from Time: What you should have saved at 35/45/55

[shaynaatl]

moneyland.time.com/2012/09/21/what-you-should-save-by-35-45-and-55-to-be-on-target/

Financial rules of thumb are just that. If you follow them, you have the satisfaction of knowing that you’ve taken action — but they do not guarantee you’ll get the results you desire. Still, in the savings game guideposts can be especially useful. A near-term target will help you get started, and that’s half the battle.

Fidelity Investments recently put together an age-based savings guideline with a range of savings goals. It’s meant to prod individuals into action, which it might—if, that is, the firm’s daunting assumptions don’t discourage them first.

Here are the guideposts:

At age 35, you should have saved an amount equal to your annual salary.
At age 45, you should have saved three times your annual salary.
At 55, you should have five times your salary.
When you retire at age 67, you should have eight times your annual pay.

Others have tried to divine a finishing multiple of salary that ensures retirement happiness, and generally they are in line with Fidelity’s target. Consultants Aon Hewitt set the goal at 11 times final pay (by age 65).

What Fidelity ads to the discussion are benchmarks to hit along the way. Having near-term targets helps you stay on track—and to take steps to catch up while time is on your side. But there is nothing easy about hitting these targets. Fidelity assumes:

You begin saving in a workplace retirement plan, such as a 401(k), at age 25. You save continuously and without interruption until age 67.
You start by making an annual salary contribution equal to 6% of pay, and raise the figure by one percentage point each year until you are saving 12% of pay.
Your employer matches you at 50 cents on the dollar up to 6% of pay and your portfolio grows 5.5% a year.
Social Security is factored in.
Your income grows 1.5 percentage points faster than inflation each year.

These assumptions are reasonable in terms of building an illustrative savings model. But consider that almost no one starts saving at 25 and millions suffer some sort of job interruption over a 42-year career. This model also has you saving 12% of pay by age 32. A common rule of thumb is 10% and, again, most folks don’t get serious about saving until they are in their 40s and 50s.

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Meanwhile, you will need a healthy slug of stocks to earn 5.5% a year. Yet individuals have been net sellers of stock mutual funds for at least half a decade. Whether Social Security will be available when you retire is an open question. And many peoples’ wages are going down—not up by more than the rate of inflation.

Of course, it would be a mistake to extrapolate the experience of the crisis years indefinitely into the future. Still, this exercise points up the difficulty of reaching retirement security without an early start, or hyper-aggressive saving at midlife. No matter your age, at least now you can see where you stand–and what to do about it.

[Deleted]

I will personally be on track to have >1x my salary saved by 35, because I am saving 29% starting at age 29. But I am doing this because I have a 403(b) with an employer match and H doesn't. I really doubt we'll have 1x our HHI saved in five years.

[Deleted]

Does anyone know what benchmarks you are supposed to use if your income is variable and bonus comprises a lot of it?

Do the same standards apply or do you only go off base salary?

[Deleted]

Sept 25, 2012 9:31:22 GMT -5 @lcap said:

Does anyone know what benchmarks you are supposed to use if your income is variable and bonus comprises a lot of it?

Do the same standards apply or do you only go off base salary?

Can you live off a fraction of your base salary in retirement? "Rules of thumb" usually assume you'll need 80% (or whatever) of your income in retirement. If you do base, then you'll be living on that not your actual income level in employment.

[Awkward]

This is hard because I have zero idea how much I'll be making at 35. Depending on how my career goes I could be making 35k, I could be making 60k. Either way, if I fully fund my Roth IRA like I'm planning + my fledgeling 401(k) and match, I should be saving 30% of my income this year. I feel like for 24 that's not too shabby, though it demonstrates how low my pay actually is.

[ssmjlm]

I have no plans to work until 67 TYVM.

[zombiemuse]

I'll have a couple thousand more than I make now by the time I'm 35. But I don't know how much I'll be making at 35 so it's a little difficult to really say. I hope I'm making at least $15-20K more by the time I'm 35.

