The 10x Rule: Easy Math for an Easy Retirement?

Retirement nest egg
Retirement nest egg

Wouldn't it be great if you could plot your retirement with a single, simple mathematical equation? Imagine plugging in the numbers and, presto, you know precisely what it will take to make your golden years gleam.

We're not there yet, but a new study by Lincoln Financial Group (LNC) is getting closer. It says we need to have 10 times our annual income for retirement. That's 10 x Income = Goal. The desired amount will shift depending on what we're making throughout our working life, but the 10x benchmark always applies.

If you're making $60,000 a year in salary, dividends and anything else, you should aim for 10 times $60,000, or $600,000 in assets by the time you retire. If your income dips to $50,000, then readjust to $500,000.

Lincoln arrived at its magic number by surveying 1,200 retirees of varying means. The respondents didn't rely on receiving an inheritance or selling their home or business, or on redeeming shares of their old company's stock, the study said.

"The 10x assets-to-income ratio is a guide that can help people determine how they can be better prepared for retirement," said Chuck Cornelio, president of Defined Contribution at Lincoln Financial Group.

The experts at Lincoln added that we should also get advice from a financial professional, enroll in an IRA or some other retirement fund, have an investment strategy and save more in good years.

Ignoring the Variables

"Simple rules of thumb like 10-times-the-annual-income are a good way for people to quickly gauge their situation," Jean C. Setzfand, vice president of financial security for AARP, told DailyFinance. "However, people's financial situation and, more importantly, retirement plans, are more diverse now than ever before." Would-be retirees should use self-assessment tools that take into account many factors, she explained.

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Ann K. Trainor, vice president of Investments at UBS Financial Services (UBS) in Westfield, N.J., said relying on an arbitrary number may not meet a retiree's needs.

"Our team doesn't use a 10x formula for our clients," she said. "There are too many variables in our clients' lives for a one-size-fits-all approach. Will they retire at 60, 65 or 70? Are they healthy? Should we anticipate additional costs for health care as they get older? Should we anticipate 20 years of retirement or 30?"

A recent survey by another company, Sun Life Financial (SLF), offered a far dimmer view of retirement than Lincoln's. More than 90% of respondents had no idea how much they'll spend on health care after leaving the workforce, and 43% were not at all confident they could cover the costs. No wonder, given that 29% of workers in another yet another published survey said they had less than $1,000 in savings.

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