The 8x retirement savings rule

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zratis
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The 8x retirement savings rule

Post by zratis » Wed Feb 18, 2015 9:39 pm

Recently I got an email from Fidelity about the "8x retirement savings rule", which is basically:

When you’re: Aim to have:
67 years old 8x your salary saved
55 5x
45 3x
35 1x

Is this realistic?

angelescrest
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Re: The 8x retirement savings rule

Post by angelescrest » Wed Feb 18, 2015 9:41 pm

They have been promoting that for a long time. It is more than the average American, but most people here would agree it's not saving quite enough unless you have a great, dependable pension.

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Re: The 8x retirement savings rule

Post by arcticpineapplecorp. » Wed Feb 18, 2015 9:46 pm

Realistic? It's possible. Those numbers are about where I'm at, but I started investing in my 20s and I'm not materialistic. Oh, and I had no debt coming out of college (bachelors paid by parents and assistantship for Masters). So that helped. Harder for those who started later, spent more, have other debts to pay. Make sure if you're comparing your situation to others, the comparison is fair/equal.

I've seen different numbers published. In fact this past weekend in the Parade magazine they had different figures, suggesting much much more should be saved at those same ages. It shocked me because I'm not anywhere near what that survey said. But then it's Parade magazine, not the Journal of Finance. :happy I have seen the one you reference.

I guess it depends on some other factors too. Like someone with a pension plus social security might need a smaller amount. I'm assuming those numbers are for those just planning on getting social security but nothing else.

What questions do you have about this "suggestion" (the word "rule" seems so restrictive)?

What percentage of your salary do you save? Can you increase that?
What is your stock/bond allocation? Are you taking enough risk, but not too much?
When did you start saving? Were you a "late bloomer"?
When do you plan to retire? (could be 70 or later, not necessarily 67)?
Last edited by arcticpineapplecorp. on Thu Feb 19, 2015 9:04 pm, edited 2 times in total.
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zaboomafoozarg
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Re: The 8x retirement savings rule

Post by zaboomafoozarg » Wed Feb 18, 2015 9:47 pm

Most retirees I know had about 4x or 5x of their salary at retirement, and are doing just fine. Not living extravagantly by any means (no out-of-state trips, no new cars, etc), but not lacking income for the things they need.

But people on this forum generally have loftier goals. I am shooting for 15x income (AKA 30x my living expenses) by the age of 45-50.

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Re: The 8x retirement savings rule

Post by lack_ey » Wed Feb 18, 2015 9:51 pm

If you're still working at 67 and have 8x income saved, as long as your actual spending rate is say half your income, that means 16x annual spending saved up plus SS to lean on, so you're probably good to go.

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Re: The 8x retirement savings rule

Post by wmspringer » Wed Feb 18, 2015 9:52 pm

Depends on when you start, I suppose I'll be 35 next month and I only have half a year's salary in my retirement accounts, but I didn't start seriously saving until 4 years ago. It seems very doable for someone who starts saving at 18.

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k66
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Re: The 8x retirement savings rule

Post by k66 » Wed Feb 18, 2015 9:56 pm

Are they saying 8X net or gross income?
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Re: The 8x retirement savings rule

Post by DFrank » Wed Feb 18, 2015 9:57 pm

I don't like rules of thumb like this that relate to salary as opposed to those that relate to anticipated or desired spending level in retirement. What you earn pre-retirement may not always be closely related to what you need/want to spend post retirement. As just one example, we save about a third of our gross income. Pensions are another variable that can affect this in a big way.

We're sitting at about 12X our earnings in savings, and while we feel reasonably comfortable about our financial position in retirement (coming up in 18 months or so), we don't feel like we've got lot's of headroom to play with.
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ginmqi
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Re: The 8x retirement savings rule

Post by ginmqi » Wed Feb 18, 2015 9:57 pm

IMO, that's on the low side. And it's most definitely do able.

Let's do some quick and dirty calculations.

Median US household income is about 52k last year.

8x 52k = 416,000

With a very quick and simply safe withdrawal rate of 4%, this is equivalent to $16,640/yr of additional income on top of other fixed income sources (SS, pensions, annuities, etc.)

Sorry but I'd want more than 16,640/yr of fun money on top of fixed income streams.

