Fidelity's Rule of 45% | How Much Do I Need To Have Saved Up To Retire?

[@BaozhaiDongmei]

Retirement isn’t an end goal, but a journey best secured by careful and consistent investments.,..

[@ChengHao03]

Retirement is the reward of disciplined investing over the long term, not just a destination.

[@Magdalena-u7l]

My adviser guided me through retirement planning, ensuring my investments were strategically positioned for long-term rewards.

[@JunlaiAiguo3c]

Mind if I ask you to recommend this particular coach you using their service? Seems you've figured it all out.

[@Magdalena-u7l]

Nicole Anastasia Plumlee can't divulge much. Most likely, the internet should have her basic info, you can research if you like..

[@jhernan11]

Been a w2 employee all my working life and have gotten to the point where I make good money, but I'm still searching for the vocation that intersects at the corner of my passions and my talents. Once I find it, I don't see myself retiring. It's unfortunate that I'm having this epiphany at 50 instead of 30, but better now than at 70. Great vid!

[@littlered4122]

Please keep working so you, and a million others, can pay the 10K a year into the Social Security Program on "Earned Income". I on the other hand will have about 30 years of Saturdays in front of me :) and I THANK YOU.

[@tomj528]

Beware, often turning your interests and hobbies into a business steals the joy you have for your passions.

[@joycewright5386]

I always lived beneath my means and now after being retired 6 years I find I only need social security. I still haven’t touched my savings.

[@michaeltorrey3603]

It’s the same for me. Except when I needed a new roof. And new AC.

[@hogroamer260]

Been retired 6-1/2 years and still haven't touched my Social Security!

[@hanwagu9967]

retired for 11 years and still haven't touched savings or soc sec, granted I'm not eligible for soc sec any time soon. Power of having a sugga momma

[@prw956]

Same here. Haven't pulled the trigger on retirement yet, but I'm close. I can live on about 60% of what the SS will pay out. I won't need to touch the 401k money and in the meantime it will earn a minimum of $1000 monthly by just sitting there in a MM fund,...more if I apply a higher earning (but more risky) fund to it. Will probably do something part-time or a "side gig" to keep busy rather then lay around all day. My family history has most men dying in their 70s,...I plan to retire at 62-63

[@tomunderwood4283]

Do something fun!

[@AusValue]

Thanks Erin, I will now retire

[@kshitiz06]

I was not hitting my target. So I switched to a lower paying job, and now I meet the target. Yay.

[@JonesFamilyRanch]

Excellent video. For me, a couple of years from retirement, I am most worried about inflation and conversations that State taxes (CA) may rise in the near future. I’m not as concerned with CPI inflation as much as I am with residual, or indirect, inflation. Direct CPI inflation will result in indirect (lagging) inflation with via higher wages and costs tied to local taxes, utilities, transportation cost, health care costs, etc. In my humble opinion, in today’s world, this is the most overlooked aspect of retirement planning. Otherwise, I have put a stake in the ground and expect to retire at age 62.

[@khadijasajid457]

I was pleasantly surprised to find that you're familiar with her as well. I've had the privilege of working closely with Jenny Pamogas Canaya over the past few months, and she has not only helped me earn substantial profits but has also been an exceptional mentor and trader. Her ability to navigate various market situations is truly remarkable, and I couldn't be more satisfied with our collaboration..

[@bill7481]

Erin, through your delivery, your use of graphics, your nonjudgmental aura, you make financial information very digestible. Thank you!

[@ErinTalksMoney]

Thank you so much!

[@bill7481]

@@ErinTalksMoney You’re quite welcome!

[@kirklandphil]

I 100% agree.

[@dstevens518]

Best thing about Erin is her focus on the meat and veggies of finance, stuff that matters and makes a difference. Income, budget, save, invest, repeat, compound, voila! You've arrived on Easy Street!

[@CheckThisOut77]

Good overview. She is right, you don’t need to replace ALL of your pre-retirement income. My income got cut by 65% upon retirement but I was at the top of my income game and have no debt; and all is working out. I was living below my means for many years.

[@hogroamer260]

My income at retirement was cut 50%. After 4 years retirement, I cut it by 50% again. So, my retirement income is 25% of when I retired. Think we are in agreement, it's not what you make, but what you spend.

[@josephstevens9888]

I plan on stepping away from the workforce the first half of 2026. At that time I'll be age 63. My financial planner and I worked out a plan that with my investments, social security, and pensions, I should have more than enough to retire at my current lifestyle (which is fairly conservative). I like the milestone Fidelity 45% rule. I'll have to share that with the young ones in my life. Thanks for another great video Erin, I hope all is well!

[@CheckThisOut77]

‘Sounds like you have done your homework. As you know, retiring “early”at age 63 will create a need for health insurance until Medicare kicks in.

[@jdgolf499]

Thank you for the comment at the 6:00 mark. These are all great ways to estimate needs, but the only true way to determine needs, is to know your expenses! That is what dictates what is needed in retirement, not what you made before! Also, you talked about Social Security, which, as you said, is a major part of retirement planning. I will need to support almost 100% of my expenses in retirement for 4 years, until I collect SS at 67, my FRA. At that time, my withdraw rate from my investments would drop to about 2%. Three years later, when my wife starts collecting SS, I wouldn't need to withdraw anything. Knowing your expenses will allow you to plan more accurately. A lot of people save more than needed, missing out on life during their working years, because they don't understand expenses and SS.

[@ryebread447]

You sound like you're all set

[@johnsode17]

Except, you'll need to draw the Required Minimum Distribution when you reach 75

[@jdgolf499]

​@@johnsode17 Yes, but that can be reinvested.

[@JeanPierreWhite]

Maintenance of lifestyle tends to assume you are spending most of your income. Not quite living paycheck to paycheck but similar. In my last few years prior to retirement I was saving over 50% of my income. I maxed out my 401k and HSA's and saved cash in the bank from my net income. To continue our "lifestyle" really depended on just 50% of my income. That's the number you should pay attention to. Just focus on your monthly expenses (be truthful with yourself) see what Social Security will contribute then you know what's left. The tough part is trying to estimate longevity. This can make or break your plan and there is no easy formula to getting this right.

