Is Saving 10 Times Your Salary Enough for Retirement?

The huge number of variables in retirement planning makes it impossible to know precisely how much you'll need to save. All you can do is make an educated guess based on your goals and life expectancy.

One popular approach for doing this is to save 10 times your annual income. But this strategy may not pan out for everyone. Here's why.

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Why save 10 times your salary?

Fidelity recommends people save about 10 times their annual income at retirement age to have enough money to sustain them for the rest of their lives. But this estimate is based on several assumptions, including:

  • You plan to retire and claim Social Security at 67.
  • You expect to live to age 93.
  • You invest at least 50% of your money in stocks.
  • You save 15% of your annual income beginning at 25.
  • You experience constant 1.5% real wage growth.
  • You plan to maintain your pre-retirement lifestyle in retirement.

Even if you met all these criteria, there's still a 10% chance you could run out of money too soon. And in reality, many people aren't going to check all these boxes.

Some people can't afford to retire at 67, while others are forced to retire early due to poor health or job loss. Some live longer than 93, while others develop unexpected terminal illnesses that cut their lives short. Some want to spend thousands on travel in retirement, while others prefer to remain close to home. All these choices significantly affect how much retirement costs and, by extension, how much you need to save.

So how much should you actually save?

You can use 10 times your salary as a baseline for estimating your retirement savings target. Still, you'll need to adjust that amount to account for how your retirement plan differs from the one outlined above.

For example, if you plan to retire at 70, Fidelity suggests you may only need eight times your annual income. But if you retire at 65, you may need as much as 12 times your annual income.

The same goes for the other factors listed above. You'll need more money if you expect to live longer than 93 but less if you think you won't live as long. If you expect to decrease your spending by at least 15% in retirement, you could probably get by with saving less. But if you plan to increase spending, you're going to need more money.

Keep in mind that the goal is to save roughly 10 times your annual income at your retirement age, and your income may be higher by then than it is today. We may also have to contend with Social Security benefit cuts in the future, which could place an even greater burden on your personal savings.

When in doubt, it's always best to overestimate how much you need to save. If you don't need all the money you saved for your essential expenses, you can always put it toward extras like travel and hobbies or pass it on to your heirs after you're gone.

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