William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)

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Re: The 8x retirement savings rule

Post by DFrank » Wed Feb 18, 2015 10:01 pm

ginmqi wrote:William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)
Actually, I think he says you've won the game when you have 20-25X your residual living expenses saved. He defined residual living expenses as your retirement spending need less pensions and social security.

So as I noted above, this is a better rule of thumb that those based on your pre-retirement salary.
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Re: The 8x retirement savings rule

Post by DonCamillo » Wed Feb 18, 2015 10:32 pm

zratis wrote:Recently I got an email from Fidelity about the "8x retirement savings rule", which is basically:

When you’re: Aim to have:
67 years old 8x your salary saved
55 5x
45 3x
35 1x

Is this realistic?
No financial rule of thumb makes sense for everyone.
It depends on other circumstances.

If you have a pension and plan on working until 70 before taking SS, you will probably be fine.
If you plan on retiring at 67 with 8x salary, taking SS then, and have no pension? If you are good at LBYM, and plan to stay frugal, you may be OK, especially if you can live on your SS.
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Re: The 8x retirement savings rule

Post by randomguy » Wed Feb 18, 2015 10:38 pm

Fidelitys rule is based off some one making like 70k. They need ~50k of income (lower taxes, no need to save money). SS gives you like 24k. So your 560k needs to generate about 25k. Thats is in the ball park. The problem is the 8x number changes quit a bit with income. The low income person will find they need 0x. SS replaces all their income. The high income people need 20x+ because SS is such a small percentage. And off course it all depends on spending. Fidelity doesn't use that because people don't know what they spend. Most people though do have a good idea of their income.

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Re: The 8x retirement savings rule

Post by hoops777 » Wed Feb 18, 2015 10:50 pm

When will people have the common sense to realize having x times your final salary means nothing.What matters is how much you have saved and your expenses going forward.Why do you need a math formula that gives you a number that is useless? 8 x your salary could be 1/4 of what you need or it might be 3 times what you need.Why not 14 times or 22 times or 3 times plus 50 pct divided by 7.I just cannot believe institutions throw that out there.Maybe I make 80k and my expenses are 75 k and my brother makes 100k and his expenses are 25 k and my cousin makes 40k and his expenses are 25k.......hello
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Re: The 8x retirement savings rule

Post by investor1 » Wed Feb 18, 2015 10:55 pm

I think thinking about retirement savings in terms of gross income is the wrong way to think about retirement savings. It's more about expenses.

zratis
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Re: The 8x retirement savings rule

Post by zratis » Wed Feb 18, 2015 10:58 pm

k66 wrote:Are they saying 8X net or gross income?
I think it's gross, it doesn't state.

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Re: The 8x retirement savings rule

Post by randomguy » Wed Feb 18, 2015 11:12 pm

zratis wrote:
k66 wrote:Are they saying 8X net or gross income?
I think it's gross, it doesn't state.
It did in the article I read a while back. They walked you through the math. Again everyone who reads the article knows what they make. I would be shocked if most of them would be withing 20% of estimating their expenses.

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Re: The 8x retirement savings rule

Post by angelescrest » Wed Feb 18, 2015 11:29 pm

hoops777 wrote:When will people have the common sense to realize having x times your final salary means nothing.What matters is how much you have saved and your expenses going forward.
How are those unrelated? If one has 20-25x their salary, that's not nothing--that's more than enough to retire on. Not everyone can even accurately predict what their expenses are going forward, but they do know what they have been living off of for 30-some odd years before retirement.

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ginmqi
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Re: The 8x retirement savings rule

Post by ginmqi » Wed Feb 18, 2015 11:29 pm

DFrank wrote:
ginmqi wrote:William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)
Actually, I think he says you've won the game when you have 20-25X your residual living expenses saved. He defined residual living expenses as your retirement spending need less pensions and social security.

So as I noted above, this is a better rule of thumb that those based on your pre-retirement salary.
Ah I see, thanks for the clarification. Certainly a great goal to go for if one wants to have a fairly well retirement!

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Re: The 8x retirement savings rule

Post by zratis » Wed Feb 18, 2015 11:33 pm

I like basic rules. My rule would be save 10% until you're 40 and then max it out if you started saving less when you started working. If you didn't start your working life at 20 - 22 then max it out.

You'll forget their formula if you don't like thinking about investing.

So to get to 3x your gross salary at 45 from 1x at 35 I'd have to contribute 7% of my salary, earn 6% yearly return for 10 straight years.

