A few years back, Fidelity Investments created quite a flap by publishing an article,

which included a set of "milestones" toward retirement, in the form of a table showing how much savings you should try to accumulate by each 5-years of age. In particular, their recommendation for age 35, assumed to be 10 years into your accumulation, was DOUBLE your age-35 salary.

Readers will want to study Fidelity's extensive footnotes, which explain their methodology and assumptions.

0 - Site Concepts, Ground Rules, and Operations,

Why you MIGHT NOT NEED TO,

and Why the 2X milestone for age-35 is essentially meaningless!

Each row of the on-screen results table, is a valid solution to the proposed retirement.

These do not, and can not, predict nor control world events, market conditions, your debts, taxes and other expenses, nor your choice of investment securities, etc.

If you are new to this website, we recommend that you visit some of the

providing more detailed information about our concepts and procedures.

One option used repeatedly in this posting, is the CUSTOM range calculation. You can use "Custom" to produce (Contribution, Yield) solutions in as narrow or as wide a range as you please. On the screen and just to the left of the "CALCULATE" button, you will see the text, "Contribution Range:" and then the word "Broad". Broad is the default option of a dropdown list. Click on this to show the list. "Custom" is the bottom-most choice. You'll be asked to provide values for two new data entry elements that will expand on the screen: a Central contribution value (your best guess of what you are looking for), and a Step value, which will increment additional contribution values above and below that central value.

Your choice of Range will appear in the title line of your on-screen results.

This, and other data entry items are explained in the on-screen HELP section on the right, the button labelled "What Else to ENTER".

Click

Min Yield required for Broad Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 2.50% 1 10.390% 4.995X 9.007% 5.00% 1 8.414% 5.985X 7.519% 10.00% 1 6.401% 7.348X 6.125% 20.00% 1 4.332% 9.293X 4.843% 40.00% 1 2.195% 12.185X 3.694% 80.00% 1 * 0.038% 16.514X 2.725% from MAX: 78.61% Multiplier of Salary & Prices during 42 working years: Salary: 5.0674 Prices: 2.7522 Spend_Power: 1.8412 PLOT EXTENDER IN EFFECT: Hi-C KEYPARMS_25_67_93_RPL45%_SAV0.00X_I2.5%_R4.0375%

Fidelity suggests contributions of 15%, so first we'll find the necessary investment yield to work with this.

Min Yield required for Custom_15_1 Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 12.00% 1 5.863% 7.791X 5.776% 13.00% 1 5.625% 8.000X 5.625% 14.00% 1 5.405% 8.202X 5.488% -------------------------------------- 15.00% 1 5.198% 8.396X 5.360% -------------------------------------- 16.00% 1 5.005% 8.585X 5.242% 17.00% 1 4.823% 8.769X 5.132% 18.00% 1 4.651% 8.948X 5.030% 19.00% 1 4.488% 9.122X 4.933% KEYPARMS_25_67_93_RPL45%_SAV0.00X_I2.5%_R4.0375%

For Solution #2, let us find a suitable contribution amount that works with a yield of exactly 7.00%.

The initial report places this yield between the contributions of 5% and 10% so we'll focus between those values, truncating the outliers.

Min Yield required for Custom_7.5_0.25 Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 7.50% 1 7.242% 6.725X 6.691% 7.75% 1 7.146% 6.791X 6.625% -------------------------------------- 8.00% 1 7.054% 6.857X 6.562% 8.25% 1 6.964% 6.921X 6.501% -------------------------------------- 8.50% 1 6.877% 6.985X 6.442% 8.75% 1 6.792% 7.047X 6.385% KEYPARMS_25_67_93_RPL45%_SAV0.00X_I2.5%_R4.0375%

Min Yield required for Custom_8.15_0.03 Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 8.06% 1 7.032% 6.872X 6.547% 8.09% 1 7.021% 6.880X 6.540% -------------------------------------- 8.12% 1 7.010% 6.888X 6.532% 8.15% 1 6.999% 6.895X 6.525% 8.18% 1 6.989% 6.903X 6.518% -------------------------------------- 8.21% 1 6.978% 6.911X 6.511% 8.24% 1 6.967% 6.919X 6.503% KEYPARMS_25_67_93_RPL45%_SAV0.00X_I2.5%_R4.0375%

... and again ...

Solution #1 will be 15.0% contributions at 5.198% investment yield.

In the next section, for each of these solutions, we will work out the exact amounts accumulated at the ten year mark (age 35)

and compare with the benchmark of 2X salary.

