Retirement Saving Benchmarks for All Ages
February 03, 2014How did your team do in the Super Bowl? If you are a Seattle Seahawks fan (or at least pretended to be last night) the final scoreboard doesn’t tell a lie and your team was victorious in Super Bowl XLVIII (that’s 48 if you’re a bit rusty on the understanding of Roman numerals).
Wouldn’t it be nice if there was some type of scoreboard in our financial lives to help us track our progress when it comes to saving for retirement? (I know this probably wasn’t top of mind as you were going back for more pizza, wings, nachos, bean dip, tofu or whatever else caught your attention at the neighborhood Super Bowl party.) So how can we really tell if we are on track to meet our retirement goals?
This is one of the most common types of questions that we receive on our financial helpline. In fact, retirement planning consistently remains the top priority for the majority of employees completing a Financial Wellness Assessment. The best way to assess if you are on track to reach your retirement income goals at a desirable age is to run a retirement calculation.
A general guideline is to try to replace about 75-80% of your pre-retirement income to maintain your current lifestyle. The replacement ratio approach can be adjusted up or down depending on how you plan on spending your retirement. For example, traveling across the world may require more funds than simply living a frugal existence in a van down by the river like Chris Farley’s classic character from the old Saturday Night Live skits. If you are within 5 years of retirement you should take your planning a step further and complete an actual budget plan for retirement.
Running a basic retirement calculation is a simple process and this is a best practice financial planning activity that should be done at least once a year. But what if you just want to get a quick snapshot view of where you should ideally be at a certain age without running a retirement calculator? Well, if you are looking for some quick benchmarking tools you are in luck! Fidelity conducted a study estimating ideal retirement savings amounts at certain ages. In order to retire at age 67, someone would ideally want to have the following amounts saved at different ages.
35- 1 times salary
45- 3 times salary
55- 5 times salary
Voya uses a similar approach with its own Retirement Outlook tool. The projected retirement age is also 67 but the assumptions are slightly different. To calculate your income multiplier, it divides your total retirement savings (401k, IRAs, lump sum pensions, piggy banks, etc.) by your current income and compares that with where you should be.
Unlike Super Bowl scores, this isn’t a win or lose situation and financial freedom is not a game. It is a reality that we should all strive to achieve. If you aren’t on track, there is still hope for your retirement. You just may have to make some adjustments to your game plan. Even if you are on track, you should still run a few different retirement planning scenarios and stress test your plan with alternative retirement dates or lower than expected market returns to make sure your plan is flexible. Either way, you are in control and a little self-awareness in the form of a retirement scoreboard may serve as a good motivator.