What's the chance of achieving that if you aren't watching your investments, but you enjoy working on other useful things in the world? Why not advertise the 10% savings rate for retirement the rule?

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Re: The 8x retirement savings rule

Post by madbrain » Thu Feb 19, 2015 12:05 am

boroc7 wrote:
hoops777 wrote:When will people have the common sense to realize having x times your final salary means nothing.What matters is how much you have saved and your expenses going forward.
How are those unrelated? If one has 20-25x their salary, that's not nothing--that's more than enough to retire on. Not everyone can even accurately predict what their expenses are going forward, but they do know what they have been living off of for 30-some odd years before retirement.
Not really. I could take a lower paying job tomorrow and work part time, and I might easily have 20-25x that salary saved.
I would also have to quickly dip into those savings to live - I wouldn't be able to live on that salary, let alone save anything.

The cash flow is what matters. Income and expenses. Salary is only one component of income.
If you have 25x your predicted annual expenses saved, then yes, you can retire.
But 25x salary doesn't say much.

I have more than 8x salary saved, but that is still much less than 25x expected expenses that I need.
And yes, I'm cash flow positive - saving about 25% of gross income.
But there is other non-salary income. There is also currently debt, there is taxes, there are health issues.
All these affect the expected expenses.

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Re: The 8x retirement savings rule

Post by White Coat Investor » Thu Feb 19, 2015 12:17 am

The whole rule is flawed. It simply doesn't apply. When you ask the question of whether or not you have enough to retire, the question is how much you have vs how much you spend, not how much you make. This is similar to the stupid mistake the rule in The Millionaire Next Door that determines if you are a PAW or UAW makes. That rule makes doctors look terrible because they're 30 or 35 with a negative net worth and a huge salary and look like total slackers, despite the fact that they're absolutely normal for their particular career path. It gets even dumber if you're had significant salary changes recently. I've been stuck at 1-2X salary for years despite a blossoming nest egg because my income keeps climbing. But my expenses aren't climbing nearly as fast as my income.

It's not about the salary.

8X salary at retirement is only adequate if your expenses minus guaranteed income sources such as Social Security are less than 8/25th of your salary.
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Re: The 8x retirement savings rule

Post by ShiftF5 » Thu Feb 19, 2015 12:29 am

hoops777 wrote:When will people have the common sense to realize having x times your final salary means nothing.What matters is how much you have saved and your expenses going forward.Why do you need a math formula that gives you a number that is useless? 8 x your salary could be 1/4 of what you need or it might be 3 times what you need.Why not 14 times or 22 times or 3 times plus 50 pct divided by 7.I just cannot believe institutions throw that out there.Maybe I make 80k and my expenses are 75 k and my brother makes 100k and his expenses are 25 k and my cousin makes 40k and his expenses are 25k.......hello
I believe these companies suggest "X times your salary" because they know that most people just don't want to talk about it in any detail.

And most people will certainly not take the time to crunch the numbers and figure their expenses.

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Re: The 8x retirement savings rule

Post by g$$ » Thu Feb 19, 2015 3:14 am

I think it's realistic. Maybe not ideal, but realistic.

For context, Aon thinks retirees need about 11.0x pay at age 65, or 9.5x pay at age 67 [source]. So 8x pay doesn't seem that far off.

-g$$

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Re: The 8x retirement savings rule

Post by MossySF » Thu Feb 19, 2015 3:29 am

The average American retires with about $250K in assets of which $200K is in their house. With the average income at $50K, that calculates out to 1X retirement savings.

Hence 8X is way beyond what most retire with and whether 8X income is more accurate versus 12X expenses means nothing to this population of people. It's pointless for Bogleheads to get heated up about this since you guys are in the 11% minority planning out your finances in detail.

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Re: The 8x retirement savings rule

Post by basspond » Thu Feb 19, 2015 5:06 am

randomguy wrote:
zratis wrote:It did in the article I read a while back. They walked you through the math. Again everyone who reads the article knows what they make. I would be shocked if most of them would be withing 20% of estimating their expenses.
I agree but if they don't have a clue what they will be spending in retirement, most will not be able to accurately back into their SWR.

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Re: The 8x retirement savings rule

Post by pacodelostigres » Thu Feb 19, 2015 8:08 am

We have 11 years of expenses saved on a tax adjusted basis. It's only about 2x gross income, but I think expenses are clearly the relevant number if you LBYM. When you pay 25% of your gross in tax and save the next 45%, the 30% that's left probably matters a lot more. Especially when the income required to produce that amount in retirement will generate almost no income tax. (Our tax adjustment estimate is 15% average federal plus state tax. I don't think we'll actually incur a 15% federal tax on this amount, but it's better to be conservative.)

