Fidelity Investments wrote an interesting retirement piece that creates an age-based rule of thumb for how many multiples of earnings are needed for retirement. The rule of thumb model is based on a core set of assumptions we’ll cover later, so it’s important to know that the number here should be considered a starting point to assess your progress. For the most accurate assessment, it’s best to run a financial plan scenario with your specific inputs.

Age-based Savings Rule of Thumb

According to Fidelity simulations, by age thirty aim to have 1x your salary saved. By age 40, the multiple is 4x and by age 60, it goes to 8x. The rule of thumb can be viewed as a set of milestone goals that can be tracked over time.

What Assumptions Does the Model Use?

The model assumes that retirement income of 45% of pre-retirement will be drawn from investments. The remaining difference comes from social security and a reduction in living expenses post retirement. Some studies have shown that post-retirement spending averages about 75% of pre-retirement spending.

The model assumes that there is 1.5% real wage growth per year, and savings of 15% per year.

To model investment return, Fidelity assumed asset allocation over time that follows typical target date funds. Returns come from long-term US market averages.

Simulations were run to ensure that there is 90% confidence of funds lasting to the age of 93.

How Will My Plan Differ?

As Fidelity notes, the figures should be considered a ‘starting point’ because each plan is based on individual circumstances. Retirement spending goals, retirement target date, saving rate and expected life can all be tuned to your specific situation. To get the most accurate gauge of your plan, you can use online tools or work with an advisor to build your plan.