There are a lot of variables that play into determining whether or not you’re on track in terms of having enough saved up for retirement. Some of them, such as your savings rate, how early you start, and how long you work can be controlled, but others, such as how long you’ll live, and what the state of the market will be when you retire are significantly less certain. All of these variables complicate the question “am I saving enough?” but for simplicity’s sake, we’ve created a quick table based on research by a respected retirement expert, Wade Pfau. The table shows what multiple of your current income you should have saved based on how old you are and what percent of income you expect to save each year for the rest of your working years.
For example, consider a 45-year-old who plans on saving 5% the rest of her working years and currently makes $100,000 – she should have 4 times her current salary saved up (4 X $100,000 = $400,000 saved up) for retirement if she hopes to retire at age 65. For someone who hopes to retire earlier, as you can probably imagine, the numbers would be higher. You may have also noticed that the numbers converge the closer you get to retirement. This is because the closer you get to retiring, the less time you have left to save for retirement. These last years are also prime years for earning compounded returns. It’s also important to note that the closer you are to retirement, the less helpful general rules-of-thumb are. It’s always a good idea to look into building a financial plan based on your actual savings and needs at least 5 years prior to your anticipated retirement to make sure you really are on track.
A version of this article first appeared on this blog May 22, 2015.
Pfau, W. (June 29, 2011). Getting on Track for Retirement. retrieved from: retirementresearcher.com/getting-on-track-for-retirement/