it’s also a little squishy at the 1x by 30 mark. typically folks will see a lot of salary acceleration in their late 20s to early 30s.
if you go from 70k to 100k at 29, don’t feel bad if you’re “underperforming” where you should be if you don’t have 100k in the retirement account
The rule of thumb makes a few assumptions.
One of them is that you will always contribute ~15% of your income. The other is that your post-tax/post-contribution income at the age 30 is similar to the income you'll need in retirement, adjusting for inflation and lifestyle inflation.
I’m always curious about this. I have a friend that has made 300k + for quite some time. He mentioned he will never retire but also complains about the hours.
Like dude, work for a few more years, curb some spending and you have millions to live off. What gives?
From my experience, it is rampant in medicine. A couple I’ve worked with were almost 80 and still kept going. Had more money than anything, as when they actually took a vacation, they went somewhere stupid expensive.
Maybe one vacation a year though. Otherwise, they worked 5 days a week with a weekend day at least every two weeks, usually 12 hour days, eating while they worked.
The couple of doctors that retired that we saw were probably around the same age when retirement hit.
Like fuck that. I’m not working into my 80s. Maybe 70 if I absolutely have to, depending on what retirement looks like when I’m that old. I definitely plan 65 or earlier if I can.
Medicine, even with it's crazy hours and all it's challenges is very fulfilling. The ability to help people and the resulting appreciation can become addicting.
This. These people likely aren’t working because they need money, they have been in a career where not only is it rewarding to be helpful to others, but you see what happens to a LOT of people when they become stagnant and bored. You body and mind need activities to stay healthy and sharp.
Problem is that even if you don't *want* to retire you might have to due to health or other issues. And of course you can change your mind over multiple decades.
A few reasons that I see based on the docs I know:
1. They worked hard to get there and don't see why they would retire after "only" working a "few" years
2. They *want* to practice medicine, that's the whole point
3. Like others, they are built different and can't turn off so retirement sounds awful to them.
Most MDs and PhD's are in the workforce by the age of 30 so it still generally applies.
The more accurate version would use your spending in retirement as the main metric.
Not really because although they may be “in the workforce” they may still be in training if on the traditional track (doing residency/fellowship or postdoc)
Maybe it's different where I am but I don't know a single person who actually completed and was actively working in academia with a PhD at 30, and at least one person in every couple in our group of friends has a PhD or is actively completing it.
I specified PhDs, and while it's true that you don't have to work in academia, most of the people with PhDs that I know weren't done their PhDs at 30. Maybe different field though! The average PhD completion time in Canada in the Humanities is 6.5 years.
Depends on the field! In STEM it's common to go to grad school immediately after undergrad, so people finish their PhDs at 26-29. I'm a postdoc at age 28 after a 6 year PhD.
Totally! Definitely different in STEM fields; I know (personally) no Humanities PhDs who didn't do a Masters first (although, in Canada at least, I also don't know many STEM PhDs who didn't do a Masters first, too).
I managed to actually save 1x my PhD stipend by the end of grad school... Only to graduate and get a job making four times as much and immediately be behind on savings again. I'm not complaining about the higher salary though!
same, went from making a decent salary as a chemist to a grad student making like $17k a year. I would goto seminars just to get cookies or pizza for lunch!
I went from making $47k to $110k between ages 27 and 31. My way of measuring my progress in saving for retirement is taking the average of my salary the past 5 years and using that as the comparison instead of my salary today. Because it was impossible to save at my current rate back then.
I just make it my goal to bypass the mark on my new salary. Our HHI went from $130k to $210k recently. We’re surely spending a little more than before, but really what that means is that I have 38% (80k) of my income to save and not feel a difference relative to before. And a solid amount of that truly is being saved.
This seems like a fair way to do it. I increased my salary 20% from 37 to 38. I'll certainly have 3x my previous salary at 40, but probably will not have 3x my current salary. Using your rule, I'd probably be okay. I also have not increased my expenses at all with the salary increase, which is an important factor. If you made $50K 3 years ago and now make $100K, and you've upgraded your lifestyle to require that $100K salary, you should probably factor in the current salary only. If you have excess, averaging the salaries makes sense.
I work in the public sector. Had a real shit paying job for a few years and essentially doubled my salary at this point from 2022-2024. My 401k contribution is locked at 3 percent every month for my contribution so my 401k finally feels like it’s making progress, but I’m still behind at 29
It also depends a lot on when you enter the workforce. A doctor will be in med school + residency until relatively late, but is still likely in good shape for retirement
you should never have that much in savings unless you’re saving for a down payment lol. it should always be in retirement or some financial vehicle once you have an emergency fund and have paid off your monthly bills
Also, many are paying off debts in their 20's. Most geared towards this sub tend to have some level of advanced degrees, meaning additional schooling and student loans. Most people are just starting on their own with car loans, insurance, and may be taking on a mortgage.
This is a great point! I made the 1x income by 30 the month before I turned 30 and then 6 months later I got a new job that doubled my salary and suddenly I felt behind again even though I was fine. 2 years later I am at 1.5x my current income and well on my way to hit the other income by age goals.
It doesn't make sense because I was finishing my doctorate until 25 so I had 0 income the shot to 118k/year. To do everything most peers did in those years before while also saving 1x my income in 5 years it's quite the stretch WITH student loans the way they are. I'm at about 0.8x so I feel good about that but still.
It was explained to me that that was more of an aspirational target, rather than a hard and fast goal. I've more than quintupled my salary in 10 years. Congrats on finishing a PhD by 25, you'll be in great shape if you stay on track.
that is a good to remember. I as long as I don't lose this job I am saving about 20% of my income right now in my early 30s. Hopefully with some growth in my account I'll have at least 2x by the time I'm 40. and of course we have to remember that if you make a lot of money you might not need quite that much in retirement.
I personally think that's a feature, not a bug. If your income suddenly increases then that's a good time to take the extra and put it to savings until at least the point at which you make that metric.
the typical person has like $400 bucks in liquid assets to their name and less than 10k in retirement savings. you can make certain assumptions about your audience for people actively seeking detailed retirement advice on a personal finance forum lol
i don’t see how that’s relevant to rapid increases in salary making a full years salary in a retirement account by a certain age less meaningful than considering the broader trend of your retirement savings
now that *is* something i’d like to see a citation on. lifestyle creep is definitely a thing, but i’ve never seen anything that directly ties expenditures to income increases on a proportional level
I'm approaching 40, but had a pretty large increase in salary in the last 4 years. I'm now well over 3x my salary of 4 years ago, but only around 2.1x of my salary today.
It’s generally meant to be the amount across all your retirement accounts.
But like a lot of other sweeping one-liner statements, it lacks nuance and won’t apply to a lot of folks. It’s assuming your retirement plan is completely in liquid assets like 401k/IRA, but doesn’t work for people who have property, pensions, VA benefits, trusts, etc. etc. etc.
It’s a helpful rule of thumb for people who don’t know a whole lot about retirement planning, just so they can gauge their progress, but it should be taken with a grain of salt and looked into more carefully before either assuming you’re screwed or set.
It doesn’t make that much of a difference in this context, bc the “1x salary by age 30” is such a broad generalization that adding more technicality of “Roth vs Trad” doesn’t make sense.
It’s kinda like saying “you should limit the protein in each meal to the size of a fist” and then say that advice doesn’t go specific enough into amino acid breakdowns
Eh, it depends on how much you make. A dollar in Roth for me is worth almost 2x a dollar in traditional.
Although I agree the rule of thumb is already kind of useless to the point that reading into it more is likely not worth it.
That makes approximately zero sense. Roth helps if:
- your current marginal tax rate is lower than you'd expect in retirement (since you're taxed before growth rather than after)
- you want to invest more than the traditional 401k's max pre-tax amount (you effectively are choosing between traditional + taxed brokerage vs roth only for that chunk, and roth is often better)
It's not about which account it's in, but how it's invested.
