What do you think of Fidelity's new retirement milestones

[JZinCO]

Fidelity came out with new guidelines for retirement. Previously, they suggested that you save 1x, 3x, 5x, and 8x of income at ages 35, 45, 55, and 67, respectively. Assumptions are that 15% of salary goes into retirement (3% from employer) from ages 25 to 67, salary climbs at 1.5% real, savings grow at 5.5% (arithmetic or geometric mean, nominal or real, IDK), 50/50 portfolio, and the retiree had earned 70K. Using the 4% rule (not sure what they used), means a withdrawal of $28K ann. Workable with SS, but I think many folks would be disappointed. If only it were that easy.

Now Fidelity says at age 67, you need 10x. Assumptions are similar except a 3% return, retirement lasted for 25 yr, and a withdrawal rate of 4.5% (or $31.5K ann. using our 70k income). They say this plan should lead to more desirable results for a broader income range (50K+).

Using the old rules, I could never get around to how saving just 8x income was workable for the average person. Let's say a household made the median income (call it 55K), so they save $440,000. They'd have to adjust spending from 48K before retirement to 18K using the 4% rule, less taxes. They now say that this 10x plan has a 90% success rate backtested.

I'm happy that now they are very upfront that this means a 45% income replacement rate, and that they are playing it more conservatively now.
As for me, I'll ignoring the retirement guidelines they constantly email me about and keep shooting for 25x expenses by retirement, though I assume a 5% real CAGR.

[Vilgan]

It doesn't hurt that it encourages people to put more money at Fidelity for longer. 8x income or 10x income is still obviously silly since its expenses that matter, but it works well enough as a general model.

edit> Poll options need a "they both suck!" option :P

[nereo]

I cross posted here:
http://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/retirement-advice-more-poor-advice-from-the-mainstream/?topicseen

Given that I chose to post it under the "antimustachian wall of shame and comedy" you can tell what I think about this latest advice. 

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

[nereo]

Oh, and to be fair, they do list guidelines for those who want to retire anywhere between 55 and 70. IIRC, to retire at 55 they suggest an ending multiple of 14x.

This I understand even less.  If you retire at age 55 they say you only need 14x your salary, but predict market returns of only 3%/year?  Prudence dictates your stach should last at least until age 90 (35 years) yet with such dire predictions for market returns I cannot see how their recommendations would allow for a WR of 4%.  Even using a WR of 4%, that's $30k in income for a worker with a $55k salary, and a 12 year gap between them and SS.
what??

[One Noisy Cat]

      The idea of saving relatively little in your 20s strikes me as being particularly bad. You want to get those little green fellows working for you as soon as you can. If there is one thing above all others that I would do differently if I could, it is I would start investing when I was 17 instead of 27.  Second biggest regret actually. First is not seeing Moe Howard in 1974.

     

[beltim]

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

Wait, what?  To get to 1x salary at age 30, that requires saving roughly 10% of your salary each year, assuming you start working at age 21, or perhaps up to 2 years later if market returns outpace salary growth.

[nereo]

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

Wait, what?  To get to 1x salary at age 30, that requires saving roughly 10% of your salary each year, assuming you start working at age 21, or perhaps up to 2 years later if market returns outpace salary growth.

Correct, I suppose I could have been a bit more clear and said "extremely little" instead of "little/nothing". 

[beltim]

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

Wait, what?  To get to 1x salary at age 30, that requires saving roughly 10% of your salary each year, assuming you start working at age 21, or perhaps up to 2 years later if market returns outpace salary growth.

Correct, I suppose I could have been a bit more clear and said "extremely little" instead of "little/nothing".

If a 10% savings rate is "extremely little" that makes 30% "pretty puny" and 50% "little," right?

10% savings for retirement each year over a ~40 year working career, plus Social Security, replaces the vast majority of salary for most people making less than ~2x the median wage.

The reason the old "save 10% of your salary for retirement" rule of thumb was so prevalent is that it works for the vast majority of people.

Keep in mind that these articles are written for people who want to retire at a typical age, not for people on this site.

[nereo]

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

Wait, what?  To get to 1x salary at age 30, that requires saving roughly 10% of your salary each year, assuming you start working at age 21, or perhaps up to 2 years later if market returns outpace salary growth.

Correct, I suppose I could have been a bit more clear and said "extremely little" instead of "little/nothing".

