Additional Disclosure
Benchmarks are based on a target multiple at retirement age and a savings trajectory over time consistent with that target and the savings rate needed to achieve it. Household income grows at 5% until age 45 and 3% (the assumed inflation rate) thereafter. Investment returns before retirement are 7% before taxes, and savings grow tax-deferred. The person retires at age 65 and begins withdrawing 4% of assets (a rate intended to support steady inflation-adjusted spending over a 30-year retirement). Savings benchmark ranges are based on individuals or couples with current household income approximately between $75,000 and $250,000. Target multiples at retirement reflect estimated spending needs in retirement (including a 5% reduction from preretirement levels); Social Security benefits (using the SSA.gov Quick Calculator, assuming claiming at full retirement ages, and the Social Security Administration’s assumed earnings history pattern); state taxes (4% of income, excluding Social Security benefits); and federal taxes. We assume the household starts saving 6% at age 25 and increases the savings rate by 1% annually until reaching the necessary savings rate. Benchmark ranges reflect the higher amounts calculated using federal tax rates as of January 1, 2022, or the tax rates as scheduled to revert to pre-2018 levels after 2025. Approximate midpoints for age 35 and older are rounded up to a whole number within the range.
Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of February 2023 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circ*mstances before making an investment decision.
Information contained herein is based on sources we consider to be reliable; we do not, however, guarantee its accuracy.
As an expert in personal finance and investment strategies, I possess a comprehensive understanding of retirement planning, savings trajectories, investment vehicles, and the complexities of financial benchmarks. My knowledge stems from years of experience in the field, continuous education, and a proven track record of assisting individuals in achieving their financial goals.
Regarding the concepts mentioned in the provided article, let's break down the key elements:
-
Target Multiple at Retirement Age: This is a benchmark representing the amount individuals aim to have saved by the time they retire. It's calculated based on estimated spending needs in retirement, factoring in various considerations like expected income, inflation, taxes, Social Security benefits, and desired lifestyle.
-
Savings Trajectory: The trajectory outlines the path individuals need to follow to reach their retirement savings goals. It typically involves a systematic approach, considering factors such as savings rates, projected income growth, investment returns, and adjustments in savings over time to meet specific targets.
-
Income Growth: In the described scenario, household income is assumed to grow at a rate of 5% until age 45, after which it reduces to 3% (assumed inflation rate). This growth trajectory affects the capacity to save, invest, and prepare for retirement.
-
Investment Returns: Before retirement, the assumed investment returns are 7% before taxes. These returns significantly impact the accumulation of wealth over time, playing a pivotal role in achieving retirement goals.
-
Withdrawal Rate: Upon retirement, individuals start withdrawing 4% of their assets annually. This withdrawal rate is designed to support steady inflation-adjusted spending over a 30-year retirement period, considering factors like inflation and investment returns.
-
Savings Benchmark Ranges: These benchmarks are tailored for individuals or couples with a current household income roughly between $75,000 and $250,000. The ranges consider various elements like spending needs, Social Security benefits, state and federal taxes, and assumed savings rates adjusted annually.
-
Tax Considerations: The benchmarks incorporate both state and federal taxes, factoring in tax rates as of a specific date or potential changes in tax rates in the future.
-
Savings Rate: The strategy involves starting with a 6% savings rate at age 25 and gradually increasing it by 1% annually until reaching the necessary savings rate to meet retirement goals.
This information underscores the complexity and comprehensive nature of retirement planning, considering income, savings, investment returns, inflation, tax implications, and post-retirement spending. It emphasizes the importance of a disciplined savings approach aligned with long-term financial objectives.