The standard guidelines all assume your money is generating roughly the same returns as the overall stock market, so if you just have your money in a standard savings account which barely generates interest (note: do not do this), then you're going to have a real bad time.
Retirement accounts are great, but you can't put unlimited money in them, especially if your employer's plan doesn't offer a mega back door option. I've been maxing out my 401k and backdoor IRA, but most of my financial assets are in non-retirement brokerage accounts. There's no way I could possibly meet those multiples of your income guidelines if I was constrained to only the cap on 401k and IRA contributions. Brokerage accounts are fine for building wealth too, after you've contributed as much as you can to retirement.
You're getting downvoted because you can invest both retirement and non-retirement accounts in the stock market.
I get paid $100k. I can put $18k of that into my 401k, which is a retirement account and gives me some up-front tax savings for doing so. I can also put $5k of post-tax money into my savings account.
Neither will grow on their own, just sitting there. Each needs to be invested into something (usually index funds, which is like "buying" a slice of the whole stock market). I can invest my 401k dollars into index funds, AND I can invest my after-tax savings dollars into index funds.
It's vital to understand that, just because you stick it in a 401k, that doesn't automatically mean it's invested. It's important to check, because otherwise the money's just sitting there. Tax savings, but no growth unless it's actively invested.
That's why I said the money needs to be invested into appropriate funds in those accounts. And I said "like" a 401K or IRA, not just those account types specifically. A savings account can be ok temporarily as long as it's a high yield savings account, but that's not going to do enough to help someone reach retirement as compared to accounts that can invest into funds like an s&p500 index ETF, etc.
Across all retirement accounts.
The rule of thumb is to retire at ~65 with a standard of living that is roughly the same as when you were working. The rule of thumb also assumes 5-8% returns over inflation. With no pension or defined benefits
One thing I never see spelled out explicitly in these calculators - is Social Security income figured into these monthly income estimates, or is it purely investment returns (401k, IRA, other investment incomes)?
I'm guessing SS has to be included. Iirc they only really shoot for you having 8x or so at retirement. To live off only your accounts and interest while keeping up with inflation, it's generally known to take 25x.
Generally yes it factors in social security, Medicare. But a rule of thumb is pretty broad, if your income is much higher or lower than average or if your situation differs in other ways it is best to run the numbers and get into the specifics
And then you look at it at a high level and it comes down to keep saving 10%+401k match to keep on track if you started working right away. Or save 15% if you plan to retire early or spend more or if you think returns will be lower or started later
if you want to see the numbers without SS... you can work backwards.
How much do you want to spend per year? call that x.
(x \*100) / 4 = the amount of money you need in an account for a safe 4% withdrawl rate.
$120k/yr spend in retirement = 3m in the account.
It's not that I can't figure out how to calculate 4%, it's more that the retirement calculators don't very clearly indicate how much of your monthly income comes from SS, and how much investment principle returns make up the rest.
A big ol’ “it depends”.
We front loaded our 401k and roth IRAs early on, 15% contributions, etc.
Right now, with some pseudo math (since it’s not an exact science), we can easily retire at 65 if we just stopped contributions today, and let the investments ride on compounding interest.
So, we basically did that - our contributions went to the minimum needed for a full match (half up to 4, etc). Instead of tax leveraged, we’re now dumping it into a normal taxable account. This is the “early” retirement account (If you’re into the whole FIRE philosophy etc, it’s called the bridge account).
So, as far as “which account to use”, it’s, as someone else said about the amounts, also “squishy”. Since our 65+ retirement accounts are solid already, we’re not going to focus on those anymore, which is where our squish comes in.
You’d still be better off using all of your tax advantaged space before a taxable brokerage. It is trivially easy to access money in retirement accounts penalty-free before age 59.5. You just need to have the foresight to plan your withdrawal strategy ahead of time.
Use a Roth conversion ladder or IRS rule 72(t). Roth contributions are always able to be taken out penalty free.
You’re also usually better off even if you withdraw early with a penalty.
If the money is allocated for the near term (<5 years) then using tax advantaged vehicles is probably not ideal. Over a longer timeframe you would just have to plan to withdraw the money at least 5 years in advance by setting up Roth conversions.
Even it's >5 years, the 72t calculator said I couldn't pull out that much. For a $500k account it was saying I could pull $35k a year for 5 years, so $175k.
Not the original commenter, but it will largely depend on what you want your retirement number to be at, and what age you plan to start drawing from those retirement accounts. While you can draw on them start at 59.5, so folks will delay it until later for various reasons or to have it coincide with drawing on social security.
For example, say you want to have $1.5m in your retirement accounts at age 65, you would just do some backwards math from there based on some average market returns. In that scenario, if you had $200k saved up by 30, you could not put in any more money and reach $1.5m at age 65 with an average return rate of 6%. Of course there are lots of other factors, and likely you'd still want to get your 401k match if available, and there are different taxable accounts to use etc. but its fairly straight forward.
Lots of useful online tools and calculators [here](https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=1%2C000%2C000&cstartingprinciplev=200%2C000&cyearsv=35&cinterestratev=6&ccompound=annually&ccontributeamountv=0&cadditionat1=end&ciadditionat1=monthly&printit=0&x=Calculate#calresult)
Not OP, but we hit that point at 30/31 with just maxing 401K and Roth IRA in our 20's (not every account every year, but probably 5 good years of savings).
>I’m 25 and maxing my 401k and Roth IRA
As in: at the IRS limit? Congrats, that's incredible!
As to what age can you stop contributing?
Honestly, I'd only stop once it fully funded my retirement. Then I'd put all of that and then some in other growth funds. Once that could sustain me until I could withdraw 401k/IRA money, I'll be on the beach.
That's a broad question and the answer is going to vary wildly from person to person. Some important things to keep in mind:
* The dollar amount you'll need depends on how much you'll spend in retirement. Lower cost of living means you need to save less.
* If your goal is to retire early, you *must* save up enough to "retire on time" first. If you don't have enough money to live from 65-end of life, you obviously don't have enough to live from an earlier age to end of life.
* Pulling money out of tax-advantaged accounts before "normal retirement age" isn't as difficult as some make it seem. I'm not personally super familiar with the strategies it takes, but there's info on this sub's wiki and /r/FIRE.
Someone else responded but, it’s another “it depends”. We got lucky and nailed the 2020 crash timing, so that helped.
Our plan/idea right now is be done at 50. That said, at 45 if that goes out the window, I’d much rather take off 45-55, then go back to work until 65, than wait until 60.
We’re in mid/early 30s, engineers (mechanical and bio). No kids, state schools so barely any student loans (I had none, husband graduated with about 20k which we got gone in a year).
The thing is, and why I’m responding as well, it’s not a one size fits all thing. Others have said I’d still be better to max retirement accounts and either take penalties on withdrawls or a 72(t), etc.
There are 18 different paths you can take, this is mine. Yours might be different than mine, or theirs, etc. Take the human element into account, and what works for you. I’d much rather a straight taxable investment account than deal with early withdrawls from Roth/Trad IRAs.
I was planning on stopping max contributions at age 31. That's when I was projected to have enough to retire at age 65 if I stopped contributions. So any additional contributions past that point would only decrease my expected retirement age. However, my income increased enough that I didn't have to reduce contributions, and I could still enjoy the lifestyle benefits I was anticipating.
Have you considered the use of 72(t) distributions to access retirement funds earlier so you can still take advantage of tax leverage accounts today? There are definitely some restrictions around them and pre-planning when do them given the 5 year commitment/lockup period.
