Staying On Track: Age-Based Savings Guidelines

September 12, 2012 ( - Employees should aim to save at least eight times their ending salary to meet retirement income needs, Fidelity Investments suggests.

The new set of savings guidelines, designed to help workers evaluate whether they are on-track to meet retirement income needs, shows that an average worker may replace 85% of his pre-retirement income by saving eight times his ending salary. To reach this figure by age 67, Fidelity advises workers have about one times their salary saved at age 35, three times at 45 and five times at 55.

“The two factors that have the greatest impact on retirement savings over time are starting early and saving consistently,” said James M. MacDonald, president of workplace investing at Fidelity.

The 8X savings guideline is based on a hypothetical worker saving in a workplace retirement plan, such as a 401(k), beginning at age 25, working and saving continuously until 67, and living until 92. The ending goal would include savings in all qualified retirement accounts.

The guidelines also assume that the employee will make continuous annual salary contributions to a workplace plan beginning at 6% and escalating 1% per year until 12%, plus an ongoing 3% annual employer contribution; a lifetime hypothetical annual portfolio growth rate of 5.5%; Social Security payments are factored into the replacement ratio of 85%; and the employee’s income grows by 1.5% per year over general inflation with no breaks in employment or savings.

Kristen Heinzinger