Understanding the 10X Retirement Savings Rule
Having 10 times your annual income saved by retirement is a financial planning rule-of-thumb—but what does that actually mean for your household? This discussion breaks down the numbers, strategies, and personal factors to help you understand what is involved.
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About this Episode
In this episode of Vector’s Well Balanced Podcast, our communications director Ezra and wealth manager Charlie Gruys explore retirement savings goals through practical examples, benchmarks, and financial planning insights. They discuss how income multiples (example: 6x annual income = investable savings at 55 years) can help guide retirement preparedness.
The conversation presents two household scenarios: 10 years from retirement, earning $250,000 annually but starting with different asset bases ($500K vs. $1M). These examples illustrate the impact of savings contributions and hypothetical return rates in achieving a $2.5 million retirement goal by age 65.
They talk about how rules-of-thumb such as “10x income at retirement” and “15% savings rate” are useful, effective planning must be tailored to the individual’s unique circumstances, including investment allocation, inflation assumptions, taxes, retirement age, and desired legacy.
7 Key Takeaways
1. Rules of Thumb Provide a Starting Point
Common benchmarks—like saving 3–4x income by age 45, 6x by 55, and 10x by retirement—are helpful guidelines, but not definitive prescriptions.
2. A 15% Savings Rate Is a Solid Target
Contributing approximately 15% of income toward retirement (including employer matches) is a widely accepted and achievable goal for many.
3. Investment Returns Significantly Impact Savings Needs
Assumed returns of 4%, 8%, or 12% greatly influence monthly savings requirements. Higher returns reduce the need for large monthly contributions, but are harder to sustain consistently.
4. Asset Location and Tax Considerations Matter
Saving in tax-advantaged accounts (e.g., 401(k)s, IRAs) and ensuring assets are invested appropriately—not merely saved in low-yield accounts—is essential for long-term growth.
5. Personal Factors Affect Retirement Needs
Variables such as lifestyle, health, debts, retirement age, and longevity expectations all play critical roles in determining appropriate savings goals.
6. Inflation Assumptions Should Be Tailored
While 3% is a standard inflation assumption, personalized inflation rates for categories like travel or healthcare may offer better forecasting accuracy.
7. Legacy Goals and Risk Tolerance Influence Planning
Whether a retiree wishes to leave a financial legacy or spend down their assets affects savings targets and investment strategy, especially as market volatility becomes harder to stomach near or in retirement.
Chapters
00:00 Intro: Savings Multiple & Charlie Gruys
03:09 Asset Location
09:45 Investment Strategies and Market Realities
13:07 Factors Influencing Retirement Savings
18:38 Inflation & Buffer Considerations
21:22 Individual Goals for Individuals
🎙️ Transcript (adapted for readability)
Ezra Firkins:
Hello, and welcome to another edition of the Well Balanced Podcast. I’m Ezra Firkins, and I’m joined today by Charlie Gruys, Advisor at Vector Wealth Management. Charlie, thanks for being here.
Charlie Gruys:
Thanks, Ezra. Glad to be here.
Ezra:
I wanted to run through some retirement scenarios today—just bounce a few ideas off you. Let’s see what makes sense.
Charlie:
Sounds great. I’m up for it.
Ezra:
Perfect. So, I just turned 45, and it got me wondering: how much should someone my age have saved for retirement? I dug into some research and tried to frame it, especially since most of our clients are a bit older—maybe 55 and up.
Charlie:
Absolutely. Many of our clients are in that pre- or post-retirement phase.
Ezra:
Exactly. So, the big question is: what’s a reasonable multiple of income to aim for in retirement savings?
Charlie:
Good question—and a great topic. While there’s no hard rule, a common benchmark suggests that by age 45, you should have about 3–4 times your annual income saved.
So if you’re earning $100,000, the goal would be $300,000 to $400,000 saved. For a dual-income household earning $200,000, that would be around $600,000 to $800,000.
Ezra:
Right. And that assumes you’re saving consistently—say, about 15% of your income annually—and earning a reasonable return on your investments.
Charlie:
Correct. And the multiple increases as you age. By 50, aim for 6x your income; by 60, 8x; and by retirement—around age 65 to 70—you’re aiming for 10x.
