One of the most important questions you need to answer when planning your retirement is how much money you need. The answer depends on many factors, from your potential life expectancy to your lifestyle to the amount of your Social Security contributions. However, according to Fidelity, there are four important guidelines that should be carefully considered when planning for retirement.
Consider working with a financial advisor when planning your retirement or updating those plans.
What Fidelity found based on when a person retires
Not surprisingly, the longer you work and save and the later you retire, the less money you need in your retirement fund. For anyone born in 1960 or later, the full Social Security retirement age is 67, with benefits decreasing if you retire earlier or later, for each year you spend collecting up to age Postpone for 70 years.
“The age at which you stop working can have a big impact on how much income you need from your own savings,” says Fidelity. “This in turn influences the values for other pension guidelines – savings rate, savings factors and sustainable withdrawal rates.”
This is what they found:
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Pension policies based on retirement age |
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|
Age at retirement |
Income replacement through savings |
Savings as a multiple of current income |
Savings rate |
Payout rate |
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|
62 |
55% |
14X |
25% annually |
3.9% |
|||||
|
65 |
50% |
12X |
19% annually |
4.2% |
|||||
|
67 |
45% |
10X |
15% annually |
4.5% |
|||||
|
70 |
40% |
8X |
11% annually |
4.9% |
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How Fidelity developed its retirement policies
To create its guidelines, the broker looked at annual savings rates, savings factors (savings milestones), income replacement rates and potentially sustainable withdrawal rates. “They are all interconnected, so it is important to keep them in mind and understand how they work together as you save for retirement and monitor your progress,” the brokerage firm’s report said.
Fidelity researchers assumed no retirement income, continuous employment (no layoffs), consistent wage growth, and contribution amounts increasing with wage growth. They have also stress-tested their guidelines to succeed in nine out of ten market conditions across a wide range of investment mixes.
Bottom line
To help people determine how much money they need for retirement, Fidelity researchers developed four guidelines: an annual savings rate, a savings factor, an income replacement rate, and a potentially sustainable withdrawal rate. These general rules of thumb can help you retire comfortably.
Retirement tips
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One way to get help planning for your retirement is to work with a financial advisor who can help answer all of your questions about retirement options. If you don’t already have a financial advisor, finding one doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors working in your region, and you can have free introductory meetings with your matching advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Check out our free retirement calculator to see how you can get closer to your retirement goals.
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