[@rawhideslide]

Erin,II love how you stress concepts vs rules. Talking to the concepts is like teaching how to fish. This is exemplified with your rounding of numbers while talking. I have seen so many quote numbers to such detail that the listener forgets the topic of the sentence. It shows how much you care!

[@guzzi95]

Being out of debt totally has allowed me to live off of my S.S. checks. I am still able to add a little each month to my money market account for back up. These videos must be for people that are still making payments each month.

[@shawnbrennan7526]

When I was young, (24), I built my own excel spreadsheets to calculate what I needed to save each year to reach my retirement goals. I set up a pre-retirement earnings percentage, a post-retirement earnings percentage, and a conservative inflation rate. I never counted on a pension nor social security. While the numbers were kinda scary at first, that put me (and my future wife) on the right track towards aggressive savings. Bottom line: learn enough excel so you can understand what is really behind some of these “rules of thumb”.

[@galens2543]

Great insights. I do kind of hate the phrase ‘rule of thumb’ though, have you ever looked into the origin of this phrase? 😬

[@IanHillan]

This is the best overview I've seen in how to determine retirement needs. Thank you.

[@ErinTalksMoney]

That makes me so happy to hear!!

[@DoubleTFishing]

I’m planning to step away next year at 61, the withdrawal strategy is staggered and flexible with a small pension. The fidelity rules are pretty aggressive and a great target but I think it’s worth taking a hard look at early retirement before 67 based on health and joy. Aggressive saving until 67 leaves 4-7 active year’s remaining in the workforce

[@macmcleod1188]

You can't get back time with your grandchildren. I retired at 51 and it was life changing for me and my grandsons. By the time I'm 64, they will be gone except a couple days per year. And you can't get back healthy years on physical vacations (surfing, skiing, playing sports). And you can't get back the emotional joy of doing charity work for years instead of working at a job that gives you nothing emotionally. Keep in mind, you don't pay taxes or social security on money you take from savings. And you can do a roth conversion from 401k to roth tax free (but it takes 5 years). It is *highly likely* you will die by age 82. And (from experience) there are great stepdowns in energy and wellbeing at 43, 53, and 63. I'm more tired and more prone to pain at 63 than I was at 53 than I was at 43. Keep an eye on your health-- many people get a health condition that will kill them by 72 still keep working til 67. My mom retired at 62- never regretted it. I retired at 51- I'm 63. No regrets so far. My life is so much better as a result of retiring. And I've developed side gigs doing things I love.

[@cindyhenry1410]

@@macmcleod1188what do you do for health insurance before age 65??

[@macmcleod1188]

@@cindyhenry1410 The ACA covers you until medicare starts. You live off savings (just like if you were laid off instead of retiring). You can earn some income without messing things up but you won't be jetting around the world. Had friends who were laid off at 59-61 and they never found work. So they did it without planning to do it.

[@randolphh8005]

We retired over the last 3 years. Lots of good and poor suggestions out there, but I think you made some good points. We had good earnings over the years, so will have a nice Social Security income($7k for combined). We have a modest portfolio. We are spending WAY LESS, than while working, despite traveling 12-15 weeks per year. My suggestions are no debt or mortgage, a rational budget, seek value. Don’t save too much at the cost of having fun while young! Don’t keep working to save more than you need. What costs go down? Almost everything like taxes, contributions, car expenses, clothes, food and eating out, health care(maybe a wash), travel(way cheaper with a flexible schedule), maintenance(can do more yourself). As Erin said, projecting off expenses is way more rational than projecting off of income. We are under 30% of our pre-retirement income, and are having way more fun. To be fair we enjoy nice things, but not into luxury living or travel, we prefer average cost experiences. We did some luxury travel while working and not necessarily bad, but just not worth the minimal increase in amenities for the 2-3 times increase in cost.

[@BrianNC81]

Not having a mortgage and living in an area with low property taxes sounds like a huge win. Our home will be paid off a couple years before I hit 50 but I'll probably keep working until 60. Maybe I'll leave the corporate world in my mid-fifties and do something more fun.

[@srt8turboawdjeep146]

bravo

[@DrMaryVision]

That was a really succinct and common sense comment. Thanks!!

[@honzasgarage5125]

The issue with fidelity calculations is that it completely ignores your current savings rate. So if you have a higher savings rate, it shows you actually need less than you currently make

[@amandascharf3870]

If you have a high savings rate, then by action you DO need less than you currently make. You are already able to live on less. If you want to drastically increase your spending rate at retirement, then obviously the numbers don't work out. But most people only have a handful of go-go years upon retirement and then each year after that tend to spend less and less--because they aren't able to go and do as well due to physical limitations.

[@hogroamer260]

Loved your disclaimer that numbers should probably be calculated based on expenses versus salary. That is the reason, although the chart says Social Security will make up 27% of my retirement income, it will actually be 100% with a health buffer beyond.

[@nealkt]

At around the 6 minute mark, you make the point for me which hits the nail on the head - and detracts from the whole '45% rule' completely (i.e., you should probably be calculated based on expenses versus salary). I would never utilise a 'you need X percentage' of your pre-retirement salary - it makes no sense to me. If I did that - I would end up working longer, needlessly. My salary at retirement (53) was far beyond what I need in retirement (almost half of 45%!). But of course, that highlights the points people have indicated here - we're all different, and have different salaries and expenses in pre-retirement and retirement. I think anyone like Fidelity pushing a single number 'rules' is engaging in marketing 101, whereas your qualifier Erin (calculate your needs based on your expenses) should be THE 'rule' (replace 'rule' with guiding principle) 🙂

[@ryanmcmilin5267]

I loved seeing those numbers from fidelity. Very helpful guideposts as someone who is still 25-30 years away from retirement.

[@bradtrades]

For most people, a few factors that will make a big difference in retirement is having their house paid off, and not carrying loans/leases on automobiles. If you don't have those major expenses, life is a lot easier. And, you sleep better too.

[@martinrbookermb]

I totally agree, im approaching 50 and over the last few years have worked on paying off all debt. I've paid off my mortgage and am now debt free. I don't intend to take on any more debt burden. Knowing you don't have to find money for rent or car payments is a huge factor in one's sence of well-being. If I need a car I will buy one that runs well with my savings. Paying off debt in retirement is the last thing you want.

[@niceguydmm]

100% facts! Thats what I did and have zero dept since 55. I'm 58 and will retire at 62 with around 2300 in SS and roughly 200K in saving. Got to live some before I leave this planet. Stop living like your rich and you can retire without a million dollars like they keep saying.