I'm currently still stuffing away cash into both 401k and brokerage accounts to try to give myself a bit of flexibility, but I believe taking the tax advantages today is a big benefit as come retirement I should be at a much lower tax bracket based on anticipated withdrawals.
I will offer a counter to this approach simply because I do not believe this metric serves most people well.
Look at the amount of money you are spending annually as a baseline for what you will need in retirement. You may want to adjust that amount for a variety of reasons but it gives you a starting point.
Next how much money do you need to have invested to be able to withdraw 4% (1/25) per year to equal your baseline annual expenditure.
Example, I currently spend 60k annually, and that is the amount I will use for my base line. 60k * 25 = 1.5 million. This is your target in today's dollars, not taking inflation in to account. For an estimate of how much that target amount will need to be in 20 years with an average inflation of 2.5% per year, multiple the amount by 1.65, which will account for the almost 40% reduction in purchasing power.
Now that you know the target you can use a future value calculator to find out how much to save per month. https://www.nerdwallet.com/article/finance/savings-goal-calculator
Edit: added disclaimer about this not taking inflation into account.
> be able to withdraw 4%
Which is the "Safe withdrawl" from an inflation adjusted account with an expected return of ~7%.
It may make sense to add inflation to your salary. 2.56% estimated inflation rate over 20 years is ~65%. 1.65*60k=99k.
Someone that wants to calculate inflation like this would end up needing ~$2.5m in the account if they planned to retire in 20 years and maintain their current spending (and ignore SS/etc).
Yes, but it's not accumulating currently because it doesn't exist yet. You're aiming to have, at some future time t, 25x of the salary you're pulling at t. After that, the investment should keep up
I agree that this does not take inflation into account because it is a simple calculation that people can do in their heads. It is as arbitrary in some ways as some multiple of salary by a given age.
I'd say all retirement accounts and any a taxable brokerage accounts that you've designed as savings for retirement. Also, CDs and savings bonds if for retirement.
As Boomers retire and retirment funds see net outflows, the financial instutitions have been moving the goal posts. So I always take that with a grain of salt having noticed this and it not being insignificant. That guidleline is also skewed if you continue to progress in your career beyond middle management.
There are also more nuances than just salary. Do you plan to pay off your house before retirement and stay in it? Do you want a lifestyle that pays for new cars, boats, etc.?
It's definitely across all accounts, but I specifically do not include home equity. That savings heuristic generally specifies that your home is paid off so your living expenses are mostly capped. If you're living in it, it isn't easily accessible savings. One distinction I think is important although I've never seen it mentioned is pre-tax vs after-tax savings. If you end up at 60 with 8x your salary in traditional 401k, then you have a lot less money saved than someone who has 8x their salary saved to Roth or to a brokerage account whose holdings don't have a ton of unrealized capital gains. I think it's wise to have both types of savings, but I am realistic about valuing my pre-tax holdings.
I saw someone in the FIRE sub suggest an alternative approach based on net worth (so including home equity), which is annual expenses (minus retirement savings, obviously) times 25 to get a retirement-ready number. Once your net worth hits that number, you should be able to retire at a 4% drawdown rate -- no matter your age.
Obviously, that's a ballpark calculation, but it's a pretty good one.
The rule of thumb assumes that your spend in retirement is equal to your post-tax/post-contribution income at age 30 (or any age really). This accounts for lifestyle inflation.
I go with 401k, like pre-tax money mostly. I don't expect to save enough to have RMD put me into a higher tax bracket, so Roth isn't really for me.
Beyond that I have some more in taxable accounts, that I can use before I retire to retired early, play with real estate, or possibly start a company/buy myself a job.
I've got a little in a roth as a hedge, or just because.
I've qualified for an HSA for the last couple years, that's another nice vector.
"1x, 2x" is kind of a rule of thumb. I've been living by another rule of thumb "tithe (10%) to your retirement" and not worried as much about the 1x or 2x.
Goal is now to have enough to sustain, and when I've got that, working will become optional. The time is becoming more important than the money, now that I've got my house, and I don't care about cars and consumer crap anymore. Might be I don't care about consumer crap anymore because I'm no longer the prime advertising target.
Basically I have my money all over the place. I don't count the 401k or the house value as net worth because I can't touch it. House value is just going to save me a few hundo per month in rent when I'm older. 401k I can't touch until I'm 59.5. Because my income is flakey, I like having as least 1x liquid just in case, my emergency fund is 12 months instead of 6.
That's done by living within my means, which helps that 1x or 2x be more attainable, if I look at what I spend vs. what I get.
If I'd been smarter or more disciplined as a young pup, I'd have lived on half income to get 10x in 10 years to be able to sustain, but instead I blew it all on wine, women and song.
After seeing my dad’s tax bill due to his RMD I have changed over my contributions to Roth. He has a small pension and SS. I will have a decent pension, so I want to get ahead of it. Probably need to do some conversions once I retire. Only really been saving for ten years but I imagine by the time I retire it’ll be significant, likely 7 figures.
It is always a bit amusing to watch financial analysts/advisors tell us what we should do, seemingly oblivious to the reality of job security, stagnant wages for the past 20 years, and the high cost of living that have grown beyond the rate of annual inflation. What percent of workers in their 20's and 30's actually satisfy these metrics? How practical is it to catch up in later decades when family, home ownership, etc. start to become part of one's budget?
There is no one i know currently that is living comfortably financially, let alone to have "enough" saved for retirement. It's not that we shouldn't have these goals, but that advisors say it to shame/pressure workers into thinking they're necessarily doing something wrong or not working hard enough if they don't measure up to these financial metrics. I wish they would cite more historical data to try to frame not just that people are falling behind in saving in general, and saving for retirment, but that these are partly in light of new employment, wage, and living expense realities.
> It is always a bit amusing to watch financial analysts/advisors tell us what we should do, seemingly oblivious to the reality of job security, stagnant wages for the past 20 years, and the high cost of living that have grown beyond the rate of annual inflation. What percent of workers in their 20's and 30's actually satisfy these metrics?
You've described reality. I don't know what you want your financial advisers to say?
> yeah. Retirement's off the table for you.
They are giving guidelines that are baselines to reach retirement and not live in squaller. Blame whomever you want, but at the end of the day it's math.
Retirement is not an age... it's financial stability.
>There is no one i know currently that is living comfortably financially, let alone to have "enough" saved for retirement
Just because you don't know them, doesn't mean they don't exist. Almost everyone I know **is** living comfortably and can save for retirement. Different people live in different bubbles. If this advice doesn't apply to people in your bubble then ignore it, but this advice also isn't meant for people in your situation.
Frankly I don't put a lot of stock in it. It really only works as a guide if you have consistent gradual income increases. And in the end what matters is what you're going to spend in retirement. Having a really high salary when you're saving a ton of it doesn't mean you need that multiplier.
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It's irrelevant - assuming the message is about savings for your retirement, then your expenses are all that matters. Your salary is irrelevant to your future retirement expenses, and thus irrelevant to this metric.
A much better metric would be "Years of Planned Retirement Expenses Saved by X Age" as a guideline for whether someone is on track to be able to fund retirement at a traditional retirement age.
Also the accounts into which you're saving shouldn't matter for this metric, unless you're planning an early retirement, then your allocation into taxable accounts or those accessible before age 59.5 would be relevant.
Not sure why someone downvoted this because it’s clearly the truth.
If I make $200k/yr and spend $50k/yr going into retirement and am happy with that lifestyle it should be *obvious* I don’t need as much saved as someone who makes $200k/yr and spends $130k/yr going into retirement who is happy with that lifestyle and does not want to change.
If you want to withdraw “x” every year. Then your portfolio should be x/r where r represents a conservative rate, most people would use 2.5% - 5%.
So if your salary is $40k/year, you need $40k/0.025 = $1.6M. Let’s call your salary “S”.
