As financial advisors, we've encountered one burning question that seems to resonate with almost every client: "Am I on track for retirement?" This concern is universal, transcending age, profession, and income brackets. Today, I want to delve into this topic, guided by Fidelity's recent study* on age-based retirement savings benchmarks, and explore how these guidelines can be tailored to fit your unique financial journey.
Understanding Fidelity's Retirement Savings Benchmarks
Fidelity's study is a beacon for many, offering clarity in the often murky waters of retirement planning. It presents a series of benchmarks based on your age and salary, giving a clear framework for where you should ideally be in your retirement savings journey. For instance, at age 30, you're expected to have saved an amount equivalent to your annual salary. This benchmark scales up with age, reaching ten times your salary by age 67.
While these benchmarks are invaluable, they are not one-size-fits-all. They serve as a starting point, a reference to help gauge your progress. But your financial narrative might dictate a different path.
The 4% Rule Demystified
A cornerstone of retirement planning is the 4% rule. This guideline suggests that withdrawing 4% of your retirement savings annually should sustain a 30-year retirement. It's based on historical stock market performance and includes provisions for yearly inflation adjustments. However, this is not a rigid rule. Market volatility and personal circumstances might necessitate adjustments, and in some cases, a higher withdrawal rate might be sustainable.
The Underrated Power of Social Security
Often underestimated, Social Security remains a vital component of retirement income. Contrary to popular belief, Social Security is not vanishing. It's expected to be a reliable income source, especially for those over 40. It's projected that about 55% of your retirement income could be covered by Social Security, with the remaining 45% coming from your investment portfolio.
Personalizing Your Retirement Plan
Each individual’s retirement journey is unique, and influenced by various factors like student loans, family responsibilities, and geographical choices. For example, a physician who starts earning a substantial income later in life due to prolonged education may not fit into the standard age-based benchmarks. Similarly, if you're supporting family members financially or planning to retire in a region with a lower cost of living, your savings strategy might look different.
Three Critical Numbers for Retirement Planning
To truly personalize your retirement plan, focus on understanding three key numbers: your income, your projected retirement age, and your estimated retirement expenses. These figures are the bedrock of a tailored retirement strategy, helping you navigate the complexities of saving and ensuring you’re on track for a comfortable retirement.
Your Path, Your Retirement
Remember, retirement planning is not a one-size-fits-all journey. It’s a personal path filled with unique challenges and opportunities. The benchmarks and rules provide a roadmap, but it's your circumstances, goals, and dreams that will ultimately shape your journey to a fulfilling retirement.
About The Author
Alchemist Wealth is led by the expertise of Andrew J. Tudor, CFP®, RICP®, CAP® and Fred Tudor III, AFC®, MBA. Alchemist Wealth serves clients as a fiduciary specializing in providing fee-only financial planning, investment management, and retirement planning services. With over 2 decades of combined experience in financial services, Fred and Andrew bring a wealth of knowledge and personalized solutions to meet your financial goals.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
Alchemist Wealth, LLC is registered as an Investment Adviser with the State of Ohio and only provides advisory services in states where registered or otherwise exempt from registration. All information provided herein is for educational and informational purposes only and should not be viewed as investment advice. Any links to third party information or data are believed to contain accurate information at the time of publishing.