I don't know if I would be comfortable retiring tomorrow if I was at full retirement age. We're saving 2-3 years of expenses every year, with a target of about 35 years saved for early retirement. The goal is to have a year of expenses for every year we retire before age 70, plus 12 years. So we'd need 32 years of expenses if we retire at 50. It works out to about a 3% withdrawal rate during the early retirement years before taking SS. We anticipate SS covering about 80% of our needs. The growth on the portfolio in retirement should result in more than 12 years of expenses left at full retirement age, but it's the minimum goal if things go sideways.

Regardless, 8x isn't enough in my situation. I think it's highly dependent on what you plan to get from pensions and SS, and trying to apply a general rule is just futile.

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Re: The 8x retirement savings rule

Post by randomguy » Thu Feb 19, 2015 8:25 am

basspond wrote:
randomguy wrote:
zratis wrote:It did in the article I read a while back. They walked you through the math. Again everyone who reads the article knows what they make. I would be shocked if most of them would be withing 20% of estimating their expenses.
I agree but if they don't have a clue what they will be spending in retirement, most will not be able to accurately back into their SWR.
Believe it or not there are a whole group of people that are not anal retentive about their finances like the average boglehead. That is who the article is targeted at. And for what it is worth, most of those people turn out fine.

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Re: The 8x retirement savings rule

Post by dkturner » Thu Feb 19, 2015 8:35 am

ginmqi wrote:
DFrank wrote:
ginmqi wrote:William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)
Actually, I think he says you've won the game when you have 20-25X your residual living expenses saved. He defined residual living expenses as your retirement spending need less pensions and social security.

So as I noted above, this is a better rule of thumb that those based on your pre-retirement salary.
Ah I see, thanks for the clarification. Certainly a great goal to go for if one wants to have a fairly well retirement!
He also said at one time that if you have 20-25X your residual living expenses saved IN FIXED INCOME INVESTMENTS you could justify investing the balance of your savings in equities. To me that seems like a very sensible way of arriving at an appropriate equity/fixed income asset allocation for a retiree.

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Re: The 8x retirement savings rule

Post by Grt2bOutdoors » Thu Feb 19, 2015 8:38 am

Our minimum goal is 15x expenses plus Social Security. I estimate that Social Security benefits may be worth 70% of the current value by then, if it all shows up, great, if not I won't be surprised. At this point, I don't expect to retire in the state I'm living in simply because the taxes are just too damn high!! The goals listed by Fidelity, Aon, CRR @ Boston College, The Coming Up Short book are in my mind what I deem to be "aspirational" or "ideal". We all know the difference between reality and la-la land. Fidelity, Aon, CRR, the book - they live in la-la land. They should first be made to walk a year or two in the average American's shoes, then they can go on and preach how "you need this, you need that". Until then, I'm not paying any attention to those numbers.

I have to agree with EmergDoc on TMND - the calculations of a PAW, UAW and AAW are faulty when estimating net worth for folks who experience promotions, windfalls, etc. however, I think the calculations make plenty of sense for average workers who's income trajectory is much more muted. The fellow who gets 3% raises per year (though these days, those raises are more likely to be in 1% or none range), steady as she goes, should be using those calculations for ballpark estimates assuming they are of average health. If your health is fleeting, chances are your finances will be negatively impacted. Same if you lose employment and are unable to find suitable like employment elsewhere.
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Re: The 8x retirement savings rule

Post by angelescrest » Thu Feb 19, 2015 8:45 am

Grt2bOutdoors wrote: I think the calculations make plenty of sense for average workers who's income trajectory is much more muted. The fellow who gets 3% raises per year (though these days, those raises are more likely to be in 1% or none range), steady as she goes, should be using those calculations for ballpark estimates assuming they are of average health.
Which is by far the vast majority of folks.

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Re: The 8x retirement savings rule

Post by scifilover » Thu Feb 19, 2015 8:48 am

Given that the vast majority of folks have little saved, the probable purpose of this kind of communication is to motivate additional savings, and thus increase Fidelity's assets under management. For most of those who receive it, the 8x number will look like a very steep road. The more savvy persons, including Bogleheads, will have various reasons for discounting the advice, and continuing on their road to a secure retirement.

