Yet another article on how much you need in retirement so you can retire with dignity (and yes, "retire with dignity" has been trademarked by a certain 401k advisory firm! HA!). I am finally writing on this topic as it has bugged me 20+ years.
Fidelity offers a familiar retirement guideline: save one times your salary by age 30, three times by 40, six times by 50, eight times by 60, and ten times your final salary by age 67.
It is simple, memorable, and almost impossible to apply with precision.
But how am I supposed to know my final salary?
In 2000, I was earning $65,000 at Bank of America. My position was being eliminated, and I did not know what my next job would be. When a recruiter called me about joining T. Rowe Price, my salary increased to $85,000—an increase of roughly 31%.
If you had asked me a few months earlier what I would be earning in my next position, I could not have told you. I certainly would not have predicted a 31% increase.
Careers do not advance in a straight line. They include promotions, layoffs, career changes, bonuses, periods of self-employment, unexpected opportunities, and sometimes decisions to accept less money in exchange for more control over one’s time.
Projecting someone’s salary at 62, 65, or 67 by assuming a 3% annual increase creates a tidy number. It does not necessarily create a credible number.
Income is not spending
The larger problem is that salary does not tell us what retirement will cost.
Consider two people who each earn $150,000 shortly before retirement. One rents an expensive apartment in San Francisco and spends nearly everything earned. The other owns a mortgage-free home near Detroit, spends $65,000 annually, and will receive a pension.
Fidelity’s formula assigns both people the same $1.5 million target. Their actual retirement needs are plainly different.
The problem becomes more obvious at higher incomes. Under the ten-times rule, someone earning $600,000 would need $6 million.
Perhaps that person genuinely does need $6 million. A household maintaining several homes, household employees, luxury travel, and substantial family obligations could require that much—or more.
But many high earners do not spend everything they earn. A substantial portion may go toward taxes, retirement contributions, investments, college expenses, mortgage payments, and other costs that may decline or disappear in retirement.
At some point, consumption also begins to level off. There are only so many homes, cars, meals, clothes, trips, and possessions a person wants. Additional income increasingly becomes additional savings, charitable giving, or money left to heirs. It does not automatically become spending that must be replaced in retirement.
Lower-income households may need to replace most of their working income because most of it pays for necessities. Higher-income households may need to replace a much smaller percentage. A single replacement formula cannot adequately serve both.
Fidelity describes its rule as a guideline and acknowledges that retirement age and lifestyle affect the result. Used as a general checkpoint, it may be helpful. Used as an individual retirement plan, it is insufficient.Fidelity’s retirement guideline
When accumulation becomes the objective
Financial Samurai approaches the question from another direction. Its “401(k) Savings by Age Guide” suggests that someone might have between $1 million and $5 million by age 60 and between $1.5 million and $7.5 million by age 65.
Those figures are based upon assumptions that include starting work around age 22, maximizing contributions consistently, receiving varying levels of employer contributions, and earning returns ranging from 0% to 10%.
The table demonstrates what a determined maximum saver might accumulate. It does not establish what that person needs.
That distinction matters.
Financial Samurai is closely associated with the financial independence and early retirement movement, commonly known as FIRE. Someone seeking to leave conventional employment at 42 may need substantially more money than someone retiring at 67. That person could be financing 50 years without a regular paycheck rather than 25 or 30.
The familiar 4% withdrawal rule was developed around an approximately 30-year period. Extending it across 50 years introduces greater exposure to inflation, poor early investment returns, healthcare costs, tax changes, and simple uncertainty.Original Trinity Study
Access presents another problem. Most retirement-account distributions taken before age 59½ may be subject to an additional 10% tax unless an exception applies. Substantially equal periodic payments provide one possible exception, but they impose a restrictive schedule that generally must continue until the later of five years or age 59½.IRS guidance
A 42-year-old therefore needs more than an impressive 401(k) balance. That person needs accessible money to bridge approximately 17½ years, a plan for health insurance before Medicare, and sufficient flexibility to reduce spending if markets decline.
