Hanging around personal finance blogs, forums, and websites, you may get the impression that everyone is doing financially better than you are. Maybe you’re 40 and just starting to get your financial life together, reading about someone retired at 35. Or perhaps you’re 30 and find some stories about people who became multi-millionaires in their 20’s.
Comparing yourself to others can make you frustrated, upset, and sometimes make you feel like throwing in the towel. After all – if you’re 37 like me, and still working toward financial freedom, there’s no way you’re retiring at 35 unless someone invents a time machine and drops it off at your house.
Recently there was backlash around the advice that you should have twice your income saved for retirement by the time you’re 35. Similar advice has been around for a number of years – although it seems that since 2012, the amount you “should have at 35” has doubled.
I’m not sure why it got picked up this time to be mocked around the internet. It was apparently this Marketwatch coverage of the Fidelity goals that got everyone going this time (be sure to check out their response, if you haven’t already). But just because you can’t possibly do what the “financial media” advises you to, doesn’t mean you should dismiss it or give up on your goals.
By 35, you should have twice your salary saved, according to retirement experts: https://t.co/QoVA6EFpHJ
— MarketWatch (@MarketWatch) May 12, 2018
First, lets take a closer look at this specific advice. Then we’ll concentrate on what the productive response is should you not be on track to meet the goals the financial media tells you that you “should” be striving for (and go through a few unproductive, but funny, responses). And we’ll close by reflecting on how you should look to create your personal financial roadmap.
A Closer Look At The Advice – Fidelity Retirement Number
Whenever you read a simplistic financial statement online, the first thing you should do is to ask yourself a few questions. Those questions include:
- What are the assumptions behind this advice?
- Who is giving the advice, and do they have any possible conflicts of interest?
- Is the advice consistent between experts, or is there disagreement? And if there’s disagreement – why?
- Does this advice apply to me, or not?
You’ll find some interesting things when you ask this question about the advice to have twice your income saved for retirement by 35. I would recommend you use this same kind of framework to question any advice you see touted in a media outlet, financial or not.
What are the assumptions behind this advice?
The first thing you should be doing is looking at the original source of whatever financial information you’re reading about. Remember, the mainstream financial media often summarizes or spins research in a way that you may lose the nuance behind the key takeaways. Looking at the original Fidelity information, you’ll find the following assumption:
“You start saving a total of 15% of your income every year starting at age 25, invest more than 50% of your savings in stocks on average over your lifetime, retire at age 67, and plan to maintain your preretirement lifestyle”
Reading on, you’ll find this quote in the article:
“Think about these savings factors as milestones along the way,” says Adheesh Sharma, director of financial solutions for Fidelity Strategic Advisers, Inc. “And don’t worry if you are not always on track. The later milestones are the most important, and there are things you can do along the way to catch up. Of course, the earlier you take action the better.”
So we’ve uncovered a few key assumptions that will determine whether or not this applies to you.
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Did you start saving 15% of your income every year starting at 25?
- If you’re a 40 year old who just got serious about saving for retirement, or a 30 year old who’s always saved 6% to get the 401k match, you’re likely not going to be on track to achieve this goal.
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Do you invest more than 50% in stocks?
- I know a lot of millennial coworkers who fear the stock market. They may have seen parents struggling during the crash of 2008, or just don’t want to put the time and effort into learning how to invest. If you saved for retirement but put everything in cash and cash equivalents, you’ve not taken advantage of the bull market of the past ten years. This means you’re likely behind these benchmarks
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Are you planning to retire at 67?
- Many folks who are part of the FIRE movement plan to retire in their 30’s or 40’s. If this is you, then you probably want to hit these benchmarks much earlier.
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Do you plan to maintain your pre-retirement lifestyle?
- This is a really tricky assumption, especially when you’re in your 20’s and 30’s. Long time readers may recall that I’ve been a personal finance nerd since I was a teenager. Well, when I was a teenager my lifestyle included living with my parents and only needing to pay for gas and car insurance. Even after I moved out at 20 and bought my condo (the one I made $65k on), my monthly expenses couldn’t have been over $3k per month. Likely less. Now my lifestyle includes paying a mortgage that will be gone by my 40’s and saving for college for three kids. Those expenses will go away in retirement. “Pre-retirement lifestyle” is tricky.
Fidelity refers us to a footnote for more details. Lets look at some of those assumptions from the footnote that aren’t mentioned in the article – here are the excerpts I found interesting.
“The 10x savings rules of thumb are developed assuming age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67, and a planning age through 92.”
OK so they’re assuming your wages grow at 1.5% per year in real terms. That means after taking inflation into account.