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Re: The 8x retirement savings rule

Post by Toons » Thu Feb 19, 2015 8:53 am

"the question is how much you have vs how much you spend, not how much you make"

Emerg Doc has it right. :happy
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Re: The 8x retirement savings rule

Post by Grt2bOutdoors » Thu Feb 19, 2015 8:54 am

scifilover wrote:Given that the vast majority of folks have little saved, the probable purpose of this kind of communication is to motivate additional savings, and thus increase Fidelity's assets under management. For most of those who receive it, the 8x number will look like a very steep road. The more savvy persons, including Bogleheads, will have various reasons for discounting the advice, and continuing on their road to a secure retirement.
I'm taking my folks advice given to me long long ago - "save what you can, when you can, don't take anything for granted, it could all be gone in a flash". Timeless advice.
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Re: The 8x retirement savings rule

Post by Grt2bOutdoors » Thu Feb 19, 2015 8:54 am

Toons wrote:"the question is how much you have vs how much you spend, not how much you make"

Emerg Doc has it right. :happy
You mean, it's not what you make, it's what you keep! :wink:
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Re: The 8x retirement savings rule

Post by cusetownusa » Thu Feb 19, 2015 8:56 am

zratis wrote:Recently I got an email from Fidelity about the "8x retirement savings rule", which is basically:

When you’re: Aim to have:
67 years old 8x your salary saved
55 5x
45 3x
35 1x

Is this realistic?
Depends...everyone's situation is different. If I were to retire at 67, 8x my salary in savings would be way more than I would need since SS would pay for a big chunk of my living expenses.

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Re: The 8x retirement savings rule

Post by Luv2savmoney » Thu Feb 19, 2015 9:03 am

I think that is fine.

People are very adaptable. People who spend a major chunk of salary when they are earning might be a bit shocked (or may be not if their expenses -> home & kids have gone down) but will adapt to the lower income coming from a combination of SS & 4% withdrawal from the retirement fund)

Infact #s such as these give me hope & encouragement

I started a bit late (around 28) and did not find bogle heads until 4 years ago.My only contribution towards retirement prior to that was 8.5% ( 5% and company match)

However since I found bogle heads, I have maximized 401K gradually and both our IRAs as well as contribute towards taxable. My goal is to hit the 8X number by 45 which is about 10 years from now. I will hit 2X likely this year. Goal is to retire/have freedom to make retirement a choice by 55 with home paid off, both of us in reasonable health & child through college. Hope I can make it happen on single income (approx. 100K now). If wife goes to work, we have a better chance of hitting that.

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Re: The 8x retirement savings rule

Post by KlangFool » Thu Feb 19, 2015 9:09 am

ShiftF5 wrote:
And most people will certainly not take the time to crunch the numbers and figure their expenses.
ShiftF5,

I do not understand this statement. It is easy to figure out a person's annual expense. Take the gross income, Take out the tax. Take out the savings. What is left is the annual expense. It is easy to calculate. As to whether people want to really know how much they spend, that is another matter.

Annual expense = gross income - tax - savings

KlangFool

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Re: The 8x retirement savings rule

Post by lolbatross » Thu Feb 19, 2015 9:13 am

EmergDoc wrote:That rule makes doctors look terrible because they're 30 or 35 with a negative net worth and a huge salary and look like total slackers, despite the fact that they're absolutely normal for their particular career path. It gets even dumber if you're had significant salary changes recently.
For dual income engineers transitioning to single income we get the opposite effect. With our income dropping it looks like at age 30 we are already at almost 5x. How does dropping income improve our retirement prospects? It doesn't. Do we have better prospects for retirement than young doctors? Probably not.

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Re: The 8x retirement savings rule

Post by Aptenodytes » Thu Feb 19, 2015 9:19 am

ginmqi wrote:IMO, that's on the low side. And it's most definitely do able.

Let's do some quick and dirty calculations.

Median US household income is about 52k last year.

8x 52k = 416,000

With a very quick and simply safe withdrawal rate of 4%, this is equivalent to $16,640/yr of additional income on top of other fixed income sources (SS, pensions, annuities, etc.)

Sorry but I'd want more than 16,640/yr of fun money on top of fixed income streams.

