That’s why advisers use rules of thumb to help people figure out how much money they should have saved when they retire, along with milestones they should aim for at certain ages along the way.
For instance, you may have heard at one time or another that it’s smart to save one times your salary by age 35. That is what investment firm Fidelity Investments used to recommend that people save when they’re starting out if they wanted to have reasonable financial security in retirement.
But now, Fidelity is saying, that’s not enough.
Now, the firm is recommending that people save one times their salary by their 30th birthday. By the time they’re 35, savings should add up to double their annual pay. By 40, a retirement account should hold three times a person’s salary. The numbers keep growing, all the way to age 67, by which retirement savings should add up to 10 times a person’s pay.
For people who have never stopped to think about how much income they’ll have in retirement or if they need to save more, this timeline could push some people to pause and do the math, says Jeanne Thompson, a vice president at Fidelity Investments. “I think one of the biggest questions people have, especially as they’re starting out, is “Am I on track?” she says.
The firm updated its guidelines last month to reflect a more conservative rate return that it says is closer to what might be seen for a portfolio that is at least 50 percent invested in stocks. The firm now assumes savings will grow by about 3 percent a year on average, compared to the previous model that assumed a fixed rate of return of 5.5 percent a year, including inflation adjustments.
The new rules are also meant to apply to a broader group of workers and savers. (The previous guideline was based on a person earning $70,000.)
Given how much Americans already struggle with saving, the numbers from Fidelity might hit some people like a punch in the gut. Too often, workers realize just years before they hope to retire that they don’t have anywhere near the amount of savings they’d need to pay the bills.
Indeed, more than half of people age 55 and up don’t have any money saved for retirement, according to a 2015 report from the Government Accountability Office. And about half of those people aren’t getting a pension, leaving them with little to no retirement income outside of Social Security benefits.
Still, this is just one guideline. And it is meant for people who plan to retire at 67 and who want to have their savings provide at least 45 percent of their pre-retirement pay. Those people who plan to work longer, or who expect to have fewer expenses in retirement, should adjust the guide to meet their needs, she says.
“It’s meant to give people some sort of a gauge and to get them interested and thinking about it,” Thompson says.
If this timeline scared you, use it as a prod to start thinking about what you could do to boost your savings rate. For starters, the guideline assumes that savers have been setting aside at least 15 percent of their pay throughout their careers, including any employer contributions. If you aren’t saving at least that much, that could be one target to aim for. If you can’t save as much as you want to at the moment, set it up so that your contribution rate increases automatically by one or two percentage points each year.
“This is the rule of thumb for the best-case scenario,” Thompson says. “Not everyone is there but the closer you can get, the more comfortably you might live in retirement.”
Correction: A previous version of this story misstated the share of a person’s pre-retirement pay that would be replaced if they met the savings targets.