Ready For Retirement
Ready For Retirement
Retirement Benchmarks by Age: 40, 50, 60 (And What If You’re Behind?)
Those “3x by 40, 6x by 50, 10x by 67” charts feel official—until your life doesn’t match the average. In this episode, James shows why age-based savings benchmarks miss the mark and replaces them with a simple, four-step method that fits you.
First, get clear on spending in retirement (inflation-adjusted, lifestyle-aware). Then credit guaranteed income, like Social Security, pensions, annuities, part-time work, help to size the real gap. Applying a conservative withdrawal rate to turn that gap into a target portfolio, and back-solve to today with reasonable returns and annual contributions can help you find security. No fluff. Just a plan you can update every year.
Real-life cases make it concrete: an early retiree whose “confident” multiple falls short, two teachers whose pensions shrink the target, and a late-career saver who unlocks home equity to close the gap.
What you’ll learn:
- Why age-based benchmarks exist—and where they can mislead
- How timing (early retirement vs. later) changes the number
- The role of Social Security and pensions in lowering your target
- When home equity or windfalls can bridge shortfalls
- The four-step method: expenses → income → gap → portfolio math
- Using a withdrawal rate (e.g., 4%) to set a clear target
- How to back-solve to today’s balance and savings plan
- Stress-testing returns, inflation, and timing choices
If generic multiples leave you anxious or overconfident, this conversation trades guesswork for clarity. Translate goals into numbers, see which levers actually move the needle, and build a plan that funds a life you enjoy.
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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.
The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.
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If you're in your 40s, your 50s, your 60s, you've probably seen some of those online charts that show you how much you need to have saved by your age. And if you're like most people, those charts either make you feel anxious because you don't have that much, or you do have that much, but you still don't feel quite confident that number has anything specific to do with you. If you're feeling that way, you're exactly right. And what I want to do in today's video is share with you some general rules of thumb, some helpful rules of thumb and show you why they exist, but then give you a better way of looking at how much should you have in your portfolio at certain ages to make sure you're on track to retire. So let's start with these rules of thumb. In just a second, I'm going to share with you three specific examples that show you how these rules of thumb can be quite off when you used as the sole purpose of understanding how much you'd have. But for some basic rules of thumb, if you're 40, you should have three times your annual income saved for retirement. In fact, you can see that on this chart right here. If you're 50, you should have six times your annual income saved for retirement. And if you are 60, you should have eight times your annual income saved for retirement. Do some simple math. If you have$100,000 at age 60, and that's your salary, you should have about$800,000 saved for retirement. Now, if you look all the way at the end of this graph, you can see by age 67, you should have 10 times your annual salary saved. So let's look at an example of where this rule of thumb actually works before looking at examples of where it doesn't. You're 67, you're making$100,000 per year, and you want to retire. The first thing we need to start with is after taxes, what are you actually taking home? This depends on are you married? What are your deductions? What state do you live in? How much are you saving for retirement? But let's just assume for simple numbers,$100,000 is what you earn and$70,000 is what you take home after all taxes and deductions. Of that$70,000, if you're 65, you might have a good portion of that covered by Social Security. Let's just assume$30,000 per year. So$2,500 per month of benefits leads to$30,000 per year. If you want$70,000, there's a$40,000 gap there. That$40,000 gap just so happens to represent 4% of a$1 million portfolio. So you can see how this rule of thumb generally works. What's the after-tax take home pay you might have at your income level today? And then how might a portfolio of 10x that amount in retirement give you the distributions needed to supplement Social Security and meet your income needs for the rest of your life? So that's why this rule isn't a horrible place to start, but it's very cookie-cutter. They don't apply in all situations equally. Example number one of where this doesn't apply. Let's look at Emily. Emily is 40 and she earns$100,000. I'm going to pull back up this graphic from Fidelity that shows you, in their opinion, or in this rule of thumb, Emily needs to have$300,000 saved. Well, Emily does have that$300,000 saved, so she's feeling really confident about her ability to retire. But here's the thing Emily wants to retire at$55, not at 67. What happens at$5,000? Well, Social Security hasn't kicked in. That's a lot fewer years that she has to compound her existing$300,000 to be able to be in a position to create income for her. And that's a much longer time horizon that she needs that money to last for. Now all of a sudden, that$300,000 probably is not nearly enough for her to be in a position to retire$55,000 if she's already$40,000. So one of the main things that skews this is actually the timing of your retirement. The timing of your retirement is going to be a big factor in this. Let's look at another example. Greg and Sherry are$50. I'm going to pull up this chart from Fidelity again. At$50,000, they're saying they should have six times their annual income saved. Well, if Greg and Sherry are making$120,000 per year, then that means they would need to have$720,000 saved for retirement to be on track in this example. But Greg and Sherry don't have$720,000. They only have$400,000. But here's the thing Greg and Sherry are both school teachers. And when they retire, they're actually going to have a pension that's going to cover 80% of all their income needs in retirement. So they don't need the full 10 times their annual salary at age 67 to retire because they have a pension that's going to cover so much of that. And once you factor in Social Security as well, they're nearly at the point where they don't need much of their investments to actually live on at all. So in this situation, we can start to see that another indicator of how much you actually need isn't just your portfolio value and your age. It's also what outside income sources will you have, what non-portfolio income sources