Am I saving enough?

A Benchmark for your retirement savings

Am I on track? Do I have enough saved to have a comfortable retirement? These are two of the most common questions I am asked when I meet with people to help review their accounts. This comes up often because there is no one size fits all answer to this question. The reason for this is that we all develop a standard of living based on the income we have.  Therefore, most studies that are out today use a factor based on income levels throughout ones career.  What I have seen with clients is that their first few years in retirement they still spend approximately the same amount as the net income they were receiving before they retired.  Fidelity recently published an article that stated we now have more 401k millionaires than ever before. They also estimated what a good savings amount would be for individuals while they are working. The chart below shows those details.

This chart bases the amount that you need to have saved on your current income levels. For example if someone earns $100,000/year then by age 67 they will need to have saved $1,000,000 towards retirement i.e.10x their income. Likewise, if at age 30 you earn $50,000/ year annual income you should have $50,000 saved towards retirement.  I believe looking at your net income is oftentimes a better indicator for what you will likely spend in retirement.  This chart tries to simplify the retirement income question by only looking at one factor, your annual income. This is also assuming that individuals spend to zero on the income they earn.  Looking at someone’s spending habits and health, amongst other things, would need to be taken into consideration.

So where do you stand on this benchmark? If you feel like you need to save more into your 401k to be on track, you may need to review your monthly cash flow and budget.  One key factor that can help to automate this process is to take advantage of an auto increase, saving 1% more each year, in your company retirement plan.  The other factor to consider is how your retirement account is invested, is it growing the way it should be? Are you receiving the appropriate amount of return for the risk you are taking?

Here is the link to the article: https://www.cnbc.com/2019/11/14/the-number-of-401k-millionaires-hits-a-record-high.html

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