[@martinrbookermb]

@niceguydmm Yep If people live a lavish lifestyle when they are working then it is going to be real tough to try and keep that lifestyle in retirement unless they have millions saved. I have everything I need and can afford to buy anything that needs replacing. I mean how many cars/sofas/Tvs are people going to need after retirement? I have no idea what these people are spending the money on? They must buy crap every single day. They don't have money problems thay have shopping addictions.

[@solacemusic242]

Erin, thanks for the super clear explanation! I am 63, and am doing better the most Americans, according to the studies you quoted (house paid off, 6 figure income, about 8x salary in 401k, no debt). But with our current budget, we should end up with more income than our bills. (I will also have a pension along with SS). The thing we are going to have to deal with though: my wife is 9 years younger than me, so when I retire, we will have to find health insurance for her until she hits 65. Have you ever done "Erin Talks Insurance for couples where one spouse is retired and the other is not""? 😀 Folks have recommended ACA, but I think my retirement income will be too high for ACA? Thoughts?

[@Lew114]

This would indeed be a great topic. To me, health care is the most confusing part of retirement planning.

[@geebeeinga]

Same boat, couple of years behind you, but no debt and house paid off. Health care coverage is THE primary consideration for us.

[@cindyhenry1410]

I am single and would like to retire before age 65....what do I do for health insurance for those few years?? It’s a conundrum!!

[@MeltingRubberZ28]

Biggest issue for retiring for me will 100% be healthcare.

[@hownwen]

Yup. That's why we're moving abroad

[@hogroamer260]

Christian Healthcare Ministries

[@MeltingRubberZ28]

@@hogroamer260 thanks for the share! Something to consider for sure.

[@hogroamer260]

@MeltingRubberZ28 I have no vested interest but used it for 6 years now. Had one health event that resulted in a $2K bill in which I was fully reimbursed. I try to eat healthy and stay in shape. Good luck!!!

[@me-lg1yw]

@@hogroamer260This method has proven to be ineffective when you have large medical bills. It is not insurance.

[@frankish5314]

When planning my savings I completely ignored our pensions and SS. Just this week I got all my guaranteed income projections together... I'm going to have some SERIOUS tax "problems" between now and RMD age!...:)

[@johnkohlhofer5947]

Excellent video Erin. Well done and spot on. Thank you.

[@TrailHiker52]

Ahhh, this makes so much more sense to me than the 4% rule. The 4% rule talks about how much I'm supposed to be able to withdrawal every year, but it does not say what the investment should be making in order to draw that amount safely. The 45% rule let's me know what I should be shooting for from a return perspective. If returns are lower, I should be spending less and if returns are better, I can safely spend more. 4% rule is too straight line and does not take investment fluctuations into account. Thank you.

[@chemquests]

I take these recommendations as minimums. The more you have saved the greater your options.

[@ErinTalksMoney]

I one hundred percent agree with that! More income absolutely creates more options

[@charlestroup288]

Very informative! I have heard most of the but the review was just what I needed the presentation was excellent.

[@24hourgmtchannel64]

Well, I had gotten really serious about early retirement at age 27. Was a longtime listener to a show called Money Talk hosted by Bob Brinker who pitched the phrase "welcome to the land of critical mass". Every weekend I'd tune in. He had a long run hosting the show from super bowl 1986 to his retirement in 2018. I credit Mr. Brinker for my retirement at age 53 in 2019 but he was always modest to his listeners and would say I did it all on my own. I recorded many shows and still listen to them. Thank you Bob Brinker.

[@chrisharris4223]

I liked the bit on different withdrawal rates vs age as fidelity have stated, not seen that before and I watch a lot of retirement content. I am planning on quite early at 50-55 and will plan accordingly. Thanks for the video :)

[@billkinneman3252]

Thank you for your videos. I find most of them very helpful. But I've always hated the salary multiple rule because it has the perverse result that every time I get a raise I'm suddenly doing worse against the model instead of better. When I actually started working with a financial advisor, he modeled everything based on anticipated EXPENSES. Which is where you ended up in your video as well. In that model, making more money always helps, rather than hurts, which makes sense.

[@azwileetoyote]

Sheeple typically don't spend the time to understand their personal finances and can create their own plan early on or if they do, its typically too late for them once they become enlightened. I've even argued with financial planners who reviewed our retirement plan because they didn't get that my wife and I didn't want or need to live off of 80% our household income which was their standard opening line... it was more like 50% and I wanted to retire early. When we were in our mid 40's, in order to try and catchup on our savings plan, my wife and I (roughly) lived off of 35% of our combined income, saved 40% and paid taxes on the remaining 25%. After 10 years of living on about 1/3rd of our Gross income, we realized that we were very comfortable living off of that amount so that became our target which allowed me to retire at 55. We were both professionals earning good salaries but didn't let our raises and promotions over that 10 yr period affect us through lifestyle creep which is what you were eluding to. I've been retired for 1.25 years now and my wife still works (for now) albeit 6 hrs per day... walking away from a great salary was mentally difficult but we both have become comfortable with that decision now.

[@howardfriedman7077]

Erin: Any rule of thumb that focuses on income as opposed to expenses is suspect. I made well over $200,000/year before I retired at 65, last year. However, my wife and I had expenses of just about 30% of our income. We saved about 50% of our gross and the rest went to various taxes. A simpler rule of thumb is to save 25x your projected annual expenses (minus SS or pensions). Of course that assumes your portfolio is invested in at least 50% equities.

[@thomaschew2191]

I have to agree with you however I personally plan using both income and expenses, work the two numbers and strive for the worse case scenario. I'm a self proclaimed nervous nelly. The other thing in my mind beside being debt free and a paid for home is having a stash of cash, I know it's not money working as hard as investments should but still it's good to have. And putting off collecting SS for as long as possible.

