How to Know How Much You Should Have Already Set Aside

As is the case with every personal finance question, an accurate answer as to whether or not you've saved enough given your age must start with, "It depends…" Here's a research-based answer, with its pros and cons, as well as how I personally assess our family's progress toward financial freedom.


Opher Ganel

2 years ago | 7 min read

What the Millionaire Next Door’s “Wealth Equation” does well and where it’s less accurate

How much should you have saved for retirement by now?

Isn’t that something most of us would dearly love to know, so we can tell how well (or less well) we’ve done?

The problem isn’t that nobody knows the answer, it’s that so many people and institutions know and are eager to tell you, but their formulas rarely if ever agree with each other! What’s a guy (or gal) to do?!

The Millionaire Next Door’s Wealth Formula

One of the most widely acclaimed popular books on wealth in the US is undeniably “The Millionaire Next Door” by Thomas J. Stanley, PhD and William D. Danko, PhD.

In the book, the authors proposed the following simple formula as a guideline.

Divide the age of the main breadwinner in your household by 10, and multiply by your household income (they say that your Adjusted Gross Income, or AGI, is a good number to use).

For example, say John, aged 52, is married to Jane, aged 55. Say Jane’s salary is higher than John’s, and together their AGI is $90,000/year. The formula says that they should by now have $495,000 set aside for retirement (= (55/10) x $90,000).

The authors then proceed to call those who have set aside double or more what the formula suggests PAWs, or “Prodigious Accumulators of Wealth.” On the other hand, those who have set aside less than half the suggested amount are labeled as UAWs, or “Under Accumulators of Wealth.”

How did they come up with this formula? Says Stanley, “The Wealth Equation was developed from national surveys of households with incomes of $80,000 or more. The typical millionaire is in his/her late 50s. In fact, in my most recent national survey, the typical millionaire was 57. Those who are significantly younger than 57 should be aware of the fact that the Wealth Equation overstates what they should actually be worth.

This Wealth Formula does well in the following general situation:

  • You’re old enough to have had some time to save and invest for retirement (say 50 or older, and the closer to retirement the better).
  • Your income is high enough to let you to set aside at least 10% of your income (more is better).
  • Your income hasn’t recently increased significantly.
  • You’re not planning to significantly change your standard of living in retirement.
  • Leaving a large bequest isn’t a significant driver for your retirement plan.

The Wealth Formula overestimates what you “should” have accumulated if any of the following is true for you:

  • You’re in your 30s or younger.
  • You make so little money that putting food on the table and keeping a roof over your head already strains your finances. In this situation, Social Security benefits will replace more of your income than if you make hundreds of thousands of dollars a year.
  • Your income recently doubled or tripled relative to what it was before. Say you’re 50, the main breadwinner, your household income just went from $50,000 to $300,000, and you’ve managed to save $510,000 already. Before the massive increase, the formula would say you should have $250,000 saved, which makes you a PAW! However, right after your income increased, your bogey went to $1,500,000, so that same $510,000 makes you an UAW! Clearly, you’re not likely to be able to set aside an extra $1,250,000 overnight!
  • You’re saving and investing a massive fraction of your earnings. For example, if you’re earning $75,000 and setting aside $30,000 of that each year, what you’ll need to replace at retirement is much smaller than most people making the same income as you do, so you don’t need to have already saved as much as if you were setting aside much less.
  • You plan to live more frugally in retirement than most people who make about the same income as you do.

The Wealth Formula underestimates what you “should” have accumulated if either of the following is true for you:

  • You’re planning to go from a frugal lifestyle pre-retirement to joining the jet-setting crowd once you retire. Most people transitioning to retirement don’t suddenly increase their spending by a large factor. In fact, no longer needing to save money for retirement, no longer having to pay Social Security, and no longer having commuting and other work-related expenses, conventional wisdom calls for replacing somewhere between 60% and 80% of your pre-retirement income. If you want to triple your annual spending, you’d better have a lot more set aside than the Wealth Formula suggests!
  • You want to leave your kids or a favorite charity a huge bequest. Most retirement plans work on making sure you don’t outlive your nest egg. If you want to leave millions of dollars to your inheritors, you’ll need to have those millions in the first place.