Ezra:
That rising target helps ensure you have enough runway heading into retirement. And just to clarify—these assets should be invested appropriately, ideally in retirement accounts like IRAs or 401(k)s, not just sitting in a savings account.
Charlie:
Yes, that’s key. Location matters. You want tax-advantaged accounts and investments earning reasonable returns. A savings account might offer 3–4% these days—maybe slightly more in a CD or money market—but still limited.
Ezra:
Exactly. So let’s play out a couple of hypothetical examples. Say we have a household earning $250,000 per year. If they’re aiming for 10x their income, their retirement savings goal would be $2.5 million—excluding home equity, since that’s typically not liquid or income-generating.
Charlie:
Right. Most people are looking to replace their income in retirement, so that 2.5 million target fits.
Ezra:
Okay. First example: they’re 55 years old and have $500,000 saved. What would they need to save monthly to reach $2.5 million in 10 years? Let’s say they earn 12% annually—a high hurdle.
Charlie:
Even at that high return, they’d need to save about $4,500 a month. If returns are lower—say 4%—that amount nearly doubles. It really emphasizes the importance of both savings rate and realistic return assumptions.
Ezra:
Second example: same couple, same age, but they’ve already saved $1 million. Now, with an 8% return, they might only need to save around $2,000 a month—more manageable.
Charlie:
Yes, and remember that 15% savings rate is a solid rule of thumb. For a $250,000 income, that’s $37,500 a year—or just over $3,000 a month. If they’re saving that much, they’re on track. And don’t forget to include employer contributions—matches, profit-sharing, and so on.
Ezra:
Exactly. And pensions or income-generating real estate also factor in.
Now, we often say around here: “Everyone’s plan works at 8% returns.” But is that realistic?
Charlie:
It’s an average that assumes a high equity allocation. But year-to-year returns fluctuate. Some years are negative—2008, for instance, was down 35%. More recently, 2024 returned mid-20s in equities.
Ezra:
Right. You don’t get 8% every year. And as people get closer to retirement, they tend to shift toward lower-volatility assets. That shift might reduce expected returns, but it also helps manage risk.
Charlie:
Exactly. By retirement, most people have the most saved they’ve ever had. So a 10% drop on $2 million—$200,000—is stressful. Lower volatility can help people sleep at night.
Ezra:
So back to the 10x income goal. Is that always reasonable?
Charlie:
It depends. Longevity is a huge factor. Do you expect to live to 85? 95? That changes things. Plus, it’s not just your own health—you have to consider your spouse or partner’s longevity too.
Ezra:
Right. And timing matters. If someone wants to retire early, they might need more saved. Conversely, someone working until 70 may need less.
Charlie:
Lifestyle matters too. Some want to travel extensively; others just want to play local golf. Spending varies. Some still carry a mortgage or other debt. Others have paid those off.
Ezra:
Let’s do a quick speed round to wrap up:
Goal Size: Is $2.5 million a good target?
Charlie:
Depends on what you’re asking of it. That number works if you want to replace $250,000/year, but it depends on lifestyle, expenses, and supplemental income.
Ezra:
Inflation—how do we account for it?
Charlie:
We usually assume 3%, though that can vary. Medical expenses might grow faster, while tech gets cheaper. We tailor assumptions to the client.
Ezra:
And what about leaving money behind—beneficiary balances?
Charlie:
Most people want to leave something, even if they’re not sure how much. That goal gets baked into the plan too.
Ezra:
Last thoughts?
Charlie:
Rules of thumb are helpful—save 15% of income, target 10x income by retirement—but real success comes from tailoring those rules to the individual.
Ezra:
Exactly. Thanks, Charlie. Great conversation today.
Charlie:
Thanks, Ezra. Always a pleasure.
These discussions aim to spark dialogue about enhancing retirement readiness and making more informed financial decisions. At Vector, we delve into the nuances of scenario planning, offer insights and guidance tailored to each client's unique circumstances. If you or someone you know is pondering their financial future or seeking clarity on their retirement plan, we're here to help.
This discussion is between Charlie & Ezra.
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