“The replacement annual income target is defined as 45% of preretirement annual income and assumes no pension income.”
Ah, so they’re assuming you only want to replace 45% of your annual income. Why? Because they’re also assuming you’re collecting Social Security starting at the age of 67. That’s explained in the second footnote.
Who is giving the advice, and do they have any possible conflicts of interest?
Now, Fidelity is a pretty reliable source of data with extensive research. However, whenever you read advice, it’s a good idea to ask yourself what possible conflicts of interest the source of data might present.
For example, if you read an article all about how great financial advisers are and why you absolutely must have one – check to see if it was written by a financial adviser.
If you read an article about annuities being the bees knees (wait…do bees actually have knees?) (apparently yes they do) check if it was written by an annuity salesperson.
And if you read an article that seems to have very high retirement or college savings goals, check to see if it was written by a financial firm that stands to profit if you save more for retirement or college.
Does the possible conflict of interest mean the advice is bad? No, not necessarily. If it’s well researched and backed by solid evidence, it’s likely good information. It’s just always a good idea to investigate potential conflicts of interest when reading any kind of advice – financial or not.
Is the advice consistent between experts, or is there disagreement? And if there’s disagreement – why?
A bit of Google magic will tell you if experts agree on the particular topic you’re looking at. And if they don’t agree, you need to ask yourself why. Are they using different assumptions? Is it a contentious topic? Is there conflicting research? Or some other reason?
In the case of having twice your annual income saved for retirement, here’s a look at what some other experts recommend:
- J.P Morgan Asset Management recommends you have between 90% to 350% of your income saved for retirement by the age of 35. Why the range? It varies depending on your income level. Check out Page 13 of this report for more by age breakdowns.
What are their assumptions?
- Assumed annual gross savings rate: 10%*
- Pre-retirement investment return: 6.0%
- Post-retirement investment return: 5.0%
- Inflation rate: 2.25%
- Retirement age – Primary earner: 65, Spouse: 62
- Years in retirement: 30
You can see right off the bat that there is a big difference in assumptions between J.P. Morgan and Fidelity. J.P. assumes you save less – 10% rather than 15% – retire earlier, and live longer.
- The Financial Samuari recommends you have four times your expenses saved by 35.
The interesting part of this is that he’s focusing on expenses, rather than income, like Fidelity and J.P. Morgan do. His recommended savings rate ranges from 5% to 35% plus, depending on income level. His focus is on achieving financial freedom and achieving 20x expenses by traditional retirement age.
So you can see this is a topic where experts don’t agree. You should take that into account when assessing whether you’re on track to meet your own goals. And this of course leads to the last point…
Does this advice apply to me, or not?
There are so many factors that go into creating your own personal financial plan that rules of thumb are often so general as to be useless, as I’ve discussed before.
You need to assess your own goals, your current situation, and your ability/willingness to do what it takes to achieve your goals. If you’re 40 with quite a bit of debt and a low income, and little saved for retirement, you may need to adjust your goals or take a serious look at what sacrifices you’re willing to make to meet them.
If you started saving earlier (or later), want to retire sooner (or later), save more (or less), you need to adjust your expectations accordingly. This is where you need to do your own research on what your personal path to financial freedom needs to look like, and craft it accordingly. More on that in a bit.
Productive – and Unproductive – Responses
The responses to this article have been many, varied, and generally unproductive. Although funny to read.
People reacted by making fun of the advice, summarized nicely by this Mashable article. A few of my favorites:
By age 35 you should hate the last three albums by your favorite band
— Andrew Fowler (@fowlerism) June 6, 2018
https://twitter.com/Home_Halfway/status/1004810246341251072
by the age of 35 you should have turned the emperor of Peru into a flea, placed that flea in a box, placed that box inside another box and smashed it with a hammer.
— Boze Herrington, library goblin (@BozeReads) June 7, 2018
By age 35 you should have a huge box of cables but you can't throw them out because you're pretty sure you still need a couple of them but you're not sure which ones
— Lori G 🌻💙💛 (@lorig@mastodon.social) (@LoriG) May 19, 2018
The productive response would be more around examining your current situation and determining what you can or should be doing to change it. Don’t complain – take action! Action is the only way to change your situation.
If you don’t have anywhere near twice your income – or even one times your income – saved at 35, that’s OK! Plenty of people don’t have much saved for retirement.
Based on research in the Economic Policy Institute 300, average retirement savings of Americans aged 32 to 37 is $31,644. That means that most people don’t have even one years income saved by that age! Readers of this website will likely either be above average, or want to be one day. But if you’re currently falling at average or below, beating yourself up over it won’t help change your situation.
