How Much Should You Have Saved for Retirement?
The March 2007 issue of Money magazine has a sidebar that gives a rule of thumb for determining how much you should have saved for retirement. The information is geared toward Boomers, though, and so the start age is 45. Still, it should give you a rough ideas of where you should be.
| At age | Multiply your income by |
| 45 | 4.1 |
| 50 | 6.1 |
| 55 | 8.5 |
| 60 | 11.4 |
| 65 | 15 |
In other words, if your income is $50,000/year, you should have about $300,000 saved at age 50.
I’m not sure how these numbers were derived, so it’s hard to say how to determine guidelines for folks younger than 45. I know that I hope to have 2x my income saved by the time I’m 40, but I feel like I’m a little behind the curve.
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Josef said,
February 16, 2007 @ 10:57 am
I love these comparisons because, as a student, my income is zilch. So i am way ahead of the game!
Jeremy said,
February 16, 2007 @ 11:16 am
What did they define as savings? Do they mean 401k /IRAs? Does that include equity in your home? Or is it just in liquid savings?
Brian (dad to 3) said,
February 16, 2007 @ 11:32 am
This is a ridiculous formula because your income is only slightly related to your needs when you retire. For example, I’m not planning on having a mortgage when I retire, so I don’t really need that part of my income.
jdroth said,
February 16, 2007 @ 11:58 am
@Jeremy
The sidebar wasn’t specific. I get the impression they mean retirement savings, such as a 401k or IRA. I don’t think they mean home equity. (Otherwise they probably would have called it a “net worth” guide or something.
@ Brian
Ah, but while I agree with you, most investment planners do not. The standard is to say that you’ll need 75-85% of your pre-retirement income. All the retirement stuff is done based on income. I don’t think it’s the best method, either, but that’s how it’s done. I recently wrote a little about this: Could you save less and still retire with enough?
Jim S. said,
February 16, 2007 @ 8:06 pm
The sidebar is certainly skewed heavy on the older end of the scale. I guess they figure compounding will finally kick in.
I’m not sure if they meant this as retirement savings but the simplified rule of thumb that Stanley & Danko from The Millionaire Next Door came up with is:
( Your Current Age / 10 ) * Your Current Income = Net Worth (minus home equity)
This number would make you an “average” accumulator of wealth. The prodigious accumulator of wealth would have twice this amount or more.
Mia said,
February 17, 2007 @ 9:22 am
All the retirement formula’s and calculator’s at least give people an estimated goal to reach for, but of course they need to be tweaked to your own circumstances (and at least the need for tweaking can/should lead to learning more about finances).
I have no idea where I got this formula, but it’s kept in my financial notes and it’s what we use as a rough guide:
Savings amassed at 40, 50 and 60 should be 1.7 times income, 3 times income, and 8.8 times income.
Don’t include home equity in your savings for this calculation.
This assumes that at retirement you will be spending 5% of that savings each year.
At age 45, debts (including home) should not excede your annual salary.
By retirement at age 65, those debts should be zero.
Andrea >> Become a Consultant Blog said,
February 18, 2007 @ 10:32 pm
Holy moly…where do you live that someone’s mortgage is less than their annual income at age 45? Where I live, most people don’t buy a house till their mid to late 30s. Houses cost $700k+ in the burbs and $900k+ in the city.
Mia said,
February 19, 2007 @ 11:45 am
Andrea, that is a problem. We are in our early 40’s and owe less than our annual income on our home - but then we don’t earn anywhere near enough to afford a 700k+ home. I suppose in a case like yours, the home equity would have to count somewhat towards retirement savings (one of those individual tweaks to the formula’s and calculators) - and if needed,.you’d have to sell that home, buy a cheaper one for retirement & use the equity to live on.
Money Hacks » How Much Should You Save? How Much Debt Should You Have? said,
February 20, 2007 @ 9:02 am
[...] Hacks reader Mia left a comment in how Much Should You Save for Retirement discussing other rules-of-thumb she’s learned. She pointed me to an article called [...]