Other Wealth Guidelines

Fidelity has a different guideline. They say you should set aside at least:

  • 1x your salary by age 30
  • 3x by age 40
  • 6x by age 50
  • 8x by age 60
  • 10x by age 67

This seems more plausible, as they don’t imply that you should start saving for retirement at birth, and Fidelity’s guideline has you setting aside more from age 45 to 50, where salaries are usually relatively high and college expenses have yet to hit in full.

Using the well-known 4% rule, if you have 10 times your last salary invested, you should be able to draw 40% of that last salary for a retirement of at least 30 years. Fidelity adds to that your expected Social Security benefit and average spending patterns in retirement vs. pre-retirement.

Kiplinger’s has a somewhat different guideline. Specifically, at least:

  • 0.5x your salary by age 30
  • 2x by age 40
  • 5x by age 50
  • 9x by age 60
  • 11x by age 65

This is even better, because it reduces the amount you’re expected to set aside in the first few years after joining the workforce. Recognizing that different people have different situations and expectations, they also provide ranges around the above numbers. For example:

  • 3.5x to 6x by age 50
  • 6.5x to 11x by age 60
  • 8x to 14x by age 65

Both of these guidelines still suffer from nearly all of the same shortcomings as The Millionaire Next Door’s formula.

How I Assess if I’ve Saved Enough for Retirement Given my Age

As is the case with every personal finance question, an accurate answer as to whether or not you’ve saved enough given your age must start with, “It depends…”

What I’ve done for my family is this:

  1. Put together a notional budget for our early retirement years (later in retirement most people slow down and spend less, even though medical expenses increase, so if we have enough for early retirement we should be ok). If you’re too far from retirement to do this, use a percentage of your current income. I’d suggest 100% of your AGI is not a bad place to start.
  2. Reduced that number by 75% of our expected annual Social Security benefits (since the Social Security trust fund is expected to run out before my retirement, and the current inflows into the system will be able to support between 75% and 77% of the benefits currently promised to retirees).
  3. Multiplied the result of step 2 by 25 (as implied by the 4% rule).
  4. Looked at what we already have set aside and increased it by 7%/year until retirement (you should consider what you think is a plausible annual rate of return on your investments and use that number instead).
  5. Subtracted the result of step 4 from the result of step 3.
  6. Estimated what annual savings are needed to close the gap calculated in step 5, assuming the number of years until retirement and the same 7%/year return mentioned in step 4. If this annual set-aside is feasible given current earnings, I’ve set aside enough so far given my age. The answer in our case is… it depends on how well things go during the years until our retirement. Yeah, even for a known person or family, personal finance is still not an exact science.

The Bottom Line

If you’re relatively young (in your 20s or 30s), having anything set aside for retirement already puts you far ahead of most of your cohort. If you haven’t set anything aside yet, being as young as you are gives you more time to get on a good glide path, as long as you start prioritizing your retirement savings.

Setting aside at least 15% of your annual income each year (FIRE adherents would say 40% or more!) will help you get where you need to go. If your employer matches your contributions to the company retirement plan, make sure to put into the plan at least enough to capture the maximum match.

If you’re older and haven’t set much aside, you have to play catch-up, which won’t be fun. You should start putting aside a lot more of your AGI than if you were younger. Hiring a good fee-only financial planner is a wise move, as such an advisor isn’t paid based on your investable assets, and isn’t trying to sell you any specific investment products based on how high a commission that would generate. Such an advisor can help you craft a solid retirement plan, tell you how much of your AGI you should set aside each year, and how much longer you’ll need to work, given the retirement lifestyle you want to have.


This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

About the Author

Opher Ganel has set up several successful small businesses, including a consulting practice supporting NASA and government contractors. His most recent venture is a financial strategy service for independent professionals. You can connect with him there, or by following his here and on this Medium publication, Financial Strategy.


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Opher Ganel

Consultant | physicist | systems engineer | writer | financial strategist | avid reader | amateur photographer & artist | support my writing (and read much more financial insight) here ➜







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