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 a seasoned financial expert with years of experience in investment analysis and retirement planning, my knowledge extends deep into the intricacies of financial benchmarks, savings trajectories, and retirement income strategies. I've actively participated in developing and analyzing such models, ensuring that they align with real-world financial dynamics and cater to a diverse range of individuals and households.
Now, let's dissect the key concepts and components mentioned in the provided article:
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Benchmarks and Target Multiples:
- The benchmarks are based on a target multiple at retirement age, considering a savings trajectory consistent with that target.
- Target multiples at retirement reflect estimated spending needs, accounting for a 5% reduction from preretirement levels.
- The savings trajectory involves adjusting the savings rate over time to meet the necessary savings rate.
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Income and Inflation:
- Household income grows at 5% until age 45 and 3% thereafter.
- Assumed inflation rate is 3% throughout the savings and retirement period.
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Investment Returns and Tax Considerations:
- Investment returns before retirement are assumed to be 7% before taxes.
- Savings grow tax-deferred until retirement.
- Upon retirement at age 65, the person begins withdrawing 4% of assets to support steady inflation-adjusted spending over a 30-year retirement.
- Federal and state taxes are factored into the benchmarks (4% state taxes on income, excluding Social Security benefits).
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Savings Rate and Incremental Increase:
- The assumed savings pattern starts with a 6% savings rate at age 25.
- The savings rate increases by 1% annually until reaching the necessary savings rate.
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Savings Benchmark Ranges:
- Designed for individuals or couples with current household income between $75,000 and $250,000.
- The benchmark ranges consider federal tax rates as of January 1, 2022, or tax rates as scheduled to revert to pre-2018 levels after 2025.
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Retirement Withdrawal Strategy:
- Upon retirement at age 65, a withdrawal rate of 4% is employed to sustain steady inflation-adjusted spending over a 30-year retirement period.
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Social Security Benefits:
- Social Security benefits are factored into the retirement income calculation.
- Assumptions are made using the SSA.gov Quick Calculator, claiming at full retirement ages, and following the Social Security Administration’s assumed earnings history pattern.
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Important Information Disclaimer:
- The material is provided for informational purposes only and is not intended as investment advice.
- The views expressed are subject to change, and the information is not intended to reflect current or past recommendations.
- The opinions and commentary provided do not consider the specific circ*mstances of individual investors.
It's crucial to note that these concepts are intricately woven into a comprehensive retirement planning framework, taking into account various economic factors, taxation, and individual circ*mstances. Always seek personalized financial advice based on your unique situation before making investment decisions.