Liz Pulliam Weston said,
February 22, 2007 @ 4:13 pm
I don’t personally find rules of thumb all that helpful, but readers seem to love them. It makes more sense to me to roll up your sleeves and do a little work with one of the better retirement calculators, like those contained in Quicken or Money personal finance software, or pay a few bucks to use FinancialEngines.com. What YOU need for retirement depends on way too many factors to cram into a single set of guidelines.
Jenny said,
March 5, 2007 @ 9:21 am
I know lost of people haven’t reached their current income till their 50’s. How does that calculation work? Eg, they earn $65k a year now and they’re 50, but started out in their 20’s earning $2.50/hr minimum wage….
lol it’s like they assume you’ve always earned what you earn now.
Christian Poecher said,
March 6, 2007 @ 8:18 am
Doesn’t a house also add up to your net worth? Just include it, when calculating your savings.
The numbers seem to me a little bit high, but generally it is ok.
Marvelous Merv said,
April 27, 2007 @ 9:08 pm
This is yet another set of computations that assumes that my wife and I graduated with no student loan debt, both moved immediately into high paying jobs with generous retirement benefit programs, had no children, banked five figures in wedding cash…
Me, I’ll settle for a net worth of zero by the age of forty, like one in five Americans.
Evan said,
January 5, 2008 @ 6:37 am
If you invest 10% of your income each year into your 401k with an annual return rate of 10% (fairly low if you were to invest your 401k in mutual funds) and only make $30k a year it’s fairly easy to calculate how much it’ll be worth at a certain age.
$30,000
x .10
——–
$3000
Evan said,
January 5, 2008 @ 6:38 am
By the first year you will have:
$3,000
x 1.1
Evan said,
January 5, 2008 @ 6:39 am
——-
$3,300
Second Year:
$3,300
+$3,000
Evan said,
January 5, 2008 @ 6:39 am
——–
$6,300
$6,300
x 1.1
——–
$6,930
Evan said,
January 5, 2008 @ 6:40 am
If you were to assume a starting age of 25 and a retirement age of 60 you’d have $987.118.46 to retire with. Now assume you still keep your 10% annual return rate it comes out to $98,711.85/year to live off of even though your entire life you only made $30,000/year.
Remember this assumes a fairly low annual return rate, never having a pay raise in your entire lifetime at $30000/year and a fairly low savings rate of 10% (I choose 15% for myself. NOTE: If you have a large amount of debt, 10% is more realistic.)
Jeff H. said,
January 13, 2008 @ 12:55 pm
One again, someone putting out a rough-guide calculator that’s too rough to guide anyone. This assumes no major life changes, how the money is invested, or any significant income changes.
I recently saw a great report on tv (PBS I think) about two different people that had retired from the same company. They basically worked the same job, made the same wage, and had the same retirement plan options.
The first put money into highly conservative investments. The second chose more aggressive investments. At age 65, they both retired. One now works packaging groceries at a local supermarket. The other just purchased a small lake house and boat.
Savings will barely out pace inflation if not properly invested. I encourage everyone to toy around with
http://personal.fidelity.com/toolbox/growth/growth.shtml
See how a small percentage change between just 8% and 10% can make a huge different at the end.
With the numbers above, if you made $35K per year at 45, you should have about $145K saved. Now consider in 20 years if you had this amount invested. At 6%, you would end up with $395K. At 8%, $573K. and at 10%, $827K.
All of these quick calc methods ignore these issues. How aggressive you can be in your investments may depend on a larger number of issues. So many that they are often useless as retirement barometers.
(Just found your site and I think it is great, so expect posts off and on. I recently decided to get really behind my financial situation, invest wisely, save wisely and hope to retire early. We will see how it goes.)
rod gosinya said,
May 11, 2008 @ 8:30 am
In other words, if your income is $50,000/year, you should have about $300,000 saved at age 50. From 45 to 50 saved 300,000. when you have only grossed 250,000. Great article. Good luck to all of you.