Fidelity Investments has issued a savings guideline suggesting that salaried employees save at least eight times their 'final salary' for retirement. Link to full article
The assumptions used are:
1. You have been contributing 12% every year towards your retirement for about 30 years
2. Your employer has contributed 3% for the same amount of time
3. You will earn an average 6% return on your retirement investments
If all these assumptions are true, then you will need to save eight times your last salary, if not, possibly a little more. For more details and a downloadable spreadsheet for retirement calculations, go to Plan For Your Retirement. The goal is to define a number($) to start with, on day 1 of your retirement
To live a 'middle class' life in the United States the mean annual income stands around $55,000. Please note the word 'mean'. It is the national average. If you happen to live in the NY /DC/LA metro areas, you will have to revise that up substantially, but on the other hand, if you don't mind moving to a low cost state or country after retirement, you can live with a lot lesser than that! The rule of thumb used by retirement calculators is that you will need about 85% of your final salary to maintain your lifestyle after retirement.
So, if you have an annual retirement income requirement of $ 68,000, brace up my friends, you can retire when you ARE a millionaire!
2 comments:
That is a useful one for those in non pensionable sector. Even there the calculations based on assumptions may go topsy-turvy at times of galloping inflation as at present.
I retired exactly 10 years back with pensionary benefits. Immediately after retirement I used to visit a nearby eatery for a tea and snack between breakfast and lunch as was the habit while in service. Now after 10 years the price of tea has gone up by 300% whereas pension remains static for ten years with sops coming in the form of dearness allowance @ 10 to 15% each year.
I think one has to ‘catch a falling star and put it in the pocket and save it for a rainy day’
uncle: you were still a little luckier than a lot of us that you had a pension and that too inflation indexed.
kitty: there is a book called the number which describes this...the magic number is 35x - 50x of your annual expenses (expense over here also includes all necessary emi's and recurring investments/insurance premiums annually)
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