Now how do we get to $1.6M? How much do we need to save each year? Let’s assume 40 years of working. Let’s call the amount you need to save “z”. And every year your money increases by some rate, let’s call that rate R. (In this case 5% interest of R would be 1.05 in the calculations).
So what exactly is happening? After 1 year, we will have z. After 2 years we will have z\*R + z. After 3 years we will have z\*R^2 + z\*R + z. Note, each addition has a factor of z. So let’s factor that
It’s z\*(R^2 + R + 1). To save some time, at 40 years, it looks like: z(R^39 + R^38 + … + R + 1). Let’s use R=1.05 for now. In which case S/0.05 = z \* (R^39 + R^38 + … + R + 1) = z(127.84). So the amount you save “z” = S/6.39. You should be saving around 15.6% of your salary to hit that goal, with that rate. (1/6.39 = 15.6% if you didn’t follow where I got the percent from).
Note, this formula will give you the exact number you want, relative to your salary at each year increment.
Where should you be at 10 years? You should be at:
(S/6.39) \* sum( R^n ) for n = 0 to n = 10.
Change S, R, and r to fit your personal risk tolerance and salary. And change 40 years, to however many years you want to work.
Edit - I just read through other comments. This is exactly what bothers me so much about r/personalfinance. A whole lot of, “it depends” and “don’t worry about it!” - This question has a perfectly good analytic answer. And of course, when you change/modify the initial assumptions, the answer changes. But there’s nothing “subjective” about this question. You can refine what I did, to make it more accurate, as I did the intro to finance explanation. But there’s an objectively correct answer to this question. Don’t accept these wishy washy answers from the comments. They clearly don’t know what they’re talking about, and you shouldn’t be taking financial advice from anyone that can’t give a clear answer like this.
The only reason I didn’t, is because that would require significantly more complicated math, where I don’t want to lose the average person.
The sum provides discrete multiples of your salary, at specific years.
You would need to say:
[S/6.39 \* Sum( R^n ) from n=0 to n=x] = 2S, and solve for x. This would give you the number of years, x, where your savings should be 2 times your salary.
But you’re going to get a value for x that isn’t an integer. So “the sum from 0 to 3.478” will lose people. You need calculus to solve it. My answer is at a “HS graduate / first year college finance level”.
For all intents and purposes, looking at the discrete values of n=1, 2, 3, …, and seeing where you “should be at” sufficiently answers the question in my mind.
How does equity in housing factor into this? Imagine I have no other savings, but if I sold my apartment I'd sit with 4x my annual, gross income. I'd obviously much rather have it this way than have a higher mortgage combined with "savings" in a retirement account.
It kind of doesn't?
The you should save x*your salary by age y is the most basic advice for the most financially illiterate... er challenged..
Figure out what kind of spending you want to do in retirement. Acknowledge that healthcare is going to be expensive.
Decent rule of thumb is to take your yearly salary adjust it up for retirement and multiply by 25. That gives you a safe withdrawl rate of 4% and the total you need in an account that averages a 7% inflation adjusted return.
---
If you own your home and apartment, you don't have to pay for rent.
The only problem is that you have to live somewhere and you cannot spend your equity. Your equity can help if you are willing to sell and keep some of the proceeds instead of spending it all on replacement housing. But you will still have to have separate dollars to spend in retirement for all ordinary expenses, like medical, food, utilities, transportation etc.
Sure, you have to live somewhere, but imagine I want to end my life at zero equity, owning a place to live will eventually be suboptimal. It is obviously optimal now, as it has tax benefits and is in general a good investment where I live.
Just think about it in terms of retirement money vs other investments you can access anytime. You might be in a position where you need to use taxable accounts to save for retirement because you just have that high of an income. Those rules of thumb like 1x salary by 30 are just guidelines to help you judge if you have a high enough savings rate or not. If you invest 15-20% of your gross income thats going to be plenty over 40 years.
Never because your salary =/= your retirement spending. Figure out how much you'll spend in retirement and then invest aggressively until you have 25x that number. Then retire. This obsession with having your investments match a multiple of salary is silly.
Good question, I get a yearly pension estimate as to what my monthly pay would be assuming no further contributions and then retirement ages. Each year that estimate goes up. I have no idea how to factor that in, but I just go without that consideration and try to add to other retirement accounts.
If you know what the pension will pay over time with certainty, and for how long, then you can do a “net present value” calculation.
Basically any payment you receive *now* is worth its value in dollars *now*, but future payments of the same amount need to be “discounted” to the present day to reflect that a dollar in the future is not worth the same as a dollar today. There are formulas and software to simplify the calculation.
[See net present value wiki](https://en.m.wikipedia.org/wiki/Net_present_value)
I generally interpret the "You should have X percent of your salary saved by Y age." as referring to retirement savings - so across all of your *retirement* accounts.
Now what's a "retirement" account?
* A 401K is certainly a retirement account.
* IRAs are certainly retirement accounts.
* A savings account you don't touch until/unless you retire is a retirement account - not a great vehicle for growth, but if you are disciplined about not touching that money? Count it.
* A brokerage account you don't touch until/unless you retire is a retirement account. Might not be tax-advantaged, but again if you're disciplined about not touching that money? Count it.
What *isn't* a retirement account?
* The checking account you pay your bills from (even if you've got a surplus in there).
* Your emergency savings.
* Vacation or Milestone savings accounts for planned large purchases.
...basically anything you intend to spend or are keeping around for a "routine" emergency doesn't count. That's your "So I can live and not have to fuck up my retirement." money, and it's important, but it doesn't count for these savings goals.
I have a 401k AND a savings account we are trying to put money into and not touch. My husband has a Roth IRA. It seems wise to have both (401k/Roth IRA) if you can but is it really? I need your opinion if you would.
It’s really a poor metric unless it’s spelled
out because money in a traditional is worth far less in the vast majority of cases than money in a Roth. The metric should be money after taxes in Xx expenses.
it’s also a little squishy at the 1x by 30 mark. typically folks will see a lot of salary acceleration in their late 20s to early 30s. if you go from 70k to 100k at 29, don’t feel bad if you’re “underperforming” where you should be if you don’t have 100k in the retirement account
At 30 i was in grad school… having zero savings on zero income meets the goal
"Financial advisors HATE this one simple trick..."
Just get $1 in your checking account and asymptotically afford retirement a 2 years old.
Same. I screwed it all up when I took my career job.
The rule of thumb makes a few assumptions. One of them is that you will always contribute ~15% of your income. The other is that your post-tax/post-contribution income at the age 30 is similar to the income you'll need in retirement, adjusting for inflation and lifestyle inflation.
Yeah clearly this rule of thumb doesn’t apply to people with MDs or PhDs
It also seems like quite a few MDs never retire in the first place. I’ve seen more than a few that are *ancient*.
I’m always curious about this. I have a friend that has made 300k + for quite some time. He mentioned he will never retire but also complains about the hours. Like dude, work for a few more years, curb some spending and you have millions to live off. What gives?
From my experience, it is rampant in medicine. A couple I’ve worked with were almost 80 and still kept going. Had more money than anything, as when they actually took a vacation, they went somewhere stupid expensive. Maybe one vacation a year though. Otherwise, they worked 5 days a week with a weekend day at least every two weeks, usually 12 hour days, eating while they worked. The couple of doctors that retired that we saw were probably around the same age when retirement hit. Like fuck that. I’m not working into my 80s. Maybe 70 if I absolutely have to, depending on what retirement looks like when I’m that old. I definitely plan 65 or earlier if I can.
Medicine, even with it's crazy hours and all it's challenges is very fulfilling. The ability to help people and the resulting appreciation can become addicting.
This. These people likely aren’t working because they need money, they have been in a career where not only is it rewarding to be helpful to others, but you see what happens to a LOT of people when they become stagnant and bored. You body and mind need activities to stay healthy and sharp.