For starters, we need to determine what the age 35 salary will be, compared with the age 25 salary.

In ten years, we start with a first year at some initial salary, and get NINE (NOT ten!) raises.

Fidelity specified "real" raises of 1.5% per year. We have assumed inflation to be 2.5% per year.

The "real" raise is calculated as:

(1.00 + inflation/100)

thus:

1.025 * 1.015 = 1.040375 ... giving a real raise of 4.0375% per year.

Nine such raises will multiply any initial salary by a factor of: 1.040375 to the 9-th power = 1.4279374

And therefore 2X the 10 year salary is twice the above: 2 * 1.4279374 = 2.8558748 times initial salary.

We need a suitable calculator which is capable of summing up the contributions, raises, and interest over some number of years (ten).

The starting salary amount is arbitrary. By selecting a power of 10 such as 100K, we simplify some of the math.

So let's make this concrete by assuming an age 25 salary of 100,000 per year.

Ten years later, this salary will have grown to 142,793.74 per year,

and twice THAT makes the 2X salary saved target value = 285,587.48

We must supply a contribution amount and an interest rate amount. Each time the "Calculate" button is clicked, the End Balance will be evaluated with the current set of inputs. If this End Balance is less than 285,587.48, we know that our combined contribution and interest rate are insufficient to achieve the 2X target in the ten years; if greater, we have exceeded the 2X target.

If we have a fixed contribution in mind, we can vary the input interest rates until we close in on a rate that brings us close enough to the target balance of 285,587.48; alternatively we can keep a desired interest rate fixed and vary the contribution until we close in on that same end balance.

What do we mean by "close enough"?

An end balance within about three dollars (2.855) is within one part in 100,000 of above 2X value. Solutions within a range of 5 times this, or about 15 dollars, are close enough for most purposes.

We'll start with Solution #1 as developed in Section #1:

Using the 15% contribution recommended by Fidelity, the retirement is satisfied at 5.198% investment yield.

Plugging Solution #1 into the savings calculator we get -- End Balance $236,977.67 --

For Solution #2 (8.15% contributions at 7.00% investment yield) -- End Balance is $141,753.67 --

Solution #1 asks the worker to do more of the heavy lifting;

Solution #2 asks the markets to do more of that! Therefore, market conditions permitting,

at a higher interest rate, you do not need as much money in the account to satisfy your retirement!

Since both fall short of 2X but Solution #1 comes closer,

we will use Solution #1 as the basis for a plan to calculate our first two pathways to 2X in ten years:

THUS:

We now seek a

We know that the 15% contribution point provides LESS than 2X at ten years.

Recalling the original "Broad-range" solutions for Fidelity from Section #1, our next known contributions are

contrib: yield: sav/sal: withdrw: 20.00% 1 4.332% 9.293X 4.843% 40.00% 1 2.195% 12.185X 3.694% We calculate the 10 year savings for each, hoping to find a solution above 2X: 20.00% 4.332% ==> $301,783.38 ... IS OVER 2X 40.00% 2.195% ==> $539,323.67 ... IS MUCH OVER 2X

That is an estimated contribution of 18.75%. Are we getting close?

To find this out, we run a CUSTOM-range NesteggCycle.com calculation centered on 18.75% with steps of 0.10% to provide new points to feed into the 10 year savings calculation. The outliers have been truncated.

Min Yield required for Custom_18.75_0.1 Range Salary Contribs: 1 after contrib: yield is same PRE & POST Ret contrib: yield: sav/sal: withdrw: 18.55% 1 4.560% 9.044X 4.976% 18.65% 1 4.544% 9.062X 4.966% -------------------------------------- 18.75% 1 4.528% 9.079X 4.957% -------------------------------------- 18.85% 1 4.512% 9.096X 4.947% 18.95% 1 4.496% 9.114X 4.938% KEYPARMS_25_67_93_RPL45%_SAV0.00X_I2.5%_R4.0375%

The 10-year savings for (18.75%, 4.528%) is: $285,874.23, which is a few hundred OVER 2X, so YES, we are quite close but need to go a little lower.

We'll try the next one down: (18.65%, 4.544%); 10-year savings is: $284,590.76, about 1000 UNDER 2X.

In the same savings calculator session, we'll now look for off-the-curve combinations of contribution and yield which work to bring the 10-year sum to 2X, which again, amounts to 285,587.48.

