Retiring on Social Security alone isn't the best idea. The typical retired worker today collects just $1,918 a month, which results in about $23,000 of yearly income. If that doesn't sound like a sufficient amount of income to you, then you'll need to plan to save well on your own.
But what does "saving well" mean? If you ask Fidelity, they'll advise closing out your career with 10 times your ending salary saved by age 67. And to be fair, that's probably good advice for a lot of people. But don't assume you're doomed if you end up retiring on less.
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Why the need for 10X your salary is a myth
Retiring with 10 times your salary in a 401(k) or IRA may be something you need -- depending on you. But if your plan is to downgrade your lifestyle in retirement, then you may be just fine on a lot less money.
Remember, when you're working, you need access to jobs. That often means paying a premium for housing. Once you're retired and don't need a job -- or at least not a full-time one -- you get a lot more flexibility with where you can live.
You might swap an expensive city condo for a modest one outside the city for one-third the cost. Or, you might downsize out of a $750,000 house with a $12,000 annual property tax bill into a $300,000 home costing $4,000 a year in taxes.
Furthermore, once you're no longer working, you may have more time for things you may have previously outsourced, like meals and house cleaning. And once you're older, you might prefer local trips to international ones, saving money there, too.
That's why you don't necessarily have to fixate on saving 10 times your salary for retirement. A better bet? Think about what you want retirement to look like for you. Decide where you'll live and how you'll spend your days. Then, estimate the cost of that lifestyle and use that to determine how much savings you think you'll need.
Don't forget to factor in other income sources
Fidelity's estimate of needing 10 times your salary in retirement savings might also hinge on certain assumptions that don't apply to you. Many workers these days do not have access to a pension. But if you do, that takes some of the pressure off to save.
Similarly, a lot of people opt not to work in retirement -- and understandably so. But if you're someone who can't sit around the house with no schedule, then you may be eager to get a part-time for the social and mental health benefits as much as the financial benefit. That, too, might make it possible to live comfortably on a smaller nest egg.
There's no need to stress
All told, the guidance to save 10 times your income for retirement is something you should use as a starting point. But don't be afraid to tweak that advice to suit your own circumstances.
Remember, some people might struggle financially with a nest egg that only replaces their ending salary 10 times over. You might thrive on a nest egg that represents four or five times your final income. So don't let this or any other so-called retirement rule of thumb stress you out. Instead, customize a savings strategy based on you.