[@hanwagu9967]

I suppose the same could be stated about not listening to what is being presented. You must have missed the parts about standard of living, which is another way of saying your expenses. Saving 25x projected expenses does not get you a nest egg that will generate enough income to withdraw. In order to cover inflation and taxes you need over 25x, which is why the rule of thumb uses x factor of salary, not x factor of income. Yes, inverse of 25 is 4% which is the rule of thumb for withdrawal rate, but your nest egg needs to be higher than just 25x of pre-retirement expenses. xfactor of salary saved does not equal 100% of your income, which when people say you should use expenses not salary to determine how much you need seem to have in their heads. the xfactor of salary also is what you should have by the start of each age bracket in the graph. Yes, you should work backwards on how much you need in retirement to determine your nest egg, that would determine xfactor of salary or xfactor of expenses needed to amass the nestegg by your retirement. These rules of thumb are generalized, but they do workout because of math. I just go I want $250k/yr in retirement in perpetuity, so what nest egg at x age am I going to need to generate that amount from all sources. I then work backwards at my current age to determine how much i need to save.

[@howardfriedman7077]

@@hanwagu9967 I do not look at "income" from a portfolio for living expenses in retirement. I am a total return advocate. The 4% rule, later adjusted to 4.7% by Bengen, accounts for inflation. Personally, I look to spend abut 2.5%-2.8%. Your withdrawal rules and asset allocation also make a big impact.

[@hanwagu9967]

@@howardfriedman7077 your comment is contradictory. what do you think your withdrawal rate equates to?

[@howardfriedman7077]

@@hanwagu9967 I don't understand your question. "Equates to, in what sense? Dollars? Percentage of expenses? Percentage of last salary? How is my comment contradictory?

[@martyi398]

Great content thanks for sharing! A Traditional retirement isn't necessarily in the cards for a lot of folks due to multiple factors, 1. Cost of healthcare, 2. Cost of Housing 3. Family obligations, 4. Small retirement savings, On and On, being financially independent to me is top priority along with having work that you love to do with a flexible schedule, who needs a traditional retirement?

[@antilogism]

Reminds me of “Find a job you enjoy doing, and you will never have to work a day in your life.”― Mark Twain

[@ErinTalksMoney]

Very true!

[@thomaschew2191]

I think you make a good point. A few of my friends retired at the earliest possible age because they didn't care for their jobs. And they think I'm crazy when I tell them that I'm planning to keep at past 70 and actually 75 sounds ok because my work is pleasant and enjoyable. And as a bonus we can delay using our retirement funds and SS longer and save/invest longer.

[@hogroamer260]

You might if you find yourself on disability. Most people aren't worth much after 65 and even less are valued by their employers.

[@getinthespace7715]

I use our budgeted living expenses, including all discretionary spending vs income. Our income went way up and rather than increase our lifestyle we are saving and investing hard. 20 years of the grind is finally paying off.

[@dstevens518]

The assumption is always that higher income equals higher lifestyle, and that's not always the case. Ours really hasn't crept much, while our income has risen considerably, which makes it easier to save and invest, and gives us that much more security and flexibility in retirement. Definitely work from expenses, everything becomes more concrete and certain.

[@hanwagu9967]

um, by your own admission your liftstyle has crept, even if it hasn't crept much. Balance with all things in life. There's nothing wrong with lifestyle inflation so long as it fits within your overall goals and isn't at the expense of your overall goals. We've fixed our discretionary and non/discretionary spending at 25% of combined income, which we figured spending 50% on half of one income means that if one of us lost a job the sole salary would cover all of our expenses without decreasing standard of living. This also means that we can spend more as our income increases, while maintaining the standard of living regardless. this allows for 20% taxes and 55% savings/investment.

[@kimberlypickering5725]

This is very helpful! I appreciate this topic. Thinking about other sources of income at retirement makes it all seem more doable.

[@ErinTalksMoney]

Glad it was helpful!

[@LarryManiccia]

Great video Erin! Love the data you presented from Fidelity. Very useful info to reference when contemplating your individual retirement plan.

[@KJFC388]

Good stuff Erin! I retired 2 years ago before I understood any “retirement “ math. Fortunately we are in good shape. We have saved a long time through 401Ks. We signed up with an AUM firm. I was very concerned whether this was the right thing to do, but just had our third meeting. We have been given complete income plan, tax plan, investment plan, Roth conversion plan, you name it. The 1% is a steep price but I have a team of CFPs +CPAs focusing on us. Their figures are projecting 30% higher income than my needs. Their numbers and assumptions are conservative. They are honest ( A+ Better Business Bureau ) and very competent. I am confident my outcome will justify the expense. No longer fretting, just enjoying my retirement. We are 67

[@beerbrewer7372]

It is difficult (at times) to take retirement information from a ~25 year old. Having said that this chick is wise beyond her years. She is an articulate teacher. Thanks Erin for another quality video!

[@SteveG1337]

Age definitely isn’t a factor on financial education, although there is a stigma on younger folks advice. I bet as you watch more videos and hear Erin mention her age, she might have a hidden decade of experience. Maybe she needs to talk about finding the fountain of youth.

[@ErinTalksMoney]

I appreciate that you think I'm ~25 😂 I'm 36 though 😊

[@MrSupernova111]

@@SteveG1337 . I disagree. I have a degree in finance, work in asset management and I can tell you for a fact that life experience is just as important as education. You need both to be in a position to give retirement savings advice. I wouldn't take seriously anyone under 30 years of age.

[@SteveG1337]

@@MrSupernova111 As a long time subscriber to this channel. I can tell you she has mentioned how she started investing. By the time she would have graduated college at 21 years old. She would have had over a decade experience investing. (This is not a typo, she bought her first stocks at 8 years old in a UGMA brokerage account). By the time she reached your minimum standard to listen to her speak at age 30. She would have had 22 years experience investing, and probably a net worth similar to someone in their 50/60s. It truly is hard to imagine someone at the young age of 36: already having 28 years experience investing, a net worth at least amount most people retire with, and the degree in finance to match. Now, if only KZbin recognized her amazing credentials, and simplified approach to explaining financial topics so everyone can understand. She really should be one of if not the top financial channel around.

[@MrSupernova111]

@@SteveG1337 . Net worth has nothing to do with experience. Second, I said I wouldn't take advice from anyone under 30 and I stand by it. What does a 20-something year old know about the struggles of a typical 60-65 year old? Anyone can plug in some numbers into a model. You can even find free financial calculators online. A financial model is meaningless without context. However, your definition of investing is likely very different from mine. Anyone can throw money at an index or mutual fund and let it sit. That's more akin to saving than investing. I don't consider that investing as there is no skill required.