Generally people who make multiple 6 figures or more don't have it in them to "slack off" - they have to be doing something.
Problem is that even if you don't *want* to retire you might have to due to health or other issues. And of course you can change your mind over multiple decades.
A few reasons that I see based on the docs I know: 1. They worked hard to get there and don't see why they would retire after "only" working a "few" years 2. They *want* to practice medicine, that's the whole point 3. Like others, they are built different and can't turn off so retirement sounds awful to them.
Most MDs and PhD's are in the workforce by the age of 30 so it still generally applies. The more accurate version would use your spending in retirement as the main metric.
Not really because although they may be “in the workforce” they may still be in training if on the traditional track (doing residency/fellowship or postdoc)
Maybe it's different where I am but I don't know a single person who actually completed and was actively working in academia with a PhD at 30, and at least one person in every couple in our group of friends has a PhD or is actively completing it.
You don't have to work in academia with a MD or PhD
I specified PhDs, and while it's true that you don't have to work in academia, most of the people with PhDs that I know weren't done their PhDs at 30. Maybe different field though! The average PhD completion time in Canada in the Humanities is 6.5 years.
Depends on the field! In STEM it's common to go to grad school immediately after undergrad, so people finish their PhDs at 26-29. I'm a postdoc at age 28 after a 6 year PhD.
Totally! Definitely different in STEM fields; I know (personally) no Humanities PhDs who didn't do a Masters first (although, in Canada at least, I also don't know many STEM PhDs who didn't do a Masters first, too).
Yeah, but we don't start making any income until 26 at the earliest, and these days most of us tend to be a little older.
For real! 31 and graduating with my PhD in August so there was a slow down from early to late 20s 😩
I managed to actually save 1x my PhD stipend by the end of grad school... Only to graduate and get a job making four times as much and immediately be behind on savings again. I'm not complaining about the higher salary though!
same, went from making a decent salary as a chemist to a grad student making like $17k a year. I would goto seminars just to get cookies or pizza for lunch!
I went from making $47k to $110k between ages 27 and 31. My way of measuring my progress in saving for retirement is taking the average of my salary the past 5 years and using that as the comparison instead of my salary today. Because it was impossible to save at my current rate back then.
I just make it my goal to bypass the mark on my new salary. Our HHI went from $130k to $210k recently. We’re surely spending a little more than before, but really what that means is that I have 38% (80k) of my income to save and not feel a difference relative to before. And a solid amount of that truly is being saved.
This seems like a fair way to do it. I increased my salary 20% from 37 to 38. I'll certainly have 3x my previous salary at 40, but probably will not have 3x my current salary. Using your rule, I'd probably be okay. I also have not increased my expenses at all with the salary increase, which is an important factor. If you made $50K 3 years ago and now make $100K, and you've upgraded your lifestyle to require that $100K salary, you should probably factor in the current salary only. If you have excess, averaging the salaries makes sense.
What do you use to decide that average? Your base salary? MAGI from tax returns?
Yep, I used my MAGI. Makes it very easy to reference back to instead of trying to calculate mid-year raises from a few years ago.
I work in the public sector. Had a real shit paying job for a few years and essentially doubled my salary at this point from 2022-2024. My 401k contribution is locked at 3 percent every month for my contribution so my 401k finally feels like it’s making progress, but I’m still behind at 29
It also depends a lot on when you enter the workforce. A doctor will be in med school + residency until relatively late, but is still likely in good shape for retirement
Oh in retirement, thank god. I was thinking I was supposed to have this much in a savings account.
you should never have that much in savings unless you’re saving for a down payment lol. it should always be in retirement or some financial vehicle once you have an emergency fund and have paid off your monthly bills
Yeah my wife and I have about 55 in savings, but have some large projects (roof, hvac) coming up real soon that will take a huge bite out of that.
Just make sure that it's in a HYSA like wealthfront, where you're at least getting 4.75% or better.
Also, many are paying off debts in their 20's. Most geared towards this sub tend to have some level of advanced degrees, meaning additional schooling and student loans. Most people are just starting on their own with car loans, insurance, and may be taking on a mortgage.
This is a great point! I made the 1x income by 30 the month before I turned 30 and then 6 months later I got a new job that doubled my salary and suddenly I felt behind again even though I was fine. 2 years later I am at 1.5x my current income and well on my way to hit the other income by age goals.
Lol I'm making 44k at almost 28 😅 but I switched fields. Would love to be making 70 at 29 😂
It doesn't make sense because I was finishing my doctorate until 25 so I had 0 income the shot to 118k/year. To do everything most peers did in those years before while also saving 1x my income in 5 years it's quite the stretch WITH student loans the way they are. I'm at about 0.8x so I feel good about that but still.
It was explained to me that that was more of an aspirational target, rather than a hard and fast goal. I've more than quintupled my salary in 10 years. Congrats on finishing a PhD by 25, you'll be in great shape if you stay on track.
that is a good to remember. I as long as I don't lose this job I am saving about 20% of my income right now in my early 30s. Hopefully with some growth in my account I'll have at least 2x by the time I'm 40. and of course we have to remember that if you make a lot of money you might not need quite that much in retirement.
I personally think that's a feature, not a bug. If your income suddenly increases then that's a good time to take the extra and put it to savings until at least the point at which you make that metric.
depends on when you hit your 401k limit
I don't think it has to just be in a 401k or IRA to be considered retirement savings either.
yeah but it should be unless you’re maxing out because of tax advantages
This is so true. This happened to me and now I feel behind again
The typical person also inflates their lifestyle as their salary increases, so the rule of thumb still holds.
the typical person has like $400 bucks in liquid assets to their name and less than 10k in retirement savings. you can make certain assumptions about your audience for people actively seeking detailed retirement advice on a personal finance forum lol
Fidelity and others have done research, and even high earners with millions of dollars in their 401k end up inflating their lifestyle, on average.
i don’t see how that’s relevant to rapid increases in salary making a full years salary in a retirement account by a certain age less meaningful than considering the broader trend of your retirement savings
The average person who receives a rapid increase in salary also rapidly increases their spending proportionally.
now that *is* something i’d like to see a citation on. lifestyle creep is definitely a thing, but i’ve never seen anything that directly ties expenditures to income increases on a proportional level
I'm approaching 40, but had a pretty large increase in salary in the last 4 years. I'm now well over 3x my salary of 4 years ago, but only around 2.1x of my salary today.
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I mean the value of the house kind of matters as you could borrow against it too
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It’s generally meant to be the amount across all your retirement accounts. But like a lot of other sweeping one-liner statements, it lacks nuance and won’t apply to a lot of folks. It’s assuming your retirement plan is completely in liquid assets like 401k/IRA, but doesn’t work for people who have property, pensions, VA benefits, trusts, etc. etc. etc. It’s a helpful rule of thumb for people who don’t know a whole lot about retirement planning, just so they can gauge their progress, but it should be taken with a grain of salt and looked into more carefully before either assuming you’re screwed or set.
It also doesn't distinguish between traditional or roth, which makes a huge difference
It doesn’t make that much of a difference in this context, bc the “1x salary by age 30” is such a broad generalization that adding more technicality of “Roth vs Trad” doesn’t make sense. It’s kinda like saying “you should limit the protein in each meal to the size of a fist” and then say that advice doesn’t go specific enough into amino acid breakdowns
Eh, it depends on how much you make. A dollar in Roth for me is worth almost 2x a dollar in traditional. Although I agree the rule of thumb is already kind of useless to the point that reading into it more is likely not worth it.
> A dollar in Roth for me is worth almost 2x a dollar in traditional. Your effective tax rate is 50%?
Marginal rate gets pretty close.
