Are You Saving Enough to Retire?

No one needs a reminder that it’s tough to save for retirement. Many people don’t even try to figure out if they’re on track because they tell themselves, “Hey, if I need to, I can keep working after I hit ‘retirement age.’ ”

But only a small fraction of workers are able to keep pulling in a paycheck. In a survey by JPMorgan Asset Management, 67% of workers said they plan to work beyond age 65. But only 23% of retirees actually accomplished that.

So saving in advance remains crucial. But how large of a retirement nest egg do you need? And how can you tell if you’re on track for enough at various age checkpoints? Major financial firms offer guidelines.

Fidelity Investments suggests setting aside an amount equal to your annual salary by age 30 and twice your salary by age 35. By age 40, your nest egg should be triple the size of your pay. It should be quadruple by 45. At 55, it should be seven times. By age 60, it should be equal to your salary times eight. And by retirement at age 67, it should be 10 times bigger than your final working salary.

JPMorgan now offers a more nuanced set of guidelines. The aim is to help you track your progress in a way that reflects how much you will need in retirement based on your actual circumstances. How? Instead of one recommended salary multiple for each age checkpoint, JPMorgan’s recommended salary multiples vary, depending on how large your pay is.

Why different targets? The more you earn, the more you’ll have to fend for yourself in retirement. Social Security covers a smaller amount of your likely retirement income — and likely living expenses — the higher your income is during retirement.

If your pre-retirement income was, say, $50,000, you can expect Social Security to replace about 35% of it, John Sweeney, Fidelity executive vice president for retirement and investing strategies, told IBD earlier this year.

But if your pre-retirement income was as high as $300,000, your Social Security benefits will replace only about 11% of it.

JPMorgan says that by age 30 you need 0.4 times your annual household income if that income is $50,000. But you’ll need 1.1 times your income if that amount is $75,000. If your income is $300,000, you’ll need 2.4 times that amount.

At age 45, the income multiples for the same income levels are 1.8 for $50,000, 3 for $75,000 and 5.5 for $300,000.

At age 65, those multiples are 5.6 for $50,000, 8.4 for $75,000 and 14.2 for $300,000.

In determining whether retirement savings are big enough, JPMorgan assumes the nest egg must have at least an 80% chance of lasting 30 years in retirement and that your annual rate of return before retirement is 6.5% and 5% after retirement.