[@FIRED13]

Will RE before 50. Guessing a gradual slide from 65% down to 20%?

[@KayKay0314]

I'm using my own spreadsheet and I'm estimating that I die by 85 due to overall family and personal medical history. I only need to cover expenses, which I've tracked carefully for the last 10 years (and counting) and also taking an average inflation into consideration with a very moderate estimate for capital gains (like 6% on average per year).

[@stanleykijek6983]

One thing this discussion does not mention (or take into account) is the sequence of returns risk. Despite diligent savings, being free of debt, living frugally, etc., for people who are near retirement or who have just retired, they can get into serious trouble through no fault of their own if the market has several bad years at the beginning of their retirement. I suggest for those who are unfamiliar with the sequence of returns to do some serious research about this topic so they do not have too much of their assets in equities that could put a terrible dent in their nest eggs in the event of multiple down years. One can't always rely on the rule of 45%, the 10 times annual salary rule, etc.

[@bunnobear]

I plan to have 3-5 years in cash to offset down turns.

[@yuckyool]

Good video. I watch a lot of these and you did a nice job "squaring the circle" of Fidelity's various, sometimes confusing suggestions. I just retired at 64.5 and my 7yr younger wife is still working maybe 5 more years ('till she's approx 63). We can take out a conservative 3~3.5% from investable assets and replace my after-tax income (health insurance, which I used to get from work, still to be determined). Plan to have my wife file for SS at 62, and me at 70 to maximize . . . Together, that should more than pay for our lifestyle, so yeah, I guess that's the 45% rule in action.

[@princesskaitlinhazelwood4703]

I use these fidelity rule and we are ahead of our target. So we are happy

[@risingtidestartups]

The 4 % rule seems to be based on a static amount in your retirement fund. What about any return the fund is making each year? Seems like withdrawals and return would cancel each other out. What am i missing?

[@saksitb3491]

the problem is low market returns in many countries around the world since covid 19. What kind of investment will yield theoretical market return on portfolio?

[@tancreddehauteville764]

In the UK we generally buy guaranteed lifetime annuities instead of drawing down from market investments. Currently, at 65, you can get a 4.5% lifetime index linked annuity in the UK annuity market. If you have health conditions that rate can rise quite a lot.

[@adamp6320]

I never ever understood tying retirement goals to income rather than expenses. If I don't spend anywhere near what I earn, then it doens't matter what I make. This "benchmark" punishes you for getting pay increases via promotion by somehow assuming your pay increase is backdated to your 20s when you start saving. My pay has increased exponentially since my late 20s, but my expenses are only going up marginally with inflation. SO...why would I need to use multiples of income for my goals?

[@davew3935]

Net worth includes home equity, correct? So actual monetary savings is less than what is quoted.

[@thedavidguy01]

Erin, you pointed out the biggest flaw in these income based rules of thumb. Expenses are what should determine your retirement needs. If you’re frugal, your expenses may be significantly lower than your income. In my last few years of working I was spending 50% of my income. Any income based rules resulted in my needing a far higher investment portfolio than I really needed to retire. Also, as you said, it depends on your retirement lifestyle. Due to travel, my wife and I are spending more in retirement than we did during our working years. Of course, that will drop off as we age.

[@hanwagu9967]

expenses are included..that's the expected standard of living part. I'm not sure why people simply don't understand that. you need to save xfactor of income to generate enough savings to allow you to have at least 4% withdrawal rate.

[@livinthedream894]

thanks a bunch for pulling this all together!

[@macker0077]

Wow! What a huge discrepancy in the current Fed savings numbers by age and what you're suggesting here is needed to retire comfortably. Starting to save early on in life is key, and investing it properly.

[@TimHope-m7u]

So basically I agree. It is personal. As someone approaching retirement, I am looking at expenses, estimated SSI, and what I would really need to replace. Then using a 4.5% withdrawal rate to mee that need. I have averaged about 12% total return in my IRA over the last 10 years so I think this will lead to a very comfortable retirement , when I finally get there. :)

[@vxnova1]

With cd’s paying up to 5.7% at the moment, would that mean you could retire and still reinvest the 1.7 percent so retirement account would still be growing slightly? Assuming you needed 4% of the retirement sum,

[@Grilledexpectations]

Hey Erin, when do we get a baby update? Fortunately for my wife and I, we’ll be able to live on SS and be able to use our retirement savings for travel and FUN!

[@ErinTalksMoney]

Baby is here 💙 we will film a video soon….newborn time is hectic for sure 😊

[@hogroamer260]

​@@ErinTalksMoneyCongrats!!!

[@Ryan-ep8yu]

Im 33 and i could not imagine waiting until my 60's to retire. Is that really the standard? I want to be retired or at least finantially independent and working when and where i want by 50.

[@johnurban7333]

I will say I was skeptical because of how young you look but you are exactly right on this video. I have been watching so many of these the last few years and I must say yours is the best. You are so right about people needing to live within their means in order to save money. I will subscribe and watch some more of your videos.

[@ErinTalksMoney]

Thanks John! Welcome to the channel 😊

[@bertsadventures9974]

My favorite video you've shared to date. Great info. Thank you!

[@ErinTalksMoney]

Awesome! Thank you!

[@martinrbookermb]

Thanks Erin, one thing that I have trouble with in this kind of net worth study is if you have a net worth of say 500k and 50% of that is in your home equity then realistically you aren't going to sell that home to fund your retirement? After all shelter is probably the thing people worry about approaching retirement along with food and utilities. You could sell your home and rent? But who wants to pay someone else's mortgage and watch their savings dissappear as they age? Personally I don't include my home when looking at my net worth. Lots of house poor people out there with a high net worth.

[@MrSupernova111]

Home equity shouldn't be used as a measure of net worth unless you plan on selling it.

[@TakeMeToTheTruth]

I suspect it's really a function of how much data is readily available on the size of people's retirement portfolios: There's very poor quality data. For example, Fidelity publishes data on how much people have in their 401(k)s and IRAs WITH Fidelity. It can give a very skewed picture of people's financial situation when talking about a large population base (like the United States). Alternatively, people can access equity in their homes in retirement, through Home Equity Loans, Home Equity Lines of Credit and Reverse mortgages, all without selling the home. It's less than ideal to do any of these, but it also means there are options without selling the home until you're ready. Further, as you approach end of life, a lot of final retirement homes require a large enough lump sum that selling the family home can help provide that "nut" when it is most needed. In that sort of scenario, going without a home you own is a good trade off to live in a place with the assistance you need to make the most of your quality of life.