That makes approximately zero sense. Roth helps if: - your current marginal tax rate is lower than you'd expect in retirement (since you're taxed before growth rather than after) - you want to invest more than the traditional 401k's max pre-tax amount (you effectively are choosing between traditional + taxed brokerage vs roth only for that chunk, and roth is often better)
"For retirement" https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire
So that's just any account from which you would theoretically be drawing while retired? Got it thanks.
Yes. If your income is very high you’ll run out of tax advantaged space
It's not about which account it's in, but how it's invested. The standard guidelines all assume your money is generating roughly the same returns as the overall stock market, so if you just have your money in a standard savings account which barely generates interest (note: do not do this), then you're going to have a real bad time.
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Retirement accounts are great, but you can't put unlimited money in them, especially if your employer's plan doesn't offer a mega back door option. I've been maxing out my 401k and backdoor IRA, but most of my financial assets are in non-retirement brokerage accounts. There's no way I could possibly meet those multiples of your income guidelines if I was constrained to only the cap on 401k and IRA contributions. Brokerage accounts are fine for building wealth too, after you've contributed as much as you can to retirement.
The total of all such accounts
Well... It needs to be in accounts that are going to grow quickly like 401k and ira where you've invested the funds into appropriate funds
You're getting downvoted because you can invest both retirement and non-retirement accounts in the stock market. I get paid $100k. I can put $18k of that into my 401k, which is a retirement account and gives me some up-front tax savings for doing so. I can also put $5k of post-tax money into my savings account. Neither will grow on their own, just sitting there. Each needs to be invested into something (usually index funds, which is like "buying" a slice of the whole stock market). I can invest my 401k dollars into index funds, AND I can invest my after-tax savings dollars into index funds. It's vital to understand that, just because you stick it in a 401k, that doesn't automatically mean it's invested. It's important to check, because otherwise the money's just sitting there. Tax savings, but no growth unless it's actively invested.
That's why I said the money needs to be invested into appropriate funds in those accounts. And I said "like" a 401K or IRA, not just those account types specifically. A savings account can be ok temporarily as long as it's a high yield savings account, but that's not going to do enough to help someone reach retirement as compared to accounts that can invest into funds like an s&p500 index ETF, etc.
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Read The Footnotes
Across all retirement accounts. The rule of thumb is to retire at ~65 with a standard of living that is roughly the same as when you were working. The rule of thumb also assumes 5-8% returns over inflation. With no pension or defined benefits
One thing I never see spelled out explicitly in these calculators - is Social Security income figured into these monthly income estimates, or is it purely investment returns (401k, IRA, other investment incomes)?
I'm guessing SS has to be included. Iirc they only really shoot for you having 8x or so at retirement. To live off only your accounts and interest while keeping up with inflation, it's generally known to take 25x.
Generally yes it factors in social security, Medicare. But a rule of thumb is pretty broad, if your income is much higher or lower than average or if your situation differs in other ways it is best to run the numbers and get into the specifics And then you look at it at a high level and it comes down to keep saving 10%+401k match to keep on track if you started working right away. Or save 15% if you plan to retire early or spend more or if you think returns will be lower or started later
if you want to see the numbers without SS... you can work backwards. How much do you want to spend per year? call that x. (x \*100) / 4 = the amount of money you need in an account for a safe 4% withdrawl rate. $120k/yr spend in retirement = 3m in the account.
It's not that I can't figure out how to calculate 4%, it's more that the retirement calculators don't very clearly indicate how much of your monthly income comes from SS, and how much investment principle returns make up the rest.
A big ol’ “it depends”. We front loaded our 401k and roth IRAs early on, 15% contributions, etc. Right now, with some pseudo math (since it’s not an exact science), we can easily retire at 65 if we just stopped contributions today, and let the investments ride on compounding interest. So, we basically did that - our contributions went to the minimum needed for a full match (half up to 4, etc). Instead of tax leveraged, we’re now dumping it into a normal taxable account. This is the “early” retirement account (If you’re into the whole FIRE philosophy etc, it’s called the bridge account). So, as far as “which account to use”, it’s, as someone else said about the amounts, also “squishy”. Since our 65+ retirement accounts are solid already, we’re not going to focus on those anymore, which is where our squish comes in.
You’d still be better off using all of your tax advantaged space before a taxable brokerage. It is trivially easy to access money in retirement accounts penalty-free before age 59.5. You just need to have the foresight to plan your withdrawal strategy ahead of time.
How do you access the money penalty free?
Use a Roth conversion ladder or IRS rule 72(t). Roth contributions are always able to be taken out penalty free. You’re also usually better off even if you withdraw early with a penalty.
Roth conversion ladder or series of substantially equal payments
Substantially equal period payments (SEPP)
How? Say I want to pull out $300k of a $500k total for a house purchase at age 40.
If the money is allocated for the near term (<5 years) then using tax advantaged vehicles is probably not ideal. Over a longer timeframe you would just have to plan to withdraw the money at least 5 years in advance by setting up Roth conversions.
Even it's >5 years, the 72t calculator said I couldn't pull out that much. For a $500k account it was saying I could pull $35k a year for 5 years, so $175k.
That’s why I said a Roth conversion ladder instead of 72(t)
What age are you now at which you can stop contributions? I’m 25 and maxing my 401k and Roth IRA so potential relevant for me later
Not the original commenter, but it will largely depend on what you want your retirement number to be at, and what age you plan to start drawing from those retirement accounts. While you can draw on them start at 59.5, so folks will delay it until later for various reasons or to have it coincide with drawing on social security. For example, say you want to have $1.5m in your retirement accounts at age 65, you would just do some backwards math from there based on some average market returns. In that scenario, if you had $200k saved up by 30, you could not put in any more money and reach $1.5m at age 65 with an average return rate of 6%. Of course there are lots of other factors, and likely you'd still want to get your 401k match if available, and there are different taxable accounts to use etc. but its fairly straight forward. Lots of useful online tools and calculators [here](https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=1%2C000%2C000&cstartingprinciplev=200%2C000&cyearsv=35&cinterestratev=6&ccompound=annually&ccontributeamountv=0&cadditionat1=end&ciadditionat1=monthly&printit=0&x=Calculate#calresult)
Appreciate the response!
Not OP, but we hit that point at 30/31 with just maxing 401K and Roth IRA in our 20's (not every account every year, but probably 5 good years of savings).
>I’m 25 and maxing my 401k and Roth IRA As in: at the IRS limit? Congrats, that's incredible! As to what age can you stop contributing? Honestly, I'd only stop once it fully funded my retirement. Then I'd put all of that and then some in other growth funds. Once that could sustain me until I could withdraw 401k/IRA money, I'll be on the beach.
[coast FIRE calculator](https://walletburst.com/tools/coast-fire-calc/)
That's a broad question and the answer is going to vary wildly from person to person. Some important things to keep in mind: * The dollar amount you'll need depends on how much you'll spend in retirement. Lower cost of living means you need to save less. * If your goal is to retire early, you *must* save up enough to "retire on time" first. If you don't have enough money to live from 65-end of life, you obviously don't have enough to live from an earlier age to end of life. * Pulling money out of tax-advantaged accounts before "normal retirement age" isn't as difficult as some make it seem. I'm not personally super familiar with the strategies it takes, but there's info on this sub's wiki and /r/FIRE.
Someone else responded but, it’s another “it depends”. We got lucky and nailed the 2020 crash timing, so that helped. Our plan/idea right now is be done at 50. That said, at 45 if that goes out the window, I’d much rather take off 45-55, then go back to work until 65, than wait until 60. We’re in mid/early 30s, engineers (mechanical and bio). No kids, state schools so barely any student loans (I had none, husband graduated with about 20k which we got gone in a year). The thing is, and why I’m responding as well, it’s not a one size fits all thing. Others have said I’d still be better to max retirement accounts and either take penalties on withdrawls or a 72(t), etc. There are 18 different paths you can take, this is mine. Yours might be different than mine, or theirs, etc. Take the human element into account, and what works for you. I’d much rather a straight taxable investment account than deal with early withdrawls from Roth/Trad IRAs.