will you have in retirement to be able to support your income needs throughout the rest of your life. Then finally, the third case state that we're going to quickly look at before we walk into a better formula that will help you determine how much you need at whatever age you are approaching retirement is Michael. Michael's 60 years old and he earns$80,000 per year. This fidelity chart says that if he's earning$80,000 and he's$60, he should have close to$800,000 or he should have$800,000 in his portfolio. But Michael only has$500,000. He wants to work until 67, but he feels behind because he sees this chart and he says, I'm not on track. But Michael owns a home that he plans to downsize in retirement. And when he plans to downsize that home, it's going to free up about$400,000 of equity for him. So what he needs to take into account is it's not just his$500,000 of existing liquid portfolio assets, there's also going to be an inflow when he downsizes his home. Now, in your case, this might be downsizing a home, this might be an expected inheritance, this could be some other type of windfall. But you start to see how these general rules of thumb can be helpful, but there's a better way. Here's that better way. Instead of looking at arbitrary benchmarks or how much should you have saved at certain ages, here's something that you can do that's gonna be much more custom to you. Number one, start with an understanding of what are your expenses going to be in retirement. Imagine your retirement. What will life look like at that point? What big expenses might no longer be there? That could be things like retirement savings, mortgage, family support. What are the things that are expenses today that might not be expenses in retirement? Now, on the flip side, what things might you be doing in retirement that you're not doing today? Is there extra travel? Is there extra money set aside for leisure, for activity, for hobbies? What does life look like? Having an understanding of that number is does not have to be precise, but having a somewhat clearer understanding of that is the absolute most important thing you can do here. And that's step number one. What will expenses be in your retirement? Step number two is what non-portfolio income sources will you have to offset those expenses? Let's use an example. Let's assume for the sake of simplicity that you're single, and by the time that you retire, your social security benefit will be$40,000 per year. So$40,000 per year is going to go towards that$100,000 of expenses. In retirement, that$100,000 isn't just going to come from one source. Some might come from pension, some might come from Social Security, some might come from your investments. The important thing is, does the combined amount of all these sources equal what you need it to to meet your income needs? So you want$100,000 per year. And by the way, one thing I did not mention, failed to mention initially, is that number should be adjusted for inflation. If you want to spend$100,000 per year today, but you're only$40,000, adjust that for inflation. But to keep this simple, let's assume that$100,000 is the inflation adjusted number, and$40,000 is what's coming in from Social Security. That's step two, is identify those non-portfolio income sources. Step three is identify the gap. What's the difference between how much you want to spend and how much is coming in and non-portfolio income sources? That gap here, that's the amount that must be filled by your portfolio assets. So that gap in this example is$60,000. In other words,$60,000 is the amount you need coming from your portfolio to supplement Social Security and allow you to live the retirement you want to live. So what do you do with that number? Your portfolio needs to be more than$60,000 because that's$60,000 per year. What you do is you use withdrawal rate numbers that are sustainable for whatever the retirement time horizon you have is. Meaning that number is going to be different if your retirement only lasts for 10 years versus if you expect it to last for 50 years. Let's use 4%. 4% tends to be a very conservative rule. I actually talked to the founder of the 4% rule a couple weeks back, talking about new research showing that you can actually spend more than that 4% and likely be just fine over the course of your retirement. But let's use 4% because it's a commonly used number, commonly understood. So 4% represents the amount I can take from my portfolio. And if 60,000 represents that actual amount, I need to divide 60,000 by 4%. That's going to give me$1.5 million. That$1.5 million is the amount I would need at retirement. It's not the amount you would need today at$40,000 or$50 or$60. That's your retirement amount. So the final step, step number four, is to run a calculation back into what number do you need today? So for example, if I know that my retirement is 10 years out from now and I need$1.5 million in my portfolio, I can run a calculation. You can use a calculator for this, you can use Excel for this, you can use financial planning software for this. This part's actually relatively simple. If I assume that I'm going to get a 7% rate of return over the next 10 years, which by the way is just an assumption. It's not a guarantee. You can use whatever number you feel comfortable with, but you need to start with something. And then ideally you can test, well, what if that number's 4% versus what if that number's 10%? How does that range of potential returns impact what this looks like? But, anyways, 10 years out, I need$1.5 million. I'm assuming my money is going to grow by 7% per year between now and then, and I'm investing$10,000 per year every year from today until the time I retire. If I run a calculation on that, what that tells me is that today, 10 years out from retirement, I would need just under$700,000 in my retirement portfolio to be on track to make it. So what that is, that's a much more customized way to determine how much do you need in your portfolio. It's not based upon current income. It's not based on your age alone. It's based upon where do you want to be in retirement? What income sources will you have to help meet those needs? What's the gap between those income sources in your income needs in retirement and what number do you need to have in your portfolio today, such that you'll be on track between contributions and growth over the next few years to be where you want to be in your retirement years? So if you're 40, if you're 50, if you're 60, and you're worried that these benchmarks you see aren't exactly where you are, don't fret too much. Run a more custom analysis, run a more custom calculation to say what do you actually need, not just based on your income, but based upon your retirement desires, where are you today, and then see if you're on track.
