Ordinary American workers should aim to save at least eight times their ending salary to replace 85% of their pre-retirement income and meet basic income needs in retirement, says Fidelity Investments.
To meet that goal by age 67, Fidelity says that workers should have saved about one year's salary at age 35, three times their annual salary at age 45, and five times at age 55.
"The two factors that have the greatest impact on retirement savings over time are starting early and saving consistently," says James M. MacDonald, president of Workplace Investing for Fidelity Investments. "Having age-based targets provide benchmarks to help retirement savers stay on track toward their ultimate goal."
Fidelity's 8X savings guideline is based on a hypothetical worker who is 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 end goal would include savings in all qualified retirement accounts, such as 401(k)s and IRAs, as well as other outside savings.
Fidelity's 8X saving guideline also makes the following assumptions:
The employee makes continuous annual salary contributions to a workplace plan beginning at 6% and rising 1% per year until it reaches 12%. In addition, the employee receives an ongoing 3% annual employer contribution during their career.
The calculation assumes a lifetime hypothetical average annual portfolio growth rate of 5.5%.
Social Security payments are factored into the replacement income ratio of 85%.
The employee's income grows by 1.5% per year over general inflation with no breaks in employment or savings.
Boston-based financial services provider Fidelity Investments had assets under administration of $3.7 trillion, including managed assets of $1.6 trillion, as of July 31.