Am I on Track for Retirement?

Retirement Rowan Financial

Many questions in life are relatively easy to answer like, “What should I have for dinner tonight?” or “What movie should we go see?” or even “Where should we go on vacation this year?”

However, if you’ve been wondering lately, “Am I on track for retirement?” it may quickly turn into a frustrating exercise because to know the answer, you also need to know or decide:

  • At what age should I retire?
  • Do I want to fully retire or pursue an encore career?
  • What kind of investment returns should I expect?
  • What percentage of my income should I plan to live on in retirement?

And on and on and on…..

Rules of Thumb are a Great Place to Start

In a previous post, I shared the “4 Percent Rule” which was developed in the 1990’s by William Bengen and states that retirees can withdraw 4% from their investment plans each year and never run out of money.

If you click over to the article, you’ll see that this percentage varies for everyone with some retirees being able to safely withdraw a smaller percentage (less than 4%) and never run out of money while others can withdraw even more, particularly if they choose to work into their 70’s.

But What if I’m Not Near Retirement Age?

The 4 Percent Rule is a great starting point for those at or near retirement, but what if you’re in your 40’s or 50’s?

I came across a recent article (sorry – can’t link to it – you need to be a paid subscriber) by Craig L Israelsen in Financial Planning magazine that could help people in this younger age bracket.  The author talks about the concept of a “retirement account multiple” or RAM, which is amount of money you’ve saved for retirement as a multiple of your final salary.  So, for example, if you’ve saved $500,000 for retirement and your final salary is $100,000, you have a RAM of 5.

The author goes on to talk about what kind of RAM you should expect to accumulate and be able to:

  • Withdraw half of your final salary each year to live on.
  • Give yourself a 3% raise every year to account for inflation.
  • Retire at 65 and have money to live on through age 100

So What’s a Good RAM Target?

Mr. Israelsen cranked through 90 years of historical data spanning 1926-2015 and concluded that investors who want to retire at 65 should target a final RAM of between 7 and 18.

If you retired at age 65 between 1926-2015 with a RAM of 7 and lived to 100, you were 71% likely to never run out of money if you continued to invest in a traditional portfolio of 65% stocks and 35% bonds during your retirement years.

And if you managed to save enough to have a RAM of 18 and retired at any time in that 90 year span, you never ran out of money through the age of 100.

But You Still Haven’t Answered if I’m on Track for Retirement

OK – here’s where you and your math brain come in.  If you want to retire at 65 under the conditions listed above, here’s a quick back-of-the-envelope way to check no matter what age you are.

First, calculate your projected final salary which is:

Final Salary = Current Salary *( 1.03)^(65 – Current Age)

(Note that the little carrot symbol means raised to this power.)

Then, calculate your projected final account balance, assuming you earn 7% on your investments (net of all fees and advisory expenses) between now and then:

Final Retirement Savings  = (Current Savings * 1.07)^(65-Current Age)

Finally, calculate your projected RAM which is:

Projected RAM = Final Retirement Savings / Final Salary

Let’s Do An Example

Let’s say that you’re:

  • 50 years old
  • Making $100,000 a year
  • Have $400,000 saved for retirement

Final Salary = $100,000 *( 1.03)^15 = $155,797

Final Retirement Savings = $400,000 * (1.07)^15 = $1,103,613

Projected RAM = $1,103,613 / $155,797 = 7.08

This barely puts this person in the “RAM Retirement Zone” of 7-18 in projected RAM.

Adding a Final Layer

A big item we haven’t accounted for in this calculation is how much you plan to save in the years running up to retirement.  The math gets too complex to show here to assume this money is invested, (which will give you even more upside), but if we assume that you simply plunked this savings into the bank earning zero interest, you could expect to accumulate:

Extra Retirement Savings = ((Current Salary + Final Salary)/2)*(Savings Rate)*(65-Current Age)

Using the numbers above and assuming you are saving 10% of your income, you’d plug in:

Extra Retirement Savings = (($100,000+$155,797)/2)*(10%)*(15) = $191,848

Adding this to the Final Retirement Savings we calculated above, we get:

Grand Total Savings = $1,103,613 + $191,848 = $1,295,460

New Projected RAM = 8.32

Your Assignment

Figure out your projected RAM using the method listed above.  If you get an answer of 12 or more, you’re in great shape for retirement!

If you’re between 7 and 12, you’ll be able to get by at your current rate of savings, but may need to reduce your standard of living if we hit an extended rough patch in the markets early in your retirement.

And if you’re projecting a RAM of less than 7, you may want to strongly consider increasing your savings rate or supplementing your income to get yourself back on track for retirement and able to look forward to truly enjoying the fruits of your labor!

Originally published on Nerdwallet


  1. Marcus Larson on January 4, 2017 at 6:47 pm

    Most of the retirement calculators I see, including this one, assume steady needs for retirement capital. This does not seem real world. I have three different income needs from reirement capital due to early retirement, a small pension and delaying social security to 70:
    Year 1 & 2 = $2328 / mo
    Year 3 – 13 = $4954 / mo
    Year 14 – 38 = $1000 / mo
    I am trying to calculate the capital needed in year 1 to support these needs assumimg a 65% stock 35% bond asset allocation with 2% inflation. Can you suggest a calculator that would do this? Thank you!!

    • Dave Rowan on January 4, 2017 at 8:56 pm

      Hi Marcus – you are absolutely right. Retirement calculators are meant to give you a rough estimate of where you stand in terms of your retirement finances. If you are looking for a more specific answer using the information you provide within your question, I recommend working with a financial advisor to develop a comprehensive Retirement Plan that is specific to your unique circumstances. If you’re interested in discussing this in more detail, please visit to schedule a complimentary phone call to see how I can help you. ~ Dave