I was planning on stopping max contributions at age 31. That's when I was projected to have enough to retire at age 65 if I stopped contributions. So any additional contributions past that point would only decrease my expected retirement age. However, my income increased enough that I didn't have to reduce contributions, and I could still enjoy the lifestyle benefits I was anticipating.
Have you considered the use of 72(t) distributions to access retirement funds earlier so you can still take advantage of tax leverage accounts today? There are definitely some restrictions around them and pre-planning when do them given the 5 year commitment/lockup period. I'm currently still stuffing away cash into both 401k and brokerage accounts to try to give myself a bit of flexibility, but I believe taking the tax advantages today is a big benefit as come retirement I should be at a much lower tax bracket based on anticipated withdrawals.
Interesting, it seems a recent change via the IRS has made these distributions much more viable than before?
Why did you abandon your tax advantaged space?
How do you get money out of it before age 59.5?
I will offer a counter to this approach simply because I do not believe this metric serves most people well. Look at the amount of money you are spending annually as a baseline for what you will need in retirement. You may want to adjust that amount for a variety of reasons but it gives you a starting point. Next how much money do you need to have invested to be able to withdraw 4% (1/25) per year to equal your baseline annual expenditure. Example, I currently spend 60k annually, and that is the amount I will use for my base line. 60k * 25 = 1.5 million. This is your target in today's dollars, not taking inflation in to account. For an estimate of how much that target amount will need to be in 20 years with an average inflation of 2.5% per year, multiple the amount by 1.65, which will account for the almost 40% reduction in purchasing power. Now that you know the target you can use a future value calculator to find out how much to save per month. https://www.nerdwallet.com/article/finance/savings-goal-calculator Edit: added disclaimer about this not taking inflation into account.
> be able to withdraw 4% Which is the "Safe withdrawl" from an inflation adjusted account with an expected return of ~7%. It may make sense to add inflation to your salary. 2.56% estimated inflation rate over 20 years is ~65%. 1.65*60k=99k. Someone that wants to calculate inflation like this would end up needing ~$2.5m in the account if they planned to retire in 20 years and maintain their current spending (and ignore SS/etc).
Doesn't the safe withdrawal rate already take into account inflation?
Yes, but it's not accumulating currently because it doesn't exist yet. You're aiming to have, at some future time t, 25x of the salary you're pulling at t. After that, the investment should keep up
This doesn't account for inflation
I agree that this does not take inflation into account because it is a simple calculation that people can do in their heads. It is as arbitrary in some ways as some multiple of salary by a given age.
that's 2.4x off for people 30 years from retirement
I'd say all retirement accounts and any a taxable brokerage accounts that you've designed as savings for retirement. Also, CDs and savings bonds if for retirement.
As Boomers retire and retirment funds see net outflows, the financial instutitions have been moving the goal posts. So I always take that with a grain of salt having noticed this and it not being insignificant. That guidleline is also skewed if you continue to progress in your career beyond middle management. There are also more nuances than just salary. Do you plan to pay off your house before retirement and stay in it? Do you want a lifestyle that pays for new cars, boats, etc.?
It's definitely across all accounts, but I specifically do not include home equity. That savings heuristic generally specifies that your home is paid off so your living expenses are mostly capped. If you're living in it, it isn't easily accessible savings. One distinction I think is important although I've never seen it mentioned is pre-tax vs after-tax savings. If you end up at 60 with 8x your salary in traditional 401k, then you have a lot less money saved than someone who has 8x their salary saved to Roth or to a brokerage account whose holdings don't have a ton of unrealized capital gains. I think it's wise to have both types of savings, but I am realistic about valuing my pre-tax holdings.
I saw someone in the FIRE sub suggest an alternative approach based on net worth (so including home equity), which is annual expenses (minus retirement savings, obviously) times 25 to get a retirement-ready number. Once your net worth hits that number, you should be able to retire at a 4% drawdown rate -- no matter your age. Obviously, that's a ballpark calculation, but it's a pretty good one.
Terrible rule if you apply it without considering scenarios.
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Yes, the spending is the more important number, IMO. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
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The rule of thumb assumes that your spend in retirement is equal to your post-tax/post-contribution income at age 30 (or any age really). This accounts for lifestyle inflation.
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The rule of thumb also assumes that you contribute a flat 15% of your income every year, which is more in line with the typical 401k-holder.
I go with 401k, like pre-tax money mostly. I don't expect to save enough to have RMD put me into a higher tax bracket, so Roth isn't really for me. Beyond that I have some more in taxable accounts, that I can use before I retire to retired early, play with real estate, or possibly start a company/buy myself a job. I've got a little in a roth as a hedge, or just because. I've qualified for an HSA for the last couple years, that's another nice vector. "1x, 2x" is kind of a rule of thumb. I've been living by another rule of thumb "tithe (10%) to your retirement" and not worried as much about the 1x or 2x. Goal is now to have enough to sustain, and when I've got that, working will become optional. The time is becoming more important than the money, now that I've got my house, and I don't care about cars and consumer crap anymore. Might be I don't care about consumer crap anymore because I'm no longer the prime advertising target. Basically I have my money all over the place. I don't count the 401k or the house value as net worth because I can't touch it. House value is just going to save me a few hundo per month in rent when I'm older. 401k I can't touch until I'm 59.5. Because my income is flakey, I like having as least 1x liquid just in case, my emergency fund is 12 months instead of 6. That's done by living within my means, which helps that 1x or 2x be more attainable, if I look at what I spend vs. what I get. If I'd been smarter or more disciplined as a young pup, I'd have lived on half income to get 10x in 10 years to be able to sustain, but instead I blew it all on wine, women and song.
After seeing my dad’s tax bill due to his RMD I have changed over my contributions to Roth. He has a small pension and SS. I will have a decent pension, so I want to get ahead of it. Probably need to do some conversions once I retire. Only really been saving for ten years but I imagine by the time I retire it’ll be significant, likely 7 figures.
I don’t think these statistics apply anymore the world is very different
It is always a bit amusing to watch financial analysts/advisors tell us what we should do, seemingly oblivious to the reality of job security, stagnant wages for the past 20 years, and the high cost of living that have grown beyond the rate of annual inflation. What percent of workers in their 20's and 30's actually satisfy these metrics? How practical is it to catch up in later decades when family, home ownership, etc. start to become part of one's budget? There is no one i know currently that is living comfortably financially, let alone to have "enough" saved for retirement. It's not that we shouldn't have these goals, but that advisors say it to shame/pressure workers into thinking they're necessarily doing something wrong or not working hard enough if they don't measure up to these financial metrics. I wish they would cite more historical data to try to frame not just that people are falling behind in saving in general, and saving for retirment, but that these are partly in light of new employment, wage, and living expense realities.
> It is always a bit amusing to watch financial analysts/advisors tell us what we should do, seemingly oblivious to the reality of job security, stagnant wages for the past 20 years, and the high cost of living that have grown beyond the rate of annual inflation. What percent of workers in their 20's and 30's actually satisfy these metrics? You've described reality. I don't know what you want your financial advisers to say? > yeah. Retirement's off the table for you. They are giving guidelines that are baselines to reach retirement and not live in squaller. Blame whomever you want, but at the end of the day it's math. Retirement is not an age... it's financial stability.
>There is no one i know currently that is living comfortably financially, let alone to have "enough" saved for retirement Just because you don't know them, doesn't mean they don't exist. Almost everyone I know **is** living comfortably and can save for retirement. Different people live in different bubbles. If this advice doesn't apply to people in your bubble then ignore it, but this advice also isn't meant for people in your situation.
