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Goal for retirement savings as a ratio of salary

Posted on 4/1/24 at 1:40 pm
Posted by Ramblin Wreck
Member since Aug 2011
3899 posts
Posted on 4/1/24 at 1:40 pm
I see these types of posts all the time, so why not one more? My total retirement savings goal has gone up quite a bit over the last few years due to inflation, primarily the increase cost to build a home where I plan to retire. My current view is that a good target is to have 20 times your income at retirement age. Meaning, if you retire at the age of 60 making $150K a year that you have at least $3M in a retirement fund. Lots of factors can influence that for each individual, but most people like to have a simple rule of thumb.

I'm curious how reasonable that sounds to everyone else.

Edit - It is quite funny to read the comments below. Either I didn't word my post very well or the vast majority of people replying don't understand what I am suggesting. It could be either since things sometimes sound better in my head than what I end up writing. I agree with what everyone is saying about doing actual planning versus a rule of thumb. I created a spreadsheet that I have been updating about once a week since the 1990's, so I definitely have been planning my budget, future income projections, expected return of investment, etc. It really is amazing that a 25 year old Excel file will still upload. The whole point to my post is if someone is looking for a ballpark amount they should have in savings to get an idea of when they can retire, I would recommend shooting for 20X what you expect to be earning when you retire. Yes, that requires you to be able to guess what your income will be 10, 15 or 20 years down the road if you are that far from retirement. It shouldn't be too difficult to make assumptions to calculate that. It's just a ballpark suggestion and not meant to replace actual retirement planning.
This post was edited on 4/2/24 at 6:45 pm
Posted by Tmcgin
BATON ROUGE
Member since Jun 2010
5150 posts
Posted on 4/1/24 at 2:01 pm to
I like this
I worry about this all the time and after I am gone
will there be enough?
Posted by SquatchDawg
Cohutta Wilderness
Member since Sep 2012
14351 posts
Posted on 4/1/24 at 2:25 pm to
Wouldn’t this be more of a function of what you bring home? After taxes, benefits, retirement, HSA, etc. I see about 50% of what I make….and that’s with a rental property and two teenage deductions.
Posted by turkish
Member since Aug 2016
1826 posts
Posted on 4/1/24 at 2:28 pm to
The only metric that matters is how much you will spend in retirement. While it may be difficult to k ow that with certainty, knowing your exact spend before retirement is a good way to estimate post-retirement spend. These days, that’s pretty easy to do. I recommend a budgeting app to everyone for this reason.

TLDR, why waste your time with the rules of thumb? How much does it cost to live pre-retirement? Use that with an appropriate factor up or down.
This post was edited on 4/1/24 at 2:37 pm
Posted by TorchtheFlyingTiger
1st coast
Member since Jan 2008
2182 posts
Posted on 4/1/24 at 2:41 pm to
Multiples of.income arent very useful. You could be spending 95% of income or 50% those would require entirely different retirement savings to replace.

A better rule of thumb is a multiple of projected retirement expenses minus retirement income sources (SS, pension etc). For a 4% safe withdrawal rate you'd use 25 x (expenses - retirement income)

Thus you'd need $1m for every $40k remaining expenses. More if the withdrawals are taxed.
Posted by baldona
Florida
Member since Feb 2016
20646 posts
Posted on 4/1/24 at 3:02 pm to
quote:

primarily the increase cost to build a home where I plan to retire.


I'm not sure I'd include this in a normal retirement savings. Retirement savings is usually for income.

You should hopefully have a good chunk of a home to sell also. But you also generally don't need as big or nice of a house in retirement as you do prior to when you retire. You may buy a bigger home, idk.

I also really don't understand why people completely plan on just having $0 in income. Lets go off of that $150k/ year. You and a spouse could both work part time jobs and make $30-50k a year very easily, no stress, and take all the vacation you could ever want. That for 2-3 years while you are young and active and capable and it gives you a lot of flexibility.
This post was edited on 4/1/24 at 3:05 pm
Posted by JohnnyKilroy
Cajun Navy Vice Admiral
Member since Oct 2012
35741 posts
Posted on 4/1/24 at 5:37 pm to
quote:

My current view is that a good target is to have 20 times your income at retirement age. Meaning, if you retire at the age of 60 making $150K a year that you have at least $3M in a retirement fund.


It should be based on how much you spend, not how much you made before retirement.
Posted by notsince98
KC, MO
Member since Oct 2012
18158 posts
Posted on 4/2/24 at 8:44 am to
quote:

My current view is that a good target is to have 20 times your income at retirement age


This makes no sense as it provides no target. My income has changed greatly over the last 15 years. Which year would I pick as the salary?

If it is supposed to be the salary you have right before retirement, how would you ever know what that salary will be in the future?

No matter how you slice it you will be living on a fixed income in retirement. Might as well start to figure out now what your planned expenses will be. Then figure out how much discretionary spending you want to have access to. At that point, determine what % of fluff you want and then go.
This post was edited on 4/2/24 at 8:45 am
Posted by Fat Bastard
coach, investor, gambler
Member since Mar 2009
73784 posts
Posted on 4/2/24 at 2:47 pm to
WHAT ARE YOUR EXPENSES GOING TO BE?

DO YOU WANT POSITIVE MONTHLY CASH FLOW TO COVER EXPENSES OR WILL U DRAW DOWN A LUMP SUM?

Posted by RoyalWe
Prairieville, LA
Member since Mar 2018
3210 posts
Posted on 4/2/24 at 3:42 pm to
I don't subscribe to this line of thinking. Do you know your current spending? Can you forecast how that will change over time? Can you put placeholders for major expenses (car, roof, air conditioner, etc.)? Can you make assumptions about how things that are important to you will impact finances at different stages of your life (e.g. travel)? Sure, you may not get this 100% accurate, but you can get it good enough to assess your ability to fund it.

People just live differently. Adopting a specific ratio of salary may work for some, but also goes off into the weeds if your income skews one way or another.

Personally, if I'm thinking about retirement then I'm DOING THE WORK to identify what I expect as expenses into the future and I'm using that -- not some ill-tuned ratio that doesn't work for everyone.
Posted by ShermanTxTiger
Broussard, La
Member since Oct 2007
10921 posts
Posted on 4/2/24 at 8:22 pm to
The Mrs and I approaching that age. Our 401k isn't 3 million but we both get a pension. Our pension payments plus SS taken at 62 will almost meet our current budget. We just need to hit 62. I am 59 and she is 56.

Our formula is different. The present value of our annuities come to about 3 million.

Every situation is different.
Posted by Gorilla Ball
Member since Feb 2006
11872 posts
Posted on 4/2/24 at 9:24 pm to
Here are Fidelity's age-based milestones you can use to track your progress:

By age 30: 1x your income

By age 40: 3x your income

By age 50: 6x your income

By age 60: 8x your income

This is only a guideline from fidelity
I plan on retiring in the next year and will use the 4% withdrawal rate
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