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Of course, it doesn't matter which state you would like to retire to if you don't have enough money to support the lifestyle to which you've been accustomed. Different experts have different opinions as to how much you need to fund a decent retirement. While this may seem like a simple question, there are many variables involved in getting to an answer. These include when do you need to begin saving? How much could you save every year? When exactly will you retire? What will your investments return?
How you answer these questions and some other key ones, will impact whether or not you will be able to reach your retirement savings goals.
A rule of thumb
According to Fidelity Investments, there is a rule of thumb that can simplify matters. It's to save at least eight times (8x) your ending salary to help keep from outliving your savings during 25 years of retirement. Does that multiple seem very daunting? Relax. You won't have to save that 8x right from the start. Instead, you could step up to it over the course of your working life. As an example of this, Fidelity suggests that by age 35 you should be saving 1x of your current salary, then 3xby age 40 and 5x by age 55. It suggests that if you set up clear goals linked to your salary you can simplify your planning and know whether or not you're on track throughout your working life. It's especially important in today's work place to have such guideposts due to layoffs, longer life expectancies, job switching and escalating health care costs that can complicate what you need to save for retirement.
How did Fidelity get to 8X?
If you're wondering how Fidelity got to that 8X? It started with a hypothetical worker that had an average income and a willingness to save and invest. From there, it evaluated what salary multiple of his or her ending salary that worker would need at retirement to cover his or her estimated retirement expenses. Based on these assumptions, that hypothetical worker would have to save $577,000 by age 67, which would be about 8X his or her ending salary. This is the amount of savings that would cover $51,636 a year in spending, which is that worker's estimated annual expense in today's dollars – assuming an income replacement of 85% and subtracting an estimated tax obligation over 25 years in retirement. In this example, the worker would have actually saved $639,236 by age 67 which would be more than the 8X goal and would provide a nice financial cushion.