Ignoring the advice and just mocking it won’t either.
So what will?
Creating Your Personal Financial Roadmap
This is where you’ll want to create your personal financial roadmap. You need to assess where you are today, your goals, and determine a path to get there. Once you have a roadmap, you track your progress towards your goals and re-assess at least annually to make sure you don’t need to make adjustments.
What steps would be in your roadmap?
- Start by getting to know where you stand right now – your net worth, current spending, etc.
- Get to know your goals and dreams. What do you really want – versus want right now?
- Create your investment policy statement and protect yourself through insurance
- Craft a plan to get out of debt, cut out expenses that don’t get you closer to your dreams, and save towards what you really want
- Get rid of those debts and use the freed up cash flow to put more towards your goals
- Achieve everything you’ve ever wanted!
If you stray off the road, that’s OK – just get right back on!
For details on all the steps, stop by my totally free, ultimate pyramid to financial freedom page for some insights into where to start and what steps you need to take to reach financial freedom.
Comparison Is The Thief Of Joy
Comparing yourself to goals in the financial media, co-workers, or success stories of people featured online can lead you down a dark path of feeling like you’re not good enough. But you most certainly are! Even if other people are ahead of you on the financial success path, you’re still walking down it together.
Don’t let comparison, or articles on what you “should” have accomplished, get you down. If you want to change your financial life, make changes and take action. It’s the only way you’ll accomplish your dreams.
I Want To Hear From You!
Were you surprised at the backlash from this Fidelity advice? What’s the funniest “by 35” meme you’ve seen? Have you ever found yourself comparing your own accomplishments to someone else, and it making you feel like you’re lacking? Let me know in the comments!
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I agree that comparison is the thief of joy. We’re addicted to comparing because that’s just the way we are built. But I have systematically unsubscribed to the people who regularly talk about how much they make. It’s interesting to know sometimes (1-2X a year, not every month), but it fires up my competitive juices that makes me work more instead of relax more. I want to just take it easy and not focus on trying to make more and more money.
I suggest people give it a go by unsubscribing. You’ll feel better! I’ve also noticed that it’s more a young person’s thing to talk about how much they have or make. Us older folks are much more stealth.
S
Good point Sam! Sometimes if reading about what other people are doing makes you feel bad about your own accomplishments-whether it makes you too competitive or upset-unsubscribing is the way to go.
I agree wholeheartedly. I take it all with a grain of salt and a rosy outlook. If i compared myself to peers who seem to be much better off financially, I’d be really depressed. So I take joy in the smallest milestones because I’m further ahead than I was before. Nice post Liz 🙂
Yes that’s the key! Only compare yourself to yourself, and celebrate your progress.
Comparison is indeed bad, which is why social media makes most people depressed. They compare their lives to the carefully curated lives of others (ie, only the good stuff)
With blogging it’s bad too. Just yesterday I read a post from a blog saying they made $12,000 in their first year. I thought for a second “ugh…” But I had to nip it in the bud. I’m only about 8 months into my blog and for sure it isn’t going to make $12k, but that’s okay. They are them, and I’m me. And I like me 🙂
Ha ha, I sometimes feel the same when I read posts about people getting 25k views in month four. In my fourth month I think I had 1k or so! If that. But then I remember the stats of bloggers overall-how something like 99% of them quit before one year. And the majority make under $3.50 per day. That helps me to remember that the uber successful are outliers, and while good to know, not helpful to me in my own work. Plus since I hate advertising and refuse to put it on my site (at least right now) I’ve deliberately shut off that potential income source
Comparison is tough. It’s a natural thing to do, but can get you in trouble quickly. It doesn’t just work on the side of comparing how much people have saved, but on what people “have” in general. This is the complex that causes people to want to keep up with the Joneses as well.
I have a couple of years to go before reaching age 35 and definitely will not have twice my income saved. Yet, I’ll still be able to retire in my mid 40s. The plight of being upside down in medical school debt and having a high income. Unfortunately, most doctors don’t end up being able to do this because they look at what others “Have” and inflate their lifestyle when they finish training.
I think the responses are hilarious, personally. Generic advice is usually just that. Generic. It’s not helpful to anyone specifically because our situations are all so different.
Thought provoking post, CMO!
TPP
Great point TPP about doctors, and I would say the same point applies to anyone who spent their 20’s either getting an education or having a hard time finding work in their field. Plus one other fact I forgot to mention-if your income has risen significantly from your 20’s, you’re going to have trouble with this as well. That’s true even if you did start saving that 15% at 25. Rules of thumb make good headlines but can be so generic as to be meaningless
I’ve been dealing with the comparison dragon lately. It’s just ridiculous (Inknow this logically) but so difficult to get past. I logically know the things I want for my life and my family, but I still find myself pushing for goals that really reflect what others are interested in for FI. Great post!