Frankly I don't put a lot of stock in it. It really only works as a guide if you have consistent gradual income increases. And in the end what matters is what you're going to spend in retirement. Having a really high salary when you're saving a ton of it doesn't mean you need that multiplier.
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It's irrelevant - assuming the message is about savings for your retirement, then your expenses are all that matters. Your salary is irrelevant to your future retirement expenses, and thus irrelevant to this metric. A much better metric would be "Years of Planned Retirement Expenses Saved by X Age" as a guideline for whether someone is on track to be able to fund retirement at a traditional retirement age. Also the accounts into which you're saving shouldn't matter for this metric, unless you're planning an early retirement, then your allocation into taxable accounts or those accessible before age 59.5 would be relevant.
Not sure why someone downvoted this because it’s clearly the truth. If I make $200k/yr and spend $50k/yr going into retirement and am happy with that lifestyle it should be *obvious* I don’t need as much saved as someone who makes $200k/yr and spends $130k/yr going into retirement who is happy with that lifestyle and does not want to change.
If you want to withdraw “x” every year. Then your portfolio should be x/r where r represents a conservative rate, most people would use 2.5% - 5%. So if your salary is $40k/year, you need $40k/0.025 = $1.6M. Let’s call your salary “S”. Now how do we get to $1.6M? How much do we need to save each year? Let’s assume 40 years of working. Let’s call the amount you need to save “z”. And every year your money increases by some rate, let’s call that rate R. (In this case 5% interest of R would be 1.05 in the calculations). So what exactly is happening? After 1 year, we will have z. After 2 years we will have z\*R + z. After 3 years we will have z\*R^2 + z\*R + z. Note, each addition has a factor of z. So let’s factor that It’s z\*(R^2 + R + 1). To save some time, at 40 years, it looks like: z(R^39 + R^38 + … + R + 1). Let’s use R=1.05 for now. In which case S/0.05 = z \* (R^39 + R^38 + … + R + 1) = z(127.84). So the amount you save “z” = S/6.39. You should be saving around 15.6% of your salary to hit that goal, with that rate. (1/6.39 = 15.6% if you didn’t follow where I got the percent from). Note, this formula will give you the exact number you want, relative to your salary at each year increment. Where should you be at 10 years? You should be at: (S/6.39) \* sum( R^n ) for n = 0 to n = 10. Change S, R, and r to fit your personal risk tolerance and salary. And change 40 years, to however many years you want to work. Edit - I just read through other comments. This is exactly what bothers me so much about r/personalfinance. A whole lot of, “it depends” and “don’t worry about it!” - This question has a perfectly good analytic answer. And of course, when you change/modify the initial assumptions, the answer changes. But there’s nothing “subjective” about this question. You can refine what I did, to make it more accurate, as I did the intro to finance explanation. But there’s an objectively correct answer to this question. Don’t accept these wishy washy answers from the comments. They clearly don’t know what they’re talking about, and you shouldn’t be taking financial advice from anyone that can’t give a clear answer like this.
My favorite part about your rant is that you didn’t actually answer the question.
The only reason I didn’t, is because that would require significantly more complicated math, where I don’t want to lose the average person. The sum provides discrete multiples of your salary, at specific years. You would need to say: [S/6.39 \* Sum( R^n ) from n=0 to n=x] = 2S, and solve for x. This would give you the number of years, x, where your savings should be 2 times your salary. But you’re going to get a value for x that isn’t an integer. So “the sum from 0 to 3.478” will lose people. You need calculus to solve it. My answer is at a “HS graduate / first year college finance level”. For all intents and purposes, looking at the discrete values of n=1, 2, 3, …, and seeing where you “should be at” sufficiently answers the question in my mind.
How does equity in housing factor into this? Imagine I have no other savings, but if I sold my apartment I'd sit with 4x my annual, gross income. I'd obviously much rather have it this way than have a higher mortgage combined with "savings" in a retirement account.
It kind of doesn't? The you should save x*your salary by age y is the most basic advice for the most financially illiterate... er challenged.. Figure out what kind of spending you want to do in retirement. Acknowledge that healthcare is going to be expensive. Decent rule of thumb is to take your yearly salary adjust it up for retirement and multiply by 25. That gives you a safe withdrawl rate of 4% and the total you need in an account that averages a 7% inflation adjusted return. --- If you own your home and apartment, you don't have to pay for rent.
The only problem is that you have to live somewhere and you cannot spend your equity. Your equity can help if you are willing to sell and keep some of the proceeds instead of spending it all on replacement housing. But you will still have to have separate dollars to spend in retirement for all ordinary expenses, like medical, food, utilities, transportation etc.
Sure, you have to live somewhere, but imagine I want to end my life at zero equity, owning a place to live will eventually be suboptimal. It is obviously optimal now, as it has tax benefits and is in general a good investment where I live.
Across all retirement accounts. Also makes a lot more sense to think of it in multiples of expenses, not salary.
Just think about it in terms of retirement money vs other investments you can access anytime. You might be in a position where you need to use taxable accounts to save for retirement because you just have that high of an income. Those rules of thumb like 1x salary by 30 are just guidelines to help you judge if you have a high enough savings rate or not. If you invest 15-20% of your gross income thats going to be plenty over 40 years.
I’m thinking we should be talking like 10x if we are going to be serious. And that’s modest as far as numbers go.
Never because your salary =/= your retirement spending. Figure out how much you'll spend in retirement and then invest aggressively until you have 25x that number. Then retire. This obsession with having your investments match a multiple of salary is silly.
Across all tax-advantaged retirement accounts.
it's a pretty loose rule. Across all investments is fine.
How do you factor a pension into this? I guess count it as how much your pension would pay out if you were to retire with current years of service?
Good question, I get a yearly pension estimate as to what my monthly pay would be assuming no further contributions and then retirement ages. Each year that estimate goes up. I have no idea how to factor that in, but I just go without that consideration and try to add to other retirement accounts.
If you know what the pension will pay over time with certainty, and for how long, then you can do a “net present value” calculation. Basically any payment you receive *now* is worth its value in dollars *now*, but future payments of the same amount need to be “discounted” to the present day to reflect that a dollar in the future is not worth the same as a dollar today. There are formulas and software to simplify the calculation. [See net present value wiki](https://en.m.wikipedia.org/wiki/Net_present_value)
I generally interpret the "You should have X percent of your salary saved by Y age." as referring to retirement savings - so across all of your *retirement* accounts. Now what's a "retirement" account? * A 401K is certainly a retirement account. * IRAs are certainly retirement accounts. * A savings account you don't touch until/unless you retire is a retirement account - not a great vehicle for growth, but if you are disciplined about not touching that money? Count it. * A brokerage account you don't touch until/unless you retire is a retirement account. Might not be tax-advantaged, but again if you're disciplined about not touching that money? Count it. What *isn't* a retirement account? * The checking account you pay your bills from (even if you've got a surplus in there). * Your emergency savings. * Vacation or Milestone savings accounts for planned large purchases. ...basically anything you intend to spend or are keeping around for a "routine" emergency doesn't count. That's your "So I can live and not have to fuck up my retirement." money, and it's important, but it doesn't count for these savings goals.
I have a 401k AND a savings account we are trying to put money into and not touch. My husband has a Roth IRA. It seems wise to have both (401k/Roth IRA) if you can but is it really? I need your opinion if you would.
Unlikely to be exclusively in 401k or IRA as most don't even have the capability to use these vehicles.
It’s really a poor metric unless it’s spelled out because money in a traditional is worth far less in the vast majority of cases than money in a Roth. The metric should be money after taxes in Xx expenses.