CyclingDuo wrote:What do people think of Fidelity's simplistic approach of "how many times your annual income to have saved" along one's path as a guide?
It seems to make sense as a nice guide, and the article talks about hypothetical adjustments (retiring earlier or later; spending more or spending less in retirement than you did in preretirement years).
I'm sorry, but I consider it simplistic (bad) rather than simple (good). IMO, basing retirement needs on a multiple of income is, sorry to be blunt, stupid. An obvious example: my wife is making much more money today than a few years ago. We were well positioned for retirement then, are we now behind? Stupid.
A multiple of expected net income requirements (i.e., the expenses after SS and pensions) makes sense as a heuristic. It is simple, but probably good enough. I personally prefer using ESPlanner.com's software (I don't use the free online version), as I like to see what the Monte Carlo shows.
Do Monte Carlo simulations include Black Swan events? We've used the simulations at Fidelity, TIAA, Vanguard, and seen it displayed for us in a consultation as well.
T.Rowe Price uses a similar "take 30 seconds to measure your progress" along the path using pretty much the same formula as Fidelity (a multiple of your current salary), and the same assumptions (you start at age 25, save 15% per year, keep a 60/40 balance).
Many other simplistic views say you'll need 70-80% of your pre-retirement income each year to maintain a similar lifestyle in retirement
. Others throw out the oft seen simplistic "you need 25 X your expenses". Of course, we all know at age 25, 35, 40, 50, etc... it's nearly impossible to predict what our expenses will exactly be at age 65, 70, 75 compared to age 25 - 50 (or whatever earlier age we are talking about). The reason we ask all of this is we are in our 50's and going through the check up process, trying to guesstimate expenses 10 - 15 years from now.
JP Morgan asset management uses a different multiple based on your income...
To us, it seems the simplistic element of the Fidelity/T.Rowe Price/JP Morgan, etc... covers the reality that one is most likely living "within their current salary" and will automatically adjust their lifestyle along the path from age 25 - 65 to remain "within their salary" throughout their working careers. Thus when you get to the retirement age and are living "within your salary", that will simply continue. Hence the multiple of savings based on that salary, when combined with the pensions, Social Security, and average rate of return on the investments at retirement may seem overly simplistic, but how complex does the calculation really need to be?
We've currently got 13.79 X our income set aside, but have 10-12 years to go until our desired retirement age (one of us will also have a pension, and we both plan on receiving SS when we hit the appropriate ages).