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Many retirement articles list how much you should have saved by age, in multiples of your salary. However, they don't explicitly state whether they are trying to base the multiple off your original salary, or your salary at the time you hit a given age.

  • 1x salary by age 30
  • 2x by 35
  • 3x by 40
  • 4x by 45
  • ...
  • 10x by 67.

For example, suppose you're earning $50k annually at age 30, and get a 3-4% raise every year so you're earning $60k by age 35. By age 35, is the intention of the advice to have $100k saved, or $120k?

It seems like it would have to be the latter if for no other reason than because of inflation.

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    The rule of thumb I've most seen is 25X the amount you wish to live on. So if you intend to spend $40k/yr you'd need $1M. If you could get by on half that only $500k to retire. It assumes a 4% withdraw rate, which has been shown to be sustainable in all but the most extreme circumstances. It also doesn't take into account pension or SS benefits (if any).
    – topshot
    Commented Jan 28, 2019 at 15:14

2 Answers 2

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These rules of thumb are always based on the amount you are making when you are that age. This makes sense becasue for most people they will need an estimated percentage of their final salary to be able to support their lifestyle into retirement.

It is debatable if 10X of the final salary is enough, but it is clear that 10X of the original salary is not enough. If a person starts at 30K and ends at 100K under the 10x of starting pay interpretation the goal would be retirement savings of 300K versus retirement savings 1,000K if the rule is 10x of final pay.

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    your salary is a reasonable proxy for your expenses. Not that you spend all of it, but people who make twice as much as you probably spend twice as much as you on "essentials". And the same for people who make half what you do. The real outliers are those who make twice what you do but spend less than half. You don't hear much about them, but their calculations are quite different indeed.
    – Kate Gregory
    Commented Jan 26, 2019 at 16:10
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Set formulas like this really give a false sense of accuracy for retirement planning. The variability in future returns, inflation, and expenses is high enough that it overwhelms any differences in formulas like that. To give you an idea of just how much the variability in those factors affects retirement, you can model the growth of an investment portfolio at 8% over a retirement planning timeframe, then model the income that savings can provide for a certain number of years. If you simply change the return from 8% to 7% it causes a fairly drastic change in the income stream. Changes in inflation are another thing that can have a much greater impact than any salary multiplier formula could account for. As are losses in the early years of retirement. All of these factors also would lead to those salary multipliers being too low for a reasonable chance of achieving a retirement income that is a reasonable percentage of pre-retirement income.

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    I don't necessarily disagree, but this doesn't really answer the question.
    – glibdud
    Commented Jan 26, 2019 at 22:27

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