Just before my birthday I got an email that contained a retirement factoid I’d never heard before:
Fidelity suggests that by age 35, you should have at least one times (1X) your yearly income saved to meet your basic needs in retirement.
Nothing like a little extra retirement anxiety on my birthday. Thanks Fidelity!
Update: Don’t put too much stock in rules-of-thumb. A year later, Fidelity sent me an email that said:
Fidelity suggests that by age 35, you should have at least two times (2X) your yearly income saved to meet your basic needs in retirement.
It looks like they’re sticking with “2X by age 35”. Fidelity just produced a video with the following benchmarks:
Update: I’ve since learned that a far better indicator of retirement-readiness is aiming to reach a point where “your assets now equal 25-times your annual spending”. With Fidelity’s rule-of-thumb, age and salary are largely out of your control—and as your salary increases, counter-intuitively that pushes back the goalpost on retirement (because it assumes a proportional level of lifestyle inflation). Using savings and spending as the indicators puts financial independence squarely in your control. Want to retire before age 67? Reduce your spending and/or increase your saving.
But it did succeed in getting me thinking about how I measure up. If I combine both my Roth IRA and my 401(k), I’m a hair over 50% (or 0.5X) of my salary. If I also include my brokerage account (which isn’t strictly earmarked for retirement—it’s more medium-term savings), it bumps up to just over 60%. So by that yardstick, I’m coming up short. Their email obviously had the intended effect, because I increased my 401(k) contribution from 6% to 75% just in time for my final paycheck of 2014.
What else happened in 2014? At the beginning of the year I started moving money from my savings account to my brokerage account on a monthly basis to automatically buy more shares of the index funds I have there. Stephanie quit her job in May, making us a single-income household for the first time. Not a moment too soon, I got a promotion, which came with a nice salary bump. As a result, I adjusted my 401(k) contribution percentage from 7% to 6%—so as to not lock up too much for the future. Last but not least, we got married.
The first order of business in 2015 was rebalancing our various accounts. International equities have not faired well in 2014, so I sold a portion of the domestic index fund we both hold to buy more international index fund shares to return to a 50/50% mix in our Roth IRAs, and a 40/40/20% mix (domestic/international/bonds) in my brokerage account.
Also, as of the new year, I have a new employer: FTD. Yep, that FTD. (Provide Commerce, the company that acquired Sincerely in 2013, was in turn acquired by FTD at the end of 2014.) All that to say, I now have access to FTD’s 401(k) plan, which has a Roth 401(k) option, so I’m going to start the year contributing 10% of my salary, after-tax. My take-home pay will be tighter without the tax savings, so I may have to ratchet that percentage down when I get a better feel for the impact. A nice side-effect of the acquisition is that it gave me the opportunity to rollover my Provide Commerce 401(k) balance to Schwab (which I’ve already initiated). I will then likely convert it from a Traditional IRA into my Roth IRA (and absorb the requisite tax hit).
Now that we’re officially married, the income limits on Roth IRA contributions are much higher. That, coupled with the fact that Stephanie didn’t earn a full year’s salary in 2014, means I might be able to contribute to my Roth IRA for the first time in several years. All of which should go a long way towards that 1X retirement savings milestone.
Any bonus I receive this year will go towards the Roth IRA first, our “emergency fund” second (which we’ve been using to pay for some larger home improvement projects), and my personal savings account third, which I plan to continue funneling into my brokerage account on a monthly basis.