In practice, many well-known FIRE adherents have not stopped earning money. They leave conventional employment but continue writing, consulting, investing in real estate, operating websites, speaking, or running businesses. That may be financial independence and career redesign, but it is not necessarily retirement in the traditional sense.
Financial Samurai’s numbers make more sense when viewed through that philosophy. They make far less sense when presented as general standards for the average American.
A broader definition of security
The Aspen Institute’s Financial Security Program offers a third point of view.
Its “Essential Wealth” framework asks whether a household has enough wealth to absorb emergencies, own appreciating assets, pursue opportunities, and eventually retire with stability. It considers total net worth, home equity, retirement assets, debt, and liquid savings.
This is an important improvement. A family can have substantial home equity and a growing 401(k), yet remain vulnerable because it lacks enough accessible cash to survive a job loss or major expense. Wealth that cannot be reached readily does not solve every financial problem.
For households age 65 and older, Aspen illustrates an “emergent wealth” threshold of approximately $575,000 and an “essential wealth” threshold of approximately $775,000 for a couple without a mortgage. Its figures are tied partly to the Elder Index, expected longevity, and an additional health-related cushion.
These amounts stand in sharp contrast to Financial Samurai’s age-65 range of $1.5 million to $7.5 million. Aspen is trying to identify sufficiency; Financial Samurai is illustrating accumulation.
But Aspen does not entirely escape the problem of standardized benchmarks. For households between 40 and 64, it borrows from familiar income multiples. Its examples also rely upon national median income and housing values, which cannot fully account for the difference between San Francisco, Detroit, or rural Oregon.
Aspen acknowledges that its figures are illustrative, vary with household circumstances, and would benefit from more detailed state and metropolitan measurements.Aspen Institute’s Essential Wealth report
Every benchmark reflects its creator
No financial study is completely free of perspective.
Fidelity views retirement through the eyes of a company that provides retirement plans, investments, and financial services. Its emphasis is consistent saving over a traditional working career.
Financial Samurai views the subject through the FIRE movement. Its emphasis is aggressive accumulation, maximum contributions, multiple income sources, and freedom from conventional employment.
The Aspen Institute views wealth through the lens of financial security, inequality, and economic opportunity. It emphasizes structural barriers, racial wealth disparities, public policy, and the conditions households need to build lasting security.
Aspen is generally left of center, and that orientation influences the questions it asks and the conclusions it emphasizes. A more conservative organization might examine the same households and place greater weight on personal spending, savings behavior, education, family structure, and individual responsibility.
That does not make Aspen’s underlying data unreliable. Its work draws upon government and established research sources, including the Federal Reserve, Census Bureau, Social Security Administration, Federal Housing Finance Agency, Consumer Financial Protection Bureau, and FINRA Foundation.
The source data and the organization’s interpretation of those data should be evaluated separately.
Aspen’s perspective also adds something frequently missing from retirement discussions: not everyone has an equal opportunity to reach these benchmarks. Telling someone to accumulate ten times an uncertain future salary means little if that person lacks access to a workplace retirement plan, cannot afford to save, or repeatedly must use savings to survive financial emergencies.
Personal responsibility matters. So do the economic conditions in which people are expected to exercise it. A serious discussion of retirement security should be capable of recognizing both.
Start with the life—not the number
Retirement cannot be reduced to ten times an income we cannot predict, a seven-figure target designed for maximum savers, or a national wealth threshold built around the median household.
The proper number begins with the life someone expects to live:
- Where will the person live?
- What will housing cost?
- What debts will remain?
- What expenses will disappear?
- What will healthcare and long-term care cost?
- What income will Social Security, pensions, or continued work provide?
- How much flexibility will the household have during difficult markets?
- Is the objective retirement, financial independence, or simply greater control over one’s time?
Current spending offers a more credible starting point than final salary. We can estimate how spending may change, subtract dependable income, and calculate what the investment portfolio must provide. The assumptions will still be imperfect, but at least they address the correct question.
The Parting Glass
The question is not whether we have reached Fidelity’s number, Financial Samurai’s number, or Aspen’s number.
The question is whether our resources can support our retirement.