Retirement: Magic 8

When 'Eight' Isn't Enough - What's Your 'Magic' Retirement-Savings Number?

You are working hard to save for a decent retirement. So wouldn't it be nice to have a simple rule of thumb to measure whether you are saving enough? Last month, Fidelity Investments, the nation's largest provider of 401(k) plans, tried to do just that, offering up "eight" as the magic number: Typical wage earners, it said, should aim to save at least eight times their final annual pay to be sure they can afford basic living expenses in retirement. ... To come up with the formula, Fidelity had to make numerous assumptions. Its "typical" worker began saving 6% of his earnings at age 25, gradually increased that to 12% after six years and continued saving that amount each year until retiring at 67. (An additional employer match helped, too.) He earned about $40,000 in today's dollars initially and retired with annual pay just under $74,000. In addition, the savings grew 5.5% a year every year—or 3.2% after inflation—something that is impossible in the volatile real world, where investments soar one year and shrink another. Last, the model assumes the saver will start retirement by withdrawing about 5% of savings, a higher drawdown rate than the 4% usually recommended.
Comment: Seems like a daunting number to me. I wonder ... will we have enough? Being debt free is a plus.

1 comment:

  1. The typical worker invests 12% of his income in a retirement plan? I'd be really surprised.

    I'm at a "3" plus a paid off house. Now if I can get employed again.... :^)


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