If a 10% savings rate is "extremely little" that makes 30% "pretty puny" and 50% "little," right?

10% savings for retirement each year over a ~40 year working career, plus Social Security, replaces the vast majority of salary for most people making less than ~2x the median wage.

The reason the old "save 10% of your salary for retirement" rule of thumb was so prevalent is that it works for the vast majority of people.

Keep in mind that these articles are written for people who want to retire at a typical age, not for people on this site.

It's 10%, but with a 3% annual return going forward... basically forever.
There seem to be two underlying messages:
1) you only need to save 10% of your income, and that's if you don't start saving anything until after college
2) expect only 3% growth over your lifetime.

I don't agree with either of those messages are good, especially for the 'typical worker'.   Coupled together the message could get even worse.  Suppose someone has been saving 10% from age 21 to 40 but we see the historical 7% returns - that person might conclude "hey, I'm oversaving" or "I don't need to save anything for the next decade!" Take it a bit further out until the person is 55 - they now have 14x earnings.  Is the conclusion "yay, I can retire"?

[beltim]

10% savings for retirement each year over a ~40 year working career, plus Social Security, replaces the vast majority of salary for most people making less than ~2x the median wage.

The reason the old "save 10% of your salary for retirement" rule of thumb was so prevalent is that it works for the vast majority of people.

Keep in mind that these articles are written for people who want to retire at a typical age, not for people on this site.

It's 10%, but with a 3% annual return going forward... basically forever.
There seem to be two underlying messages:
1) you only need to save 10% of your income, and that's if you don't start saving anything until after college
2) expect only 3% growth over your lifetime.

I don't agree with either of those messages are good, especially for the 'typical worker'.   Coupled together the message could get even worse.  Suppose someone has been saving 10% from age 21 to 40 but we see the historical 7% returns - that person might conclude "hey, I'm oversaving" or "I don't need to save anything for the next decade!" Take it a bit further out until the person is 55 - they now have 14x earnings.  Is the conclusion "yay, I can retire"?

I agree that 3% real is low, even for a 50/50 portfolio, but I don't think it's unreasonable for the next, say, decade or so.  It's just low for a 30-year timeframe.

And 10% is a nice healthy retirement savings rate if you want to retire after a normal career with ~70% income replacement for most incomes.  You can do the math to check this.

[franklin w. dixon]

In short; they recommend saving little/nothing in your first decade of adulthood, saving just 10% of your income from your 30s-50s (for the average worker) and assume a person will both want and be able  to work until age 67.  Their assumptions about future market returns (3%/year) are extraordinarily bearish.

Wait, what?  To get to 1x salary at age 30, that requires saving roughly 10% of your salary each year, assuming you start working at age 21, or perhaps up to 2 years later if market returns outpace salary growth.

Correct, I suppose I could have been a bit more clear and said "extremely little" instead of "little/nothing".

If a 10% savings rate is "extremely little" that makes 30% "pretty puny" and 50% "little," right?

10% savings for retirement each year over a ~40 year working career, plus Social Security, replaces the vast majority of salary for most people making less than ~2x the median wage.

The reason the old "save 10% of your salary for retirement" rule of thumb was so prevalent is that it works for the vast majority of people.

Keep in mind that these articles are written for people who want to retire at a typical age, not for people on this site.

It's 10%, but with a 3% annual return going forward... basically forever.
There seem to be two underlying messages:
1) you only need to save 10% of your income, and that's if you don't start saving anything until after college
2) expect only 3% growth over your lifetime.

I don't agree with either of those messages are good, especially for the 'typical worker'.   Coupled together the message could get even worse.  Suppose someone has been saving 10% from age 21 to 40 but we see the historical 7% returns - that person might conclude "hey, I'm oversaving" or "I don't need to save anything for the next decade!" Take it a bit further out until the person is 55 - they now have 14x earnings.  Is the conclusion "yay, I can retire"?

Yes?

[beltim]

And 10% is a nice healthy retirement savings rate if you want to retire after a normal career with ~70% income replacement for most incomes.  You can do the math to check this.

Yeah, that's not Fidelity's math though, just saying. They say save 15%, expect 3% return and get an income replacement of 45%.
I'm not saying your math is wrong, just that I think beltim and nereo are mixing different retirement "plans". (Struck out the last part because we are working with percentages here so income level is a non factor).

I was including Social Security in my 70% income replacement.