JP Morgan Asset Management recently released its 2024 Guide to Retirement, which aims to answer important questions about saving for retirement. The guide addresses how much one should have saved for retirement based on their age and income, as well as what percentage of income should be saved if someone is just starting to save for retirement.
To calculate how much one should have saved for retirement, JP Morgan made several key assumptions, such as retiring at age 65, maintaining a 60/40 portfolio before retirement, and living until age 100. It also assumed a 2.5% inflation rate, a spouse who is two years younger, and a desire to maintain a similar lifestyle in retirement to pre-retirement. Using these assumptions, JP Morgan calculated “retirement savings checkpoints” based on age and income levels.
For those who have not yet started saving for retirement, JP Morgan also provided guidance on the percentage of income that should be saved based on age and income level. The guide suggests that the percentage of income required for savings increases with age and income. For example, a 25-year-old making $50,000 a year should start saving 5% of their income, while a 50-year-old making $50,000 a year needs to save 24% of their income to get on track.
The results in JP Morgan’s report rely on several assumptions, including how much of retirement savings can be spent each year in retirement and what percentage of pre-retirement income is needed to maintain a similar lifestyle in retirement. The report’s model is based on proprietary Long-Term Capital Market Assumptions returns and an 80% confidence level, which is different from the approach taken by Bill Bengen in his 1994 paper that developed the 4% rule.
It is important to note that the report assumes a very conservative investment portfolio, with a 60/40 allocation during working years and a further reduction to 40% in retirement. While this approach may be suitable for some, it is a conservative approach to investing. While the results from JP Morgan’s report can serve as a checkpoint for retirement savings, more thorough analysis can be obtained through tools like New Retirement or a quick estimate using NetWorthify.
Overall, the guide from JP Morgan Asset Management provides valuable insights into retirement savings goals based on age and income levels. By understanding these checkpoints and starting to save early, individuals can better prepare for their golden years and ensure financial security during retirement.