What you want is most important! It can be hard to get past, but look at what you’re doing. You guys are living out your dreams!
I think a lot of people also get thrown by the idea of saving versus investing. I used to try to squirrel away money in my savings or a bank CD (lolz lolz lolz and tears). But when you figure out compounding and realize how much heavy lifting the market can do, you feel better about things. Or at least I did.
But you’re so right. Figuring out what works and what is appropriately challenging for your own life path is most important.
Yes, once you’ve conquered the hurdle of living below your means and saving, next you need to take the step into the world of investing. And that world can be confusing, filled with terms you don’t understand, and intimidating. I remember feeling overwhelmed when I first opened a 401k. Luckily I did it anyway, even though I didn’t really know what I was doing for a while 😃
Hahaha good to know I’ve got 9 years to go before I need to finally kick that comparing myself to others habit! 😂 It’s so important to make your own plan and figure out what works for you personally. Especially since the “well I’m not on track for that so I should just give up entirely” response doesn’t help at all. Partial progress is most definitely not a reason to just give up entirely.
That said, all the “by 35 you should” memes were hilarious!
I relate to the one about the box of cables-but in my case I have a drawer full 😆
I went through our box of cables a few months ago and anything we couldn’t identify and label was sent off to recycling! It makes me happy 😉
I’m all about finding ways to improve myself but I’m also up for some good old fashioned mocking of overly pithy recommendations. I believe in having my fun and having more fun on top of that 😉
I can have a sense of humor about it but I do feel strongly empathetic to people who feel excluded by those recommendations that completely ignore circumstance and nuance. I have family who have never made it past a $40,000 a year salary but have done their absolute best with that limitation. When they retire, I’m pretty sure that they’ll only be relying on SS for their income. And they’re the best of bad case scenarios, they only have themselves to worry about. They’re not worrying about the support of incarcerated family, or single parenting, or even solo grandparenting when the generation in between has gone missing or passed on too early. They’re not fighting addictions, or debt, or a combination of both. If you are, those one-liners really do sting.
I’m enjoying the memes too-some of them are pretty funny! I also frankly find it odd that the “recommendation” doubled over the course of six years. Without any mention as to why, at least from what I saw. Why do we suddenly need twice as much as six years ago?
thanks for the excellent research, didn’t know there r two other popular measures out there. When I was 35 though, I just want to pay off my debt…
That’s a great goal! Paying off debt is the first step toward a solid financial future
Comparing yourself to others could get you in this race to catch up to your peers in whatever it may be: nice cars, trendy clothes/shoes, type of home, etc..What some don’t realize is that race will keep going with no end in sight. Their is no point in running this race, you have to stop comparing with others and meet your own expectations. We are all unique in our own way and not another carbon copy of someone else.
Yes, someone is always doing better/has more than you. But someone is also doing worse/has less. You need to focus on you, and only you.
I’m a librarian and I just wanted to say that I loved how you walked through analyzing the source and advice. These are the questions and habits we teach in our information and media literacy instruction sessions to kids and folks of all ages. The trickiest part is teaching how to be an informed media consumer but not become a jaded cynic!
Thanks so much Kirstin! I think it’s a really important skill to have. Taking generic advice at face value can be dangerous, especially if you don’t understand the assumptions behind it. Once you’ve done a bit of critical analysis, you can see pretty quickly whether or not it applies to your situation. 😃
I’m glad I found you from POF. You have a great writing style and love the post.
I always thought retirement needs based on current income was a less than ideal way to go and go more with financial samurai’s set up.
Also being a doctor throws these guidelines out on their head as at the age of 35 most are still heavily in debt and just now making 6 figure incomes. Even famous algorithms in millionaire next door don’t apply which would make most docs under accumulators of wealth at 35
I remember trying to run the Millionaire Next Door formula in my 20’s and getting depressed about the fact that I wasn’t hitting the “prodigious accumulator of wealth” numbers. Later I realized it just doesn’t work for folks who have only been in the workforce a short time. Doctors especially start out behind in terms of debt and time in the workforce.
Jim Dahle of White Coat Investor came up with a much better formula for doctors (https://www.whitecoatinvestor.com/a-net-worth-rule-of-thumb-for-doctors/).
Nice article, however I didn’t see anywhere in it that you gave credit to Teddy Roosevelt for the quote, “Comparison is the thief of joy”
It’s always been one of my favorites!
Didn’t know where it came from-now I do! Thanks Dr Dash.