/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?
First, thanks for contributing. I credit r/personalfinance as one of the most important factors that allowed me to become financially literate. Still cleaning up the messes of my 20’s, but things would be WAY worse if I wouldn’t have been able to self-educate. I’m not going back to Reddit, so I’m thankful that you’re contributing content here instead.
In regards to your question, relatively poorly.
I’m 31. My salary when I began work after grad school was 35k with only 2% going into retirement; now my salary is north of 100k with 15% going into retirement. I am at about 40% of my annual income, so definitely behind. I should be able to have some nice catch-up progress over the next five years, but I can’t help but feel like a better starting job pre-COVID would have set me up way better.
At 29, we’re at $170k in retirement funds with $150k household income. I’ve been lucky to max my 401k and Roth IRAs for both my wife and I the past two years. The biggest thing I’ve done to accomplish that is increasing my contribution with each pay raise I’ve gotten. Our net income hasn’t increased much over the past 5 years, but our gross income has increased ~$60k.
Every few months, I’ll run the numbers on what is needed to retire and I think we’re in pretty good shape. I intentionally don’t include my wife’s pension or Social Security in those calculations, which makes me feel a bit better about where we are.
Year Age HHI Retirement 2017 23 $95k $8,900 2018 24 $100k $19,900 2019 25 $110k $42,900 2020 26 $120K $74,000 2021 27 $135k $116,300 2022 28 $140k $123,400 2023* 29 $150k $171,900 You tripled your salary in 5 years so the rules of thumb will fall apart a little bit.
I started my career pretty late, so I’m in major catch-up mode, trying to hit 2x at 35. Starting last year I’ve maxed both my 401k and IRA every year. Plan is to keep on doing that so that every raise going forward I get to keep. Also on that note my raises typically hit mid-year, which makes figuring stuff out worse
Year Age Salary Retirement 2020 29 N/A N/A 2021 30 $50k $15k 2022 31 $65k $40k 2023 32 $80k $80k (est) While catching up on retirement I’ve also been establishing an E-fund (~18 months currently) and a car replacement fund (~50% of what it needs to be with current prices), so my budget has been pretty brutal the past few years. I’m hoping to ease up a little once I hit 35, though then house savings start so who knows.
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.