[@geebeeinga]

Spot on. I paid my house off last year but I am not going to sell it only to assume a mortgage again or pay rent. I don’t consider it as part of my net worth either - unless my kids can have the proceeds when we pass, which is pretty useless to me😊

[@OnCashFlow]

Funny enough that If you are pursuing Financial Independence, Early Retirement at an extreme rate (which was common during the MMM era) then you may have had a 65% saving rate, which meant you were living off of 35% of your income. Your living expenses are a much better factor for basing your retirement plan (Assuming you want a similar lifestyle in retirement).

[@heidikamrath1951]

Your math is off . 😊 Or it’s a typo… I think you meant living off 35% of your income?

[@OnCashFlow]

Haha sorry, yes I did mean 35%! Fixed.@@heidikamrath1951

[@hanwagu9967]

your math is still off. you can't having a 65% savings rate and live off of 35% of income since you have to account for income taxes. So let's say 20% taxes, 35% living off of, 45% savings.

[@OnCashFlow]

I was refering to net income.@@hanwagu9967

[@hanwagu9967]

@@OnCashFlow good recovery

[@cal6610]

I was wondering what the income multiplier was for a "late" retirement at age 70. BAM. If you keep providing useful and comprehensible content, I will not need a financial advisor!

[@tomTom-lb5cu]

I like your definition of retirement, whew. Finally someone made it not sound like a death sentence 😂. Financial independence is the better definition and not being dependent on anyone for our money needs at all. Not having a 9-5 or boss and freedom to do what you want, when you want, with whom ever you want, anytime you want 😂. Serious about the 9-5 the rest is what I tell everybody else as a joke sort of but mostly true. The younger you plan for the financial freedom the younger you achieve it . If you have lots of expensive wants when your young and your not making huge sums of money then your financial independence will be years later and later. Hit any retirement accounts as hard as you can from your first paycheck even if it means working overtime or a part time job or income of any sort and your financial Independence Day with the help of compounding interest in about 15 years will have you reaching it very young and then living off dividends the only thing you might have to work part time for is medical coverage. Bottom line make a plan early on. If you wait then you can still do it but you have to work more and invest more but it’s always possible. God bless

[@tylersmith7054]

Could you dig deeper into doing the calculations with a pension. I’m 42 and have been in my career for 21 years. I’ve been saving in a deferred compensation plan since 2006 and have about 2x my salary before overtime. This number would be higher but it’s been very stagnant the last 2 years even with increased contributions. Both of my parents passed with very little to their name (long divorced at time of passing) and this has been something that has terrified me for years.

[@HoustonTom]

In terms of needing less income in retirement I can understand if you drop/lower your new investment money. But I don’t see needing less discretionary income. I would expect to spend a lot more in the early years of retirement because now I have more hours to fill.

[@Bob-yh7ir]

We operate on a 23% replacement rule. That's just standard living without large trips. With the travel and things we plan to do, we can do so on 34% of our working income. We base things on expenses, that way we know what we want/need to bring in to do whatever it is we want in the next 1,2, or 3 years. SS will be gravy since it will more than take care of household expenses and then some.

[@elisalyles1466]

Can you talk some about solo/ single income retirement and investment vs the usual couple strategies? Also how do you look at other investments such as real estate or notes? Thanks and any news on baby? Hope all well

[@ErinTalksMoney]

Great video idea! I will add that to the list 😊 Baby is here 💙

[@cynthiah4866]

@@ErinTalksMoney Congratulations Erin! So happy for you and your husband. Wishing your new little family the best. 💙

[@cindyhenry1410]

Yes please! More info for those that are single!

[@davidschneider6295]

Great video! To the point and with solid information. Well done!

[@cindyhenry1410]

Wow! You look so young! I want to know how you keep your fiddle-leaf fig (the plant in the background) so full!!? Unless it’s a fake lol. Ty for the info....I think I’m on target 😊

[@gelfbrandt]

Fidelity's rules don't take into account traditional pension plans. Those will replace portions of ones existing salary. I know those are fewer than they used to be, and are replaced by 401k/403b etc plans. But there are still a significant portion of the population that has this option to replace income during retirement. My retirement planning goal has always focused around income replacement. My goal was 100+% replacement with social security included. Knowing that mortgage and other debts would be completely paid off before retiring. Even with this, I've worked to build investments, just in case something happens to the other plans and they do not deliver the expected income. Right now, retirement timing for me will be determined by the cost of healthcare between retirement and Medicare enrollment age for me and my wife (She is 1 year younger)

[@ErinTalksMoney]

Very true! And for those who have a pension, that has a powerful impact on their retirement needs. And healthcare costs are a major concern for those retirement years.

[@hanwagu9967]

it's because only 21% have pensions and 79% don't.

[@TakeMeToTheTruth]

And a lot of that 21% is based upon weak and underfunded pensions. Every time there's a large financial crisis/recession (think 2001, 2008, etc), a bunch of these go belly up and their retirees find themselves woefully unprepared. In theory, the Pension Guarantee program is great, but they only replace a small amount of what had originally been promised. @@hanwagu9967

[@cb-tc9lw]

I am looking to retire at 48 and replace about 110% of my income. I am Canadian so the amount the social security(CPP) kicks in is substantially more than south of the border and I have a defined benefit pension plan. That coupled with monetizing the farm and my wife being 6 years younger with no pressing want to retire gives me a nice flexible retirement plan. Retiring before my kids are in high school also adds a little to the complexity but it's manageable.

[@GenXSterling]

How much do I need to retire sooner than 67?. I have more than 10x and I’m 47. I can’t retire now because I’d run out. So how much to retire earlier??

[@markwilkins1544]

Hi Erin! I love this topic! It is soo important to know this information years before you plan to retire, so you can have enough money to last your entire lifetime without running out of money. Thank you for doing a video on this topic 😊 P.S. how is your pregnancy going? I can’t wait to find out the name you and your husband picked out. Have a blessed weekend 😊

[@ErinTalksMoney]

Baby is here 💙 video update to come soon

[@markwilkins1544]

Awesome! That is exciting news! Congratulations!

