I've been saving for retirement since I was in my 20s, but I may need to step it up a notch.
According to new savings guidelines issued recently by Fidelity Investments, workers need to save eight times their salary at the time they retire. The age-based targets that were cited in a USA Today article made me a little nervous, but I was curious to crunch the numbers to figure out where I stand with the new rule of thumb.
Figuring out my final salary
Fidelity Investments said workers should save eight times their final salary. Of course no one has a crystal ball to know exactly how much money they will be making just before retiring. I expect to earn about $60,000 when I'm older, which means I'll need at least $480,000 to retire comfortably.
Staying on pace for retirement
To stay on track, Fidelity says people need to save twice their salary by age 40. My income fluctuates from one year to the next. However, I'd estimate I should have about $80,000 in retirement when I soon turn 40. Thanks to the recent stock market rally, I am on track for that second benchmark. The first benchmark was to have my annual salary saved by age 35. As I recall, I didn't meet that benchmark because of the stock market crash.
Continuing to save on a regular basis
By age 50, I'm supposed to have four times my salary. By age 55, I should have five times by salary. And, by age 60, I need to have six times my salary.
According to experts, having eight times one's income by age 67 should give most people 85 percent of their pre-retirement income. I've never understood why we strive for 85 percent of our pre-retirement income rather than 100 percent, I guess it depends what kind of lifestyle one requires. I just plan to keep putting money in my 401(k) every two weeks.
Setting a savings target
Since I've been somewhat in the fog when it comes to how much I need to retirement, the new rule of thumb by Fidelity has given me a more specific retirement savings targets.
Evidently Fidelity's figures are based on a person contributing to a 401(k) plan from age 25 to 67 and then living to be 92. I think that basically mirrors my situation although I started about five years late at age 30. Fidelity also assumes an annual portfolio growth of 5.5 percent, which seems extremely realistic to me.
Although the new savings guidelines will stretch me, I mean that in a good way. Having a savings target keeps me on track. I may have to make a few sacrifices in order to save the recommended 12 percent for retirement, but it's worth it. I've heard too many horror stories of living only on social security at the poverty line. I am focused on saving about $500,000 for retirement. I'd rather be a half millionaire than broke any day.
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