/r/personalfinance was one of my more frequented subreddits and I find it pretty valuable. I figure I should try to help get the ball rolling over in the Fediverse and it seems like this is the most active substitute so far.
The “rule” as it were is that to have income in retirement broadly in line with your income before retirement, you need to hit 1x your salary by 30, 2x your salary by 35, 3x by 40, etc. This rule works well for people who 1) start working at 25 and 2) do not experience significant pay raises, as either of those things will set you significantly behind.
Ultimately I use this as a target for what my 401k contribution should be, since I’m already maxing a Roth IRA each year and my company match is fairly low so maxing that is easy. But I definitely can’t afford to max the 401k, so I use this to help gauge where I really ought to be in between those bounds.
The way I calculate the target for a year is just sum up my gross income from paychecks for that year. This means it includes salary and bonus but not RSUs. The stocks are too volatile to make the accounting easy, and thus far haven’t been a significant fraction of my income. Then, multiply by the factor for the age I turn in that year. It looks like this:
| Tax Year | Age (Nov) | Gross salary+bonus | Multiplier | Target | Actual | Miss% |
|---|---|---|---|---|---|---|
| 2018 | 27 | $36.4k | 0.4x | $14.6k | $2.6k | -82% |
| 2019 | 28 | $70.4k | 0.6x | $42.2k | $9.7k | -77% |
| 2020 | 29 | $76.1k | 0.8x | $60.9k | $20.3k | -67% |
| 2021 | 30 | $81.9k | 1.0x | $81.9k | $42.0k | -49% |
| 2022 | 31 | $92.0k | 1.2x | $110.3k | $47.3k | -57% |
| 2023 | 32 | $100k? | 1.4x | $140k? | $80k? | ??? |
2023 of course are estimates, I won’t know those real numbers until ~mid November. “Actual” is the reported balance of my Roth + 401k in Fidelity at the end of the first trading day in November.
A few explanatory features. I started my current job in 2018 but only worked about half that year. I only had a tiny rolled over 401k from a job in grad school. So I’ve had both reasonably large raises and obviously started super late (even for someone who went to grad school - but hey at least I got in-state tuition!).
It looks like I’m not doing too hot. I started late, wasn’t contributing enough in 2018 and 2019 clearly, in 2020 I was saving for a house and finally got serious about contributing in 2020/2021. Maxed a Roth for the first time in 2021. If 2022 hadn’t been so astonishingly terrible in the stock market I’d have been steadily gaining ground the entire time though. Now I’m contributing about 21% of my income and since the market is doing better this year I’m back to gaining ground again. I like the rule, even in my “worst case scenario” because it’s fairly aggressive and keeps my from spending too frivolously.
So do you use the rule? How closely do you track it? Are you gaining or losing ground? How close to retirement are you?
I’ve only been working for 10 years but I have 2x at 40. I also live a low consumption lifestyle, so I’m not worried at all, and my salary has gone up 50% in the past 4 years. I now make 120K and have about 250K in assets. I do run CC debt now, usually about 3-4K but only on 0% interest rates for large purchases like furniture and appliances, which i have had to make a lot of recently.
Sadly I most of my peers have nothing saved for retirement or like 1x at most… and live high consumption lifestyles. People who make half what I make spending like 2-3x as much. I save 25% of my take home. Most are depending on parental wealth inheritance to buy homes and pay for retirement.
I would definitely not have ever been able to purchase a home (and pay off student loans) if not for money left to me when my mother died. Even with that, I’m still technically behind on retirement and I don’t think we live an especially extravagant lifestyle. We barely spend anything on hobbies, we own our cars outright, insurance is cheap. We have friends our age who are trying to navigate home shopping without any help from their families and it’s just impossible. And we don’t live in an especially HCOL area.