We retain the raises of 4.0375%, the term of 10 years, and the starting sum of zero. We can reasonably take a little investment risk while very young. So let's try to find 2X solutions at yields of 7.00%, 8.00% and 9.00% ... we will play with the contribution until it gives us an End Balance within a few dollars of 285,587.48

For 7.00% interest: contribution to reach 2X in ten years: 16.420%

For 8.00% interest: contribution to reach 2X in ten years: 15.561%

For 9.00% interest: contribution to reach 2X in ten years: 14.745%

Now that we have the 2X calculations for 7, 8 and 9 percent, we can scale these up or down easily.

The required contributions will be in proportion to the desired end balance, at each interest rate,

so we have for 1X, half the 2X contribution; for 4X, double the 2X contribution, etc:

1X 2X 3X 4X 6X 8X Rate 7.00% 8.210% 16.420% 24.630% 32.840% 49.260% 65.680% 8.00% 7.781% 15.561% 23.342% 31.122% 46.683% 62.244% 9.00% 7.373% 14.745% 22.118% 29.490% 44.235% 58.980%

However, there are organizations of people interested in "FI/RE" -- Financial Independence / Retire Early, who actively seek out such solutions. For those interested, one introductory article is here:

Why you MIGHT NOT NEED TO,

and Why the 2X milestone for age-35 is essentially meaningless!

Any and all monies you can accumulate early into your career, translates into more options later on. This is because early money has more years ahead, in which to compound and grow. Therefore, it may become possible to increase your payouts, retire sooner, or "de-risk" your investments at retirement, by leaning extra-hard into early savings.

We will give some tantalizing hints of the possibilities here, with a more comprehensive discussion coming in

with 2X saved by 35: age-62 retirement becomes possible at modest cost. with 3X saved by 35: age-62 retirement becomes very cheap! with 4X saved by 35: age-57 retirement becomes very cheap! with 6X saved by 35: age-47 retirement becomes very cheap! with 8X saved by 35: age-42 retirement becomes very cheap; age-37 retirement is possible at modest cost!

There are many ways to successfully achieve the Fidelity-specified retirement, in which the amount you have accumulated by age 35 will be less, possibly MUCH less, than twice your age-35 salary.

In fact, any solution using Fidelity's assumptions, AND with contribution UNDER 18.727% will have you under 2X yet perfectly on-track!

As long as you understand and are satisfied with these retirement goals, there is no reason to do more than just run the NesteggCycle calculation using Fidelity's assumptions but with your own current age and savings, and the CUSTOM Range centered on the actual contribution you are putting in, and verify whether the yield required to satisfy the retirement, agrees with the yield you are actually earning.

More on this, coming in

In this posting, we've used a set of assumptions appearing in the footnotes of a Fidelity Investments article,

You are urged to read and understand these, and to re-run the calculations with numbers more suitable to your own situation, your expectations for raises and inflation, your projected retirement lifestyle and expenses, and your projected other income sources, IF ANY, which might include for example: government pension, private pension, part-time job and/or side-business.

Fidelity assumed an end age of 93. At NesteggCycle.com, we routinely work with an end age of 105,and calculate payouts which will run the nestegg out of money after this age!

You might minimally want to re-run the calculations with an end age higher than 93.

In the table below, we have Solutions #1 and #2, and "2X Solution C", but have also added rows spanning a wide range of additional solutions:

Now THIS is interesting! The range of 10-year nestegg amounts (age 35) is a lot more extreme than the 42-year nestegg amounts! (age 67) contrib: yield: 10y sav: 42y sav: 42y/10y: 1.25% 12.344% 0.203X 4.254X 20.956 2.50% 10.390% 0.366X 4.995X 13.648 5.00% 8.414% 0.657X 5.985X 9.110 8.15% 6.999% 0.993X 6.895X 6.944 -- Solution #2 15.00% 5.198% 1.660X 8.396X 5.058 -- Solution #1 --------------------------------------------------- 18.727% 4.532% 2.000X 9.075X 4.538 -- 2X Solution C --------------------------------------------------- 25.00% 3.653% 2.549X 10.097X 3.961 40.00% 2.195% 3.777X 12.185X 3.226 60.00% 0.910% 5.298X 14.552X 2.747 75.00% 0.191% 6.380X 16.147X 2.531

Depending on the paired contribution amount and yield chosen for your solution, the above table demonstrates 31.4-fold variation in the 10-year savings/salary ratios, versus a more modest 3.8-fold ratio in the at-retirement (42-year) savings/salary ratios.

Each row will fund a retirement at age 67, with first year payouts of 45% of final year's salary, and 2.5% COLA's, continuing through age 93.

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