Save at least 8 times of your ending salary

My previous article looks into the retirement income replacement, and from various sources, I get the idea that 80% of the income replacement seems to be the rule of thumb. I still have a question unanswered: should I use my starting salary or my ending salary for this income replacement?

Here is my situation.

My current salary is around $70,000, and if I still stay in academia in the next 30 years, I predict my ending salary will be around $120,000. This makes a huge difference in retirement income replacement. If I use $70,000, then my goal is to live with my annual expense of $56,000. If I use $120,000, then the number changes to $96,000. Which one should I pick?From my research online, Fidelity has a different perspective:

To simplify matters, we’ve created a rule of thumb: Save at least 8 times (X) your ending salary to help increase the odds that you won’t outlive your savings during 25 years in retirement. If that multiple seems daunting, don’t fret. You don’t need to save 8X from the start. Rather, you can step up to it over your working life.

For example, by age 35, Fidelity suggests that you should have saved 1X your current salary, then 3X by 45, and 5X by 55. “Setting up clear goals linked to your salary can help simplify your planning, and help you determine if you are on track throughout your working life,” says Fidelity Executive Vice President John Sweeney. “Having such guideposts is particularly important in today’s workplace, where layoffs, job switching, longer life expectancy, and escalating health care costs can complicate your efforts to save for retirement.”

retirement saving

retirement saving

Since I started my saving when I was 35, I am 10 years behind the schedule. If other things hold constant, that means my goals are:

  • saving 1x of my current salary when I am 45
  • saving 3x of my current salary when I am 55
  • saving 5x of my current salary when I am 65
  • saving 8x of my ending salary when I retire at 77(!)

If I use my predicting ending salary of $120,000, then I have to save $960,000 for retirement!

That’s a lot of money! I think I am done of the day because of this overwhelming number!


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