[@slimdawgwoof]

Morningstar should hire you for their videos! Great job!

[@quick-and-easy]

It's dependent on the income you need (i.e. expenses) and that determines the amount of assets you need. Your biggest expense reduction in retirement is TAXES. Assuming you don't work you no longer need to pay payroll taxes (Medicare & social security) and your income taxes will probably drop faster as your income drops.

[@hanwagu9967]

you need $x investable assets to generate enough to cover the y% of expenses. biggest reduction in retirement is not taxes, if you are going to withdraw combined with soc sec the amount needed to cover expenses. Unless you are entirely in roth ira and roth 401k and no RMD, chances are you are going to be in at least the same tax bracket paying the same amount of taxes less FICA.

[@jbbushon]

This might be a silly question, but is Pre-Retirement Income based on Gross Income or Actual Money coming into your checking account that is being spent? This varies significantly when maxing 401k, high state income tax and county taxes, etc.

[@me-lg1yw]

It’s gross income.

[@scottq4344]

I would say Fidelity's rule of thumb for investible assets is pretty close. I retired with a 12.56 multiple, and we have been able to live very comfortably.

[@VWGTO1]

A flaw in many of these presentations is not specifying individual vs household. Most married couples are planning together, not by individual.

[@hanwagu9967]

well, these presentations show the source of the information, or at least should. If you don't go to the source of the information, which is the flaw of many viewers of presentations like these, then you are left with saying things like there is a flaw in the presentation because a lack of specification. For the Federal Reserve information, Fed always specifies what it is talking about. In the case of the median net worth by age chart shown, the Fed clearly specifies it is using Family Characteristics. To be more precise, the median age net worth chart is the age of the head of family. You can then wind down further to see how the Fed defines family, which is not the same as household. The Fed defines "family" as a primary economic unit (PEU), whether that is an economically dominant single person or couple. The family/PEU is separate from other members of the household, so the household could have kids who earn incomes, but that is not considered part of family/PEU for the purposes of Fed Survey of Consumer Finances (SCF).

[@maness2112]

Very true, this is never specified. Single or married.

[@huang8012]

Does it include 401k?

[@dodgerblue7381]

Erin, I don't know a single person or couple that would live up to Fidelity standards for retirement. I have about 3 times the median retirement income on your chart for my age group. I have decided to work part time in retirement just to supplement my income a little. I have no debt and my biggest expense is health care insurance but other things are rising. Interest rates have helped with my savings and I am starting to purchase short term T Bills to get a little more interest on top of that. Retirement varies from person to person, some want to travel and see the world. Some want to stay home and see family and friends and some still want to work some but just reduce their stress. I thought that I was in group #1. But now I find that groups #2 and #3 are closer to my liking. At least for now.

[@hogroamer260]

When I retired, I paid BC/BS $1100/mo. Then I heard about Christian Healthcare Ministries, and it dropped to ~$400 (wife and myself). My wife is on Medicare now, but I have two years to go. I am paying $257/month just for myself. Been on it for six years, and it has saved me ~$50k so far, yet I have peace of mind. It's an alternative that I don't see mentioned often.

[@dodgerblue7381]

@@hogroamer260 Thanks for the tip. Best Wishes to You and your Wife.

[@MrThaiBxr]

How would a pension be calculated into this? I’ll retire from my current job in about 5 years with an annual pension equal to about half my ending salary, that will grow by 3% each year in perpetuity. Assuming an ending salary of approximately $120,000 (so $60,000 as a starting pension amount) are there any rules for how much I should have saved in my other investments? I will be working until I’m 65 and Medicare kicks in, but my pension will begin at 55, when I retire from my current position.

[@shawnbrennan7526]

You are getting very close. Time to ignore long-term rules of thumb and actually put together a budget of what you’ll need in retirement. That’s the only way you’ll know whether that $60k plus SS covers it all, or whether you need a nest egg of 25 times the remainder.

[@jason60chev]

Why do you have to withdraw anything, if your investments are paying monthly dividends, enough to cover your needs?

[@peterezzell3865]

Thanks. @ 2min does the median net worth exclude value of home?

[@kimstube7244]

The general formula used in the FIRE (Financial Independence Retire Early) community is based on expenses which is a more direct relationship to someone’s financial needs. Your net worth should be 25 times the amount you spend in a year (or conversely you should be able to live off of 4% of your portfolio) with your assets generating 7% per year to keep up with inflation. Investing long term in a Total Stock Index Fund is The Simple Path to Wealth (also the name of JL Collins book) a cornerstone of the FIRE community.

[@danm6686]

Pre tax and pre contributions?

[@danharvey61]

Thanks, great presentation.

[@JohnJohn-wr1jo]

Too many people focus on the "how much" saved when the true key is spending and the elimination of debt. The sooner you realize this and the longer you live debt free the more wealth you will accrue. Once our kids were grown and on their own we were able to pay off our mortgage and all debt in less than 5 years. Maxed out all retirement plans and invested wisely vs accruing luxury items for the next 10 years. Been retired for thirteen years. Travel 3 to 4 months out of the year. Pay cash for everything and have 0 debt. We sacrificed for roughly 15 years and are now enjoying our golden years. Focus on eliminating all debt first and maxing out your retirement vehicles.

[@HighCountryRambler]

Agree with the investment based on income, but disagree with the 45% rule. I paid cash for 2 rental homes plus retired at 64 and met the rule of 1M in IRA. However since the rentals are paid for and generating A LOT of passive income, plus a pension a SS haven't needed the IRA in 5 years. most likely when RMD's roll around will do charitable deduction RMDs and cut some taxes. So it all depends on WHAT those investments are. Currently my IRA is still down 10% the entire 3 years Biden has been in the WH, and I cannot raise the rent fast enough on the rentals plus building equity.

[@Andrew-zs5tc]

There are a lot of factors not considered that should be considered. Kids living at home or needing support, spouse Social Security, the amount from a pension, if any, the amount of your mortgage at retirement, even the value of your home. The value of your home could fund the entrance fee for a retirement community.