William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)
For a fair test you'd want to use median income of people just about to retire. Most people see their salary increase over time. And I'm pretty sure Bernstein says you've won the game when you have saved 25x your annual expenses after SS, not salary level. For people who have built up a lot of SS credits and have been saving high percentages for retirement, 8x salary might not be too different from 25x expenses. In my rough planning they just about match.

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Re: The 8x retirement savings rule

Post by beardsworth » Thu Feb 19, 2015 9:35 am

randomguy wrote:
zratis wrote:
k66 wrote:Are they saying 8X net or gross income?
I think it's gross, it doesn't state.
It did in the article I read a while back. They walked you through the math.
Here's the article. It refers to "8 times your ending salary." Surely that must mean gross salary, as different people have all sorts of different deductions. There would be no point in formulating such a general rule in the first place if it didn't refer to gross salary, since expenses (whatever they may be from one person to another) must come out of gross income during retirement just as they must come out of gross salary during employment. In any case, I don't know of anyone making, for example, $60,000, and taking home $45,000, who would answer "$45,000" if asked their "salary."

https://www.fidelity.com/viewpoints/ret ... nt-savings

To its credit, immediately after stating this recommended number, Fidelity lists a host of variables which affect the validity of this number for any specific individual.

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Re: The 8x retirement savings rule

Post by maroon » Thu Feb 19, 2015 9:50 am

I'm meeting this savings "rule", though I started saving for retirement at 22. I have a "regular" (not high-paying) job. So this rule of thumb seems realistic to me. No pension here.

I personally like rules like this, because I'm not overly involved in forecasting/actively managing my finances.

fourwaystreet
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Re: The 8x retirement savings rule

Post by fourwaystreet » Thu Feb 19, 2015 10:27 am

So if I have 46x my expenses at age 58 with access to resonably priced health care and a just over five figure pension already being collected I can get out of here?

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Boglenaut
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Re: The 8x retirement savings rule

Post by Boglenaut » Thu Feb 19, 2015 10:31 am

zratis wrote:Recently I got an email from Fidelity about the "8x retirement savings rule", which is basically:

When you’re: Aim to have:
67 years old 8x your salary saved
55 5x
45 3x
35 1x

Is this realistic?
Such rules are totally meaningless and I wish companies would stop promoting them.

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Aptenodytes
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Re: The 8x retirement savings rule

Post by Aptenodytes » Thu Feb 19, 2015 10:33 am

fourwaystreet wrote:So if I have 46x my expenses at age 58 with access to resonably priced health care and a just over five figure pension already being collected I can get out of here?
I presume you are just gloating and not really asking a question. The health care and pension are irrelevant because they are reflected in your 46x expenses. E.g. You could have zero pension and the most expensive health care on the planet, but if you had 46x your expenses you'd still be fine. Remember your commutative property. Whether you should quit working depends on your overall goals. But you don't need any more money to meet your own expenses.

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Aptenodytes
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Re: The 8x retirement savings rule

Post by Aptenodytes » Thu Feb 19, 2015 10:39 am

Boglenaut wrote:
zratis wrote:Recently I got an email from Fidelity about the "8x retirement savings rule", which is basically:

When you’re: Aim to have:
67 years old 8x your salary saved
55 5x
45 3x
35 1x

Is this realistic?
Such rules are totally meaningless and I wish companies would stop promoting them.
I have a different view. For people who don't have time to spend more than two minutes on the question, they provide useful feedback on whether or not they are in trouble. They are a kind of triage device.

For people who have more like two hours to spend on the question, these rules of thumb are set aside as worthless because they have replaced them with something better. But we should have empathy and understanding for the people who may be not ready or able to spend those two hours right now. I'm not going to tell them not to look at Fidelity's rule of thumb.

The above rule of thumb is perhaps analogous to a rapid cholesterol screening using a pin-prick and no fasting. If that's the only cholesterol screening someone is going to get, it has value. But for someone who gets a full serum workup after fasting, they can toss the pin-prick results.

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Re: The 8x retirement savings rule

Post by texasdiver » Thu Feb 19, 2015 11:13 am

A bit of reality check here with some round numbers for the average worker in the US which is what this is intended for.

Median personal income in the US for individual workers over 25 is about $32,000
The average social security benefit in 2013 was about $1300 which comes out to $15,600 per year

There isn't an exact correlation between median income and average social security benefit but that is as close as I can get without digging a lot deeper.

