Although it is well known that setting aside money during one’s career will allow for a comfortable retirement, it is not as clear just how much one should aim to save.
David Bach, author of “The Automatic Millionaire” and “Smart Women Finish Rich,” joined CNBC’s “Make It” to share his thoughts on how one should gauge their annual money-saving.
Bach shares a simple formula originally created by retirement-plan provider Fidelity that works by multiplying one’s starting salary by a factor of “X,” depending upon age.
Fidelity’s formula is as follows:
Age 30: Have the equivalent of your starting salary saved
Age 35: Have two times your salary saved
Age 40: Have three times your salary saved
Age 45: Have four times your salary saved
The formula continues up until age 67, at which it suggests you have 10 times your salary saved. Although Bach states that “it’s a generic formula,” it may be used as a good starting point to determine how much money you should set aside throughout your career.
“If you’re looking at these charts and it’s depressing you… here’s what I can tell you: It’s never too late to start investing and the best time to start is now,” says Bach. “We’ve seen many people who look at these charts at 50 and have zero in savings—maybe they’ve gone through a divorce or they’ve lost a job or a business or the recession forced them to take a step back. Well, now you’ve just got to get back up and get going again.”
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