[makingithappen]

"But consider that almost no one starts saving at 25 and millions suffer some sort of job interruption over a 42-year career. This model also has you saving 12% of pay by age 32. A common rule of thumb is 10% and, again, most folks don’t get serious about saving until they are in their 40s and 50s.

Meanwhile, you will need a healthy slug of stocks to earn 5.5% a year. "


I guess I'm not normal. I started my 401k at 24 and IRA at 25. I'm now 26 and contribute 12%, and I thought a conservative earning was 8%? Don't DR and the like use 12% in their models although that was probably pre-recession numbers?

[raangoli]

Sept 25, 2012 9:43:52 GMT -5 ssmjlm said:

I have no plans to work until 67 TYVM.

:Y:

[agnes]

According to this article I am on track, but I feel like I'll never be able to retire if I stick to what I'm doing.

[catbus]

I prefer the rule to have 1x annual salary by age 30. It gives more flexibility in age to retire and lifestyle in retirement, plus doesn't rely on 10% growth every year.

[Deleted]

I prefer this one way over the other rule of thumb we mentioned last week. I will definitely have my salary saved by 35 (will have it when I am 33). DH will not though, because he has no 401(k) and he will be 35 in April. :/

[biscoffcookies]

Finding out where I stack up would require me to log into my TSP (which is the fed's version of the 401(K)) and see its balance. I have no desire to do this. The past two statements I have received have made me incredibly depressed because my TSP has had a negative rate of growth.

[MadamePresident]

So when they say your salary are they referring to the salary you are earning at that age? Should you just include dollars in a retirement specific account or look at your whole net worth?
I have so many unanswered questions!

[kershnic]

If only I had an employer match.... sigh. I often wonder how the rules of thumb might change depending on whether you're saving pre or post tax...my savings so far is too low, but it's all in a Roth Ira, which I think should count for more than a 401k/403b.-

[cowboyjoe]

I would guess that we'll be close to 1.5x by 30. Mostly because we make crap right now.

[chessie]

I know we are on track, but we have no goals to actually retire. My grandparents are still working in their 80's, its only going to get worse, so in my eyes work until I am dead most likely.

[Deleted]

I don't know that I'll retire early. I feel like by the time I've been teaching for 30 years, it will be pretty easy.

[Deleted]

Sept 26, 2012 6:53:45 GMT -5 @redbellpeppers said:

I don't know that I'll retire early. I feel like by the time I've been teaching for 30 years, it will be pretty easy.

you might get sick of all the politics though.

it seemed like my professors (even the dinosaurs who had been around forever) were always butting heads with the administration. one of my favorites actually retired with my class because he grew so tired of it, and he had been around since the 70s.

[Deleted]

Sept 26, 2012 7:54:47 GMT -5 tacom said:

Sept 26, 2012 6:53:45 GMT -5 @redbellpeppers said:

I don't know that I'll retire early. I feel like by the time I've been teaching for 30 years, it will be pretty easy.

you might get sick of all the politics though.

it seemed like my professors (even the dinosaurs who had been around forever) were always butting heads with the administration. one of my favorites actually retired with my class because he grew so tired of it, and he had been around since the 70s.

I guess. So far my department is awesome, with the exception of the one bully, and even she isn't that bad.

[mrssavy42112]

Sept 25, 2012 9:40:42 GMT -5 Awkward said:

This is hard because I have zero idea how much I'll be making at 35. Depending on how my career goes I could be making 35k, I could be making 60k. Either way, if I fully fund my Roth IRA like I'm planning + my fledgeling 401(k) and match, I should be saving 30% of my income this year. I feel like for 24 that's not too shabby, though it demonstrates how low my pay actually is.

See, I don’t understand this either. How can I know right now, at 26, how much I’ll be making when I’m 35. I’m likely to be in a very different point in my life, hopefully in a home, maybe kids. Who knows what DHs job will look like. There are so many variables. How can I predict now how much to save so that I have 1y salary saved by then? So confusing.