8x income for the median individual would be $256,000 which would spin off $10,240 per year at a 4% withdrawal rate and produce a total retirement income of $25,800 which is about 80% of their annual working income.

Most people here seem to think that retiring at 80% of your working income is reasonable given that one no longer has working expenses and is no longer saving for retirement.
Last edited by texasdiver on Thu Feb 19, 2015 12:08 pm, edited 1 time in total.

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Re: The 8x retirement savings rule

Post by texasdiver » Thu Feb 19, 2015 11:19 am

Aptenodytes wrote:
ginmqi wrote:IMO, that's on the low side. And it's most definitely do able.

Let's do some quick and dirty calculations.

Median US household income is about 52k last year.

8x 52k = 416,000

With a very quick and simply safe withdrawal rate of 4%, this is equivalent to $16,640/yr of additional income on top of other fixed income sources (SS, pensions, annuities, etc.)

Sorry but I'd want more than 16,640/yr of fun money on top of fixed income streams.

William Bernstein says you've won the game when you have 25x your salary saved. Sounds like a great goal to me! 8-)
For a fair test you'd want to use median income of people just about to retire. Most people see their salary increase over time. And I'm pretty sure Bernstein says you've won the game when you have saved 25x your annual expenses after SS, not salary level. For people who have built up a lot of SS credits and have been saving high percentages for retirement, 8x salary might not be too different from 25x expenses. In my rough planning they just about match.
First of all, the 52k is median household income. The median individual income for workers over 25 is closer to 32k and for most workers who are at or below the median, salaries do NOT increase much with age. It is really only white collar professionals who see a big increase in salary as they move up the career ladder. The average blue collar worker does not.

fourwaystreet
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Re: The 8x retirement savings rule

Post by fourwaystreet » Thu Feb 19, 2015 11:23 am

Aptenodytes wrote:
fourwaystreet wrote:So if I have 46x my expenses at age 58 with access to resonably priced health care and a just over five figure pension already being collected I can get out of here?
I presume you are just gloating and not really asking a question. The health care and pension are irrelevant because they are reflected in your 46x expenses. E.g. You could have zero pension and the most expensive health care on the planet, but if you had 46x your expenses you'd still be fine. Remember your commutative property. Whether you should quit working depends on your overall goals. But you don't need any more money to meet your own expenses.
Sorry if you mis-took my post as gloating that was not my intention. You are correct the health care cost were factored into my expenses, however the pension was not. My intention was to use the pension as a buffer for things that may or may not pop up (example roof replacement ect). I have been saving for many years and have been a boglehead for the last decade. I had a taste for retirement when I was out of work recently recovering and rehabbing from a total knee replacement and I liked it.

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Aptenodytes
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Re: The 8x retirement savings rule

Post by Aptenodytes » Thu Feb 19, 2015 11:40 am

fourwaystreet wrote:
Aptenodytes wrote:
fourwaystreet wrote:So if I have 46x my expenses at age 58 with access to resonably priced health care and a just over five figure pension already being collected I can get out of here?
I presume you are just gloating and not really asking a question. The health care and pension are irrelevant because they are reflected in your 46x expenses. E.g. You could have zero pension and the most expensive health care on the planet, but if you had 46x your expenses you'd still be fine. Remember your commutative property. Whether you should quit working depends on your overall goals. But you don't need any more money to meet your own expenses.
Sorry if you mis-took my post as gloating that was not my intention. You are correct the health care cost were factored into my expenses, however the pension was not. My intention was to use the pension as a buffer for things that may or may not pop up (example roof replacement ect). I have been saving for many years and have been a boglehead for the last decade. I had a taste for retirement when I was out of work recently recovering and rehabbing from a total knee replacement and I liked it.
Well the devil is usually in the details so you have plan carefully, looking at tax implications, cash flow, etc. But in gross terms it is hard to imagine that you aren't able to retire. If you really aren't sure construct a separate post outlining what you have done to figure it out, explaining where you are uncertain, and asking for guidance.

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Re: The 8x retirement savings rule

Post by bradshaw1965 » Thu Feb 19, 2015 11:49 am

ginmqi wrote: Sorry but I'd want more than 16,640/yr of fun money on top of fixed income streams.
But your lifestyle would have been based on median income. The FIdelity study assumes you want to replace 85% of pre-retirement income. You'll no longer be saving and let's throw in the assumption that you have a paid for house. I don't think you'd have substantial lifestyle changes.

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