Wednesday, September 12, 2012

Fidelity Outlines Age-Based Savings Guidelines to Help Workers Stay on Track for Retirement

Fidelity Outlines Age-Based Savings Guidelines to Help Workers Stay on Track for Retirement 
(Fidelity, 09/12/12)

Fidelity issues "age-based savings guidelines" concluding that a typical person retiring at age 67 should accumulate at least 8 times final annual pay to secure an 85% replacement income in retirement.

Based on our understanding of the assumptions noted in this news release and the methodology outlined above, we have confirmed Fidelity's 8 times final pay calculation, but caution individuals who may rely on this study that one of the assumptions made by Fidelity may be overly optimistic and therefore understate the accumulated savings needed.   Fidelity has assumed that accumulated savings will earn a REAL rate of return of 5.5% per annum, or a nominal return of almost 8% per year based on their assumed rate of inflation of 2.3% per annum.  Individuals planning for retirement or developing spending strategies in retirement may wish to utilize a more conservative annual investment return assumption.