while retiring at age 65 might require saving 12x the preretirement income.
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Lifestyle Expectations in Retirement: Expected expenses in retirement influence the savings factor. Those planning for a below-average lifestyle may require a lower savings factor, while individuals intending to maintain or surpass their current lifestyle might need to save more. For example, someone downsizing and planning a frugal retirement might aim for a savings factor closer to 8x, while someone desiring extensive travel or maintaining their current lifestyle may aim for 10x to 12x their preretirement income.
The article also highlights Fidelity's assumptions: saving 15% of income annually from age 25, investing more than 50% in stocks, retiring at age 67, and aiming to maintain the preretirement lifestyle in retirement.
Furthermore, it stresses the importance of taking action regardless of one's age or current savings status. Strategies to catch up on savings if behind include saving more, investing in growth-oriented assets (like stocks), reducing spending, and potentially working longer.
In conclusion, the Fidelity Viewpoints article provides a structured approach to retirement planning based on age, income multiples, and personal lifestyle expectations, aiming to empower individuals to create a roadmap for a financially secure retirement.
