Another Study on How Much You Should Save for Retirement

Over the years of writing about retirement here at the Dough Roller, I’ve covered a number of studies about retirement savings. There’s the book, Your Money Ratios, which posits that you need 12 times your annual salary by 65 to retire comfortably. And then there was a study by Money Magazine that basically reached the same conclusion.

Now Fidelity has come out with its own study. There are two aspects of the study that are of interest.

Retirement Savings Should Equal 8x Salary

The first is that Fidelity concludes that you need eight times your salary to meet basic retirement needs. That’s the lowest amount of retirement savings I’ve seen in any study.

The theory behind the study is that you’ll need to replace 85% of your salary in retirement. According to Fidelity, have 8x your salary stashed away will be enough to cover this need. I doubt it.

Assume you make $100,000 a year at retirement and have $800,000 saved. To generate $85,000 a year in income during retirement, you’d need to withdrawal over 10% of your savings. There’s simply no way your retirement savings will last through retirement at that rate of withdrawal. Most experts say you should limit what you take from retirement to about 4% a year.

Are you on Track to Retire

The second interesting aspect of the guide is that it gives you milestones to achieve throughout your working years. According to the guide, you should have saved:

  • 1 times their salary at age 35;
  • 3 times at age 45; and
  • 5 times at age 55.

Of course, the above benchmarks assume an 8x salary goal for retirement. If you think 12x is more realistic, you can find benchmarks for that methodology in my article on Are you saving enough to retire

Income vs. Expenses

As a final thought on the Fidelity study, one needs to ask whether retirement savings should be based on your income or the expenses you’ll have in retirement. For some there may not be much difference. But for many I think there will be.

Estimating expenses during retirement can be tricky. It’s easy to assume you won’t have a mortgage or be paying to raise children, but one shouldn’t forget the cost of health care. But if you are comfortable estimating your retirement expenses, check out my formula on how much you’ll need to retire.

Finally, if you have checked out the review of Personal Capital, you should. It’s a free service similar to Mint, but it focuses on investment tracking. It’s the best I’ve seen.

Topics: Retirement Planning

9 Responses to “Another Study on How Much You Should Save for Retirement”

  1. What’s disappointing about this is that people are still relying on silly rules of thumb for their retirement and financial planning. Because we don’t know the future, there will always be some guesswork and assumptions in planning for retirement, but these are minimized when the proper expertise, art, and science are applied. Most financial planners or advisors will do this kind of analysis for little or no cost.

    Rob Drury
    Executive Director,
    Association of Christian Financial Advisors

  2. All this tells me is that I will never be able to retire. I’m fortunate enough to be a tenured professor (at a not-that-great-paying college in expensive NYC), so I don’t have to, as long as I am physically capable of working. But these kinds of stories just depress me, which is why I rarely read them anymore. Like most academics, I was in my early 30s before my career even started, & I made several major, costly moves before landing a decent permanent position. I also had student loans, now paid. But that leaves me with little saved (about $90,000), in my mi-40s, though no debt except a manageable mortgage on a tiny cottage which is my home. No car, no trips, no restaurant meals – but between a late start, loans, a small family to look after, & a condition that requires about $300 monthly in expenses not covered by anyone, I save little. I don’t invest, as I have a traditional pension plan, but there will be no retirement, ever. Why even bother reading this stuff?

  3. These numbers are unrealistic for middle class people. My wife is stay at home mom to take care of the kids, so there is only one income. I agree with Rosa about why we should bother reading these stuff. I know many people retired with little money and they are happy for the most part. I just don’t see why they are making big deal now days.

    • 1. Those “people you know” are probably living entirely off of social security. I would hate to let the government control how much I’ll receive during retirement.

      2. I also know many people with lots of money and they are 1,000x happier than your people.

      • 1. Those “people you know” are probably living entirely off of social security. I would hate to let the government control how much I’ll receive during retirement.

        2. I also know many people with lots of money and they are 1,000x happier than your people.

        How do you know they are 1,000x happier than “my” people. You are incorrect about the “people I know” living entirely off SS. Its pension. You are way off and have no merit in your statement.

  4. Note that Fidelity is assuming you’d also get social security checks seperate which should replace around 25-35% of your income. Thats a large chunk of the 85% of income they plan for. So the 8x salary target is in addition to your SS.

  5. Good post Rob, thanks. I appreciate anything I can read on this topic. I’m always dubious about any methodology that is based on income instead of expenses. I realize this works for some average cases. But most of us who are serious about financial independence know that expenses are not highly correlated to income! Anyway, I appreciate your analysis of the issues. -Darrow

  6. I’ve always struggled with knowing how much to put away. As a Canadian, healthcare costs aren’t as looming (we will still have to pay out of pocket for medications but that about covers it). Assuming we downsize and the market is okay, we’ll be able to sell what we hope to have (a big house) for a condo. So that would be extra money. Then of course some people include money or assets from inheritances (I don’t, but some do). And then of course there is interest (but then we have to think of inflation). So it’s nearly impossible but the amount in the study doesn’t seem like enough.

Leave a Reply