[@nooralimanjee9102]

At least have an idea of what I need ball park figure 45%. Thanks

[@daheni8857]

I am about to turn 36, so I calculated where I should be [ (X2 + X3) / 5 ] + X2. Pretty funny, I am a little over $1000 over that number. Keep it going and hope to close the next milestone of X3 in a few years. Got my job new job 4 years ago, trying to catch up since my income increased. Max Traditional 401K $22,500 Company match 6% $7,000 Max Roth IRA $6,500 Max After Tax 401K Mega Roth Conversion Company Limit $20,500 Max HSA $3,850 Total this year will be: $60,350 Good luck everyone!

[@KayKay0314]

I think you are doing wonderful. If I were in your position, I don't think I would do the mega roth conversion, especially if I could contribute after-tax dollars into a corporate 401k. The company match will always be pre-tax dollars. Have you calculated all the taxes you'd be paying? I might forego the mega roth conversion and save it in a personal brokerage account to use it as a down payment on a house. Invest in something safe since you want it to be there when you need it. Everything else seems perfectly reasonable.

[@dstevens518]

Excellent! Keep it up, focus on growing income, and everything will get easier (duh)...lol. Good job.

[@ErinTalksMoney]

Nice work!

[@daheni8857]

Thank you for the advice. The mega roth conversion is automatic in my company when you put any money into after-tax 401K option, conversion occurs same time you contribute and no additional taxes. I also do 10% ESPP which I then put into personal brokerage once long term capital gains are realized. But I will think on your advice about investing in other areas@@KayKay0314

[@heidikamrath1951]

Can you max out both a traditional IRA and a Roth IRA in the same year?

[@ghostofmanitou6864]

I will have a fixed benefit pension which will be about 55% percent of my annual salary which is great. Even though I have 40+ quarters in social security I haven't paid in for 18 years now, so I know my social security will be reduced but it's hard to find any real numbers on what that means. Basically I plan on getting by on investments and pension, hopefully I will get enough from SS to cover internet and a couple of streaming services.

[@EricMcDowellegm]

Great content. Glad I found your channel!

[@ErinTalksMoney]

Awesome, thank you!

[@TakeMeToTheTruth]

While i don't agree with the assumptions behind Fidelity's math, I do feel that if the median American had the money that fidelity recommends, retirees in the country would be in much better shape. As a follow-up, could you touch on what it would mean if Social Security trust fund was allowed to run out and Social Security transitioned to a Pay-Go system with only ~77% of the benefits currently promised (currently estimated to happen around 2033, so 10 years out).

[@cindyhenry1410]

I would love to see more content about the future of SS....it doesn’t look very bright 😢

[@TakeMeToTheTruth]

I would like this content too, although for the opposite reason: That social security trust fund running out will not be the end of the world, especially if people prepare for it now. @@cindyhenry1410

[@vinnyg2619]

Plan on retiring in June 2024, my wife is already retired. I'll be 65 and we'll both go on Medicare which will be cheaper for us than retiring early and going through the NJ medical marketplace. Our plan has an extra $12,000 a year for fun over what our living expenses are. I have a small pension and we will be withdrawing our retirement savings down a year before my wife's SS comes into play and then another year before mine come up but at a lower amount. After that our withdrawal will be really low, I estimate about 2%. So we're going to be withdrawing a total about 14% for about 2 1/2 years then about 2% afterwards. These withdrawal rates do not include income from stock/bond intrest and dividends so the actual withdrawal amount affecting what we have saved will be lower.

[@ErinTalksMoney]

That retirement is coming up quick! I hope you and your wife have a wonderful retirement

[@vinnyg2619]

@ErinTalksMoney Thanks! I think the trick to how much money a person/couple may need is to know how much you spend pre retirement, adjust that for spending cuts such as commuting costs and add taxes and medical. Medicare costs are easy to find, taxes are as well except there's a little more math involved. Social security will tell us how much we should be getting. Once you know all this stuff then the amounts can be figured out. In our case we will be withdrawing a lot of money for about 2 years but very little once both SS checks come in and then it goes back up once one of us dies. Having as close as you can living expenses figured out makes thinking about the larger amounts much easier, at least it feels that way to me.

[@ronpeteuil3060]

I find the Fidelity save "x" your starting salary strategy a little strange. If you retire at 50 with 6 times your salary you could potential have to live on that into your 90's or 40 year. Then at 67 when you your salary could be bigger you need 10 time that to make it to 90 which is only 23 years.

[@editorcj]

The 59 1/2 rule is really important because that’s when you can withdraw 401k, IRAs and Roths without penalty. I hit all the metrics for being able to retire now but have to wait 3 more years before I can do so. It’s a good thing I still like my job but it feels like I’m just marking time.

[@ordinaryhuman5645]

Roth conversion ladders would argue otherwise.

[@jennyogg4591]

Or a brokerage account, works well too. Savings account doesn't work quite as well, but there are lots of options on where to put your money.

[@nutria12247]

The Rule of 55 for your 401K could help you out. It only works on the 401k with your current employer.

[@ValkyrieIA]

Rule of 55 is a good vehicle but saving outside those tax deferred routes is a must for that bridge to 59.5.

[@editorcj]

@@nutria12247 I just read up on that, it gives me a lot of comfort to know that I can retire at any point now and am working to make my retirement better as I still enjoy my job but if that changes I can just walk.

[@17planets89]

I will not have any Social Security through the Windfall exception. My take home pay has been flat for 10 years. I have 6.6 times my annual income saved and hope it will not be wiped out by a market crash.

[@williamskaff216]

Great video!! Very helpful. It's one I will watch several times in the coming years... :-)

[@ErinTalksMoney]

Awesome! Thank you!

[@billyrock8305]

Canadians are so lucky. Free healthcare for life. Healthcare cost is a $0 line item in my spreadsheet. 😊 🇨🇦

[@cindyhenry1410]

But what is the quality.? I have friends that live in Canada and the come to the US for better quality care and more importantly quicker attention!

[@billyrock8305]

@@cindyhenry1410 Excellent quality and no wait times at all 😊

[@feldhdleh]

Billy, you forgot about the part where many of us DIE before we are treated, and many more of us never get anywhere near correct diagnosis or adequate care. Thankfully, those of us who can afford it can tour the world to get what we need. Our once wonderful country is waiting to collapse. I say this with true regret.

[@billyrock8305]

@@feldhdleh America isn’t going to collapse. It’s survived it’s worst threat in its history from the deranged, orange, right wing monster and is pushing forward. 🇺🇸