Fidelity Investments has recently come up with a set of guidelines and benchmarks to insure you are on track to meet your income needs for retirement. In a post written back in March, Saving For Retirement: What is a Roth IRA?, I wrote about the importance of saving for retirement as soon as you get your first job. The guidelines that Fidelity has come up with drive that point home even more! According to James M. MacDonald, president of Workplace Investing at Fidelity Investments, “The two factors that have the greatest impact on retirement savings over time are starting early and saving consistently”. Here is a breakdown of Fidelity’s Age-Based Savings Guidelines.
The ultimate goal is to have eight times your annual pay when you retire at age 67. To do so you should try to hit the following targets:
- At age 35, you should have saved an amount equal to your annual salary.
- At age 45, you should have saved three times your annual salary.
- At 55, you should have five times your salary.
Hitting these targets is not an easy feat. Fidelity assumes you will begin saving for retirement by the age of 25 and you will continue to save, without any interruption until age 67. And that you start with an annual salary contribution equal to 6% of you pay. You then must increase your contribution by 1% each year until you are saving 12% of your annual income. They also assume that your employer matches you 50% up to 6% of your pay and your portfolio grows 5.5% per year. Social Security is also factored in.
Are you thinking what I’m thinking? Well I’m thinking “yikes!” But, don’t get discouraged. These guidelines are just that, guidelines. They are a rule of thumb that looks great on paper but in reality it would mean you start saving at 25 (which unfortunately is very uncommon in today’s economy) and save for 42 years with no breaks in income.
If you are not on track with Fidelity’s guidelines it is okay. These guidelines and all the other retirement savings guidelines out there should be used as a tool to see where you stand. They should not discourage you; they should be used to help you understand what you can and should be striving for when it comes to retirement savings.
Are you on track with fidelity’s guidelines? At what age did you start saving for retirement?