<p>@VeryHappy, well, then I know that you earned your user name. 8x can be a high hurdle, especially since many people at close to retirement age are at peak earning years. I guess a benefit of the rule is that it gets some people to save more, which is seldom a bad thing. </p>
<p>I think I can meet that 8X salary goal soon. Not by saving more, but we could work a lot less. It would be easy to reduce our hours. Of course, that probably wasnât the intentionâŠ</p>
<p>I donât know what that 8x âruleâ is based on. Is it just something some website pulled out of thin air or is it based on expected return, expected inflation, etc. </p>
<p>If you are a solidly middle income person earning $50,000, then the 8x rule indicates you need to save $400,000. Would that last for 20 years? I donât think so. There must be some threshold level before the 8x rule would make sense. </p>
<p>The 8x rule assumes that you will receive the social security which will be about 35% of your preretirement income.
It also excludes the assets/equity in your house.</p>
<p>I am not sure whether the 8x refers to the pretax or after-tax assets.</p>
<p>This is where I saw it - Fidelity: <a href=âhttps://www.fidelity.com/viewpoints/retirement/8X-retirement-savingsâ>https://www.fidelity.com/viewpoints/retirement/8X-retirement-savings</a></p>
<p>Iâve copied part of the article here: </p>
<p>How did we get to 8X? </p>
<p>We got to 8X by starting with a hypothetical worker with average income and a willingness to save and invest. From there, we evaluated what salary multiple of her ending salary she would need at retirement to cover her estimated retirement expenses.</p>
<p>Letâs call our hypothetical worker Lily. We assume she starts saving at age 25, retires at 67, and lives until 92. Lilyâs salary grows from $40,000 at 25 to $73,640 at retirement (with no breaks in employment). She defers 6% of her salary at 25, escalating to 12% within six years. She receives a 3% company match and takes no loans or withdrawals. We assume her investments grow at 5.5% a year (3.2% after assumed inflation of 2.3%). When she retires at 67, we assume she will spend 85% of her ending salary after taxes (tax rates stay the same), and get $1,918 a month in Social Security income.</p>
<p>Based on these assumptions, Lily would need to save $577,000 by age 67, or almost 8X her ending salary. This is the savings amount needed to cover $51,636 a year in spending, which is her total estimated annual expense, in todayâs dollars, assuming an 85% income replacement and subtracting Lilyâs estimated tax obligation, over 25 years in retirement.1 In this hypothetical, she would actually have saved $639,236 by age 67, more than her 8X goal, giving her a financial cushion for her retirement.</p>
<p>The ending salary for the 8X rule is tricky. Does a person making an ending salary of $200K need more in retirement than a person making an ending salary of $100K?</p>
<p>^Probably. The person making $200K probably expects more comfortable lifestyle than the person making $100K. If they expect not to sacrifice their lifestyle in retirement, they would need more.</p>
<p>@iglooo, which is why the personâs spending history is more important than their earnings. Someone who happily spent $50k will need less that someone who spent $80k, all else being equal. There are, of course, exceptions, but I think itâs a better basis for a heuristic than income. </p>
<p>^I agree with that. If you are not organized like myself, you may not know what you are spending. I donât spend much but I canât sit down and calculate what I spend. If you are like me, you are more likely to know what you make at present.</p>
<p>@iglooo, true, but you can probably say: I make 100, taxes are 30, 401k is 18, leaving me with 52. Mortgage is 22, which I wonât need to spend soon, meaning that my baseline cost is 30 if the house is paid off. </p>
<p>^ taxes wonât reduce from 30 to 0.</p>
<p>That 8x rule seems low to me â or seems to be based on an assumption that a safe withdrawal rate is a lot higher than what Iâm thinking or it assumes that you die by 85.</p>
<p>Maybe it is more accurate for lower income families, because SS replaces a much higher percentage of income in that range than it does for higher income families?</p>
<p>@lxnayBob, you are giving people like me way too much credit. I canât do that much. All I can manage is to set an upper limit for the credit card bill and hope to stick to it. Even the limit isnât fixed and has a wide band of upper and lower bound in my case. I am sure most people are better than I am.</p>
<p>In the example given, $51,636 per year of needed income minus $1918/month of SS leaves leaves $28620 per year needed from retirement savings.</p>
<p>With a balance of $577,000, this means a withdrawal in year one of just under 5%. The example assumes an after-inflation rate of return of 3.2%, so the balance will decrease over time if the withdrawal is adjusted for inflation, but just eyeballing it it seems like the retirement savings will last for 25 years.</p>
<p>@notrichenough, "^ taxes wonât reduce from 30 to 0. " Never said that it would. I was just trying to estimate the post-tax spending (with totally made-up numbers) to illustrate that even those without Quicken, a budget, records, etc., could at least estimate how much they spend. @Iglooo feels that I am giving some people too much credit :)</p>
<p>I know taxes donât go to zero. Iâm expecting the same marginal rate in retirement as we have now.</p>
<p>ETA: for federal anyway. Payroll taxes go to zero, and possibly state income tax also.</p>
<p>
</p>
<p>Let me edit; you are giving me too much credit 
I must have a mental hangup on this.</p>
<p>Also note, with the example that @Ixnaybob provided, the 401(k) contribs will go to zero as well. </p>
<p>@VeryHappy, true enough, but the point was that $30k was what was being spent on groceries, clothes, gas, cars, etc. â what was left after taxes, mortgage, 401k, etc.</p>
<p>My point was to show @Iglooo that one could figure out average expenses, roughly, even without Quicken or detailed records. In the process, I think I made things more confusing than I intended. </p>
<p>I will crawl back under my rock, but I will one last time say: base retirement readiness on spending, not pre-retirement income. </p>
<p>A thread on this very topic: <a href=âFidelity's retirement savings guideline-Only need 8x salary? - Bogleheads.orgâ>Fidelity's retirement savings guideline-Only need 8x salary? - Bogleheads.org;
<p>@lxnayBob, no need to hide under a rock. I agree basing on spending is a better measure. Some people are calling 25 times the spending at Boglehead!</p>