Fidelity’s 45% Rule for Retirement Savings: An In-Depth Analysis

Fidelity, a financial services giant, has a widely-known rule for retirement savings: aim to have 10 times your annual salary saved by the age of 67. However, this rule does not fully account for how much of these savings will be needed to cover expenses in retirement. To address this, Fidelity introduced the 45% rule, which states that your retirement savings should generate approximately 45% of your pretax, pre-retirement income each year. This is in addition to Social Security benefits, which should cover the remaining expenses.

To determine the amount of savings needed, Fidelity analyzed spending data for individuals aged between 50 and 65 years old. They found that most retirees need to replace between 55% and 80% of their pre-retirement income to maintain their current lifestyle. Consequently, a retiree earning $100,000 per year would need between $55,000 and $80,000 per year in Social Security benefits and savings withdrawals (including pension benefits) to maintain their lifestyle.

Fidelity’s 45% rule is an important guideline for retirement planning, as it helps individuals understand how much of their savings will be needed to cover expenses in retirement. However, it is essential to note that retirement spending plans can vary significantly based on individual circumstances. High earners may have larger savings, but they will also need to replace a larger proportion of their pre-retirement income.

In conclusion, Fidelity’s 45% rule is a valuable tool for retirement planning, but it should be used in conjunction with other retirement rules of thumb. It is crucial to consider individual circumstances and plan accordingly to ensure a comfortable retirement.