If you're approaching retirement with $2-5 million in savings, you've done something remarkable—you've saved diligently, maximized your 401(k) contributions, and built substantial wealth. But here's the uncomfortable truth: the conventional retirement advice from major financial institutions like Fidelity may be leading you astray.
Fidelity's popular salary multiple guidelines—recommending 10 times your salary by age 67—sound simple and reassuring. The problem? These one-size-fits-all formulas ignore the critical factors that actually determine whether your retirement succeeds or fails: taxes, Social Security optimization, and your real spending needs.
Through working with clients who initially followed this conventional wisdom, I've discovered that generic formulas typically cause people to either over-save (working years longer than necessary) or under-save (focusing on arbitrary numbers unrelated to their actual needs). The salary multiple approach treats a $200,000 earner the same as a $50,000 earner, ignoring that high-income professionals have fundamentally different spending patterns, tax situations, and retirement requirements.
In this comprehensive guide, you'll discover exactly why Fidelity's approach misses the mark for affluent savers and, more importantly, what actually works when planning retirement with substantial assets. You'll learn how to build a personalized retirement strategy based on your unique circumstances, not generic industry averages that don't reflect your reality.
The Salary Multiple Formula That Ignores Reality
Fidelity's most popular retirement guideline recommends saving 10 times your salary by age 67. Their formula breaks down into simple milestones: save 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. They assume everyone should save 15% of their income annually and that this standardized approach works universally.
But here's the fundamental problem: this formula assumes everyone needs the same income replacement regardless of their individual circumstances. Consider someone earning $200,000 annually. Does that person automatically need $2 million to maintain their lifestyle in retirement? Absolutely not, and here's why.
High earners typically save more and spend proportionally less of their income. According to Bureau of Labor Statistics consumer expenditure data, households in the top income quintile save 20-30% of their income, compared to near-zero savings rates for median earners. This means a $200,000 earner might only spend $140,000-$160,000 annually, making a $2 million target potentially excessive.
The salary multiple approach completely ignores several critical factors that dramatically impact your actual retirement needs:
- Social Security benefits that can provide $30,000-$50,000+ annually in guaranteed, inflation-protected income
- Pension income from current or previous employers
- Actual spending patterns versus gross income
- Tax situations that vary dramatically between individuals
- Geographic location and cost of living differences
- Healthcare coverage and expected medical expenses
- Legacy goals and desired estate size
As the Financial Planning Association notes in their research on retirement withdrawal planning, generic rules fail to account for the complex interaction of tax brackets, Social Security taxation, and portfolio composition that determines actual retirement success.
This formula typically causes two problematic outcomes:
- Over-saving: Working years longer than necessary to hit arbitrary targets that exceed your actual needs, sacrificing valuable years of freedom and health
- Under-saving: Focusing on a number disconnected from reality, potentially creating false confidence or misguided anxiety
When Fidelity reports that the average 401(k) balance for people 55-64 is $271,300, they're not telling you whether that's actually enough for those specific individuals. Without knowing their Social Security benefits, pensions, spending needs, and tax situations, that number is essentially meaningless.
Key Takeaway
The salary multiple approach is like using the same shoe size for everyone and hoping it fits. Your retirement security depends on your individual circumstances, not whether you've hit 10X or any other generic multiple.
The Average Balance Comparison Trap
Fidelity regularly publishes average 401(k) balance data that initially sounds helpful. According to their 2025 data, the average balance is $137,800, with Generation X (ages 44-59) averaging $192,300. But here's what these numbers don't tell you—and what makes them potentially misleading.
These averages include super-savers with millions alongside young workers with $5,000. A handful of high-balance accounts dramatically skew the average upward, creating a distorted picture of typical retirement readiness.
The median balance reveals a starkly different reality. According to Vanguard's "How America Saves" research, for people ages 35-44, the median balance is only $39,958 compared to an average of $103,552. That's less than half the average, demonstrating just how much high-balance accounts distort these statistics.
Here's the critical insight: comparing yourself to these averages tells you absolutely nothing about your actual retirement readiness. Consider these scenarios:
Scenario 1: Below Average but Financially Secure
Imagine a 60-year-old with $400,000 in their 401(k)—significantly below Fidelity's 10X recommendation for someone earning $100,000. However, this person:
- Will receive $42,000 annually in Social Security benefits
- Has a paid-off home worth $500,000
- Expects a $30,000 annual pension
- Needs only $70,000 annually to maintain their lifestyle
This individual is actually in excellent shape, despite being "below average" according to generic benchmarks.
Scenario 2: Above Average but Financially Vulnerable
Now consider a 60-year-old with $800,000—well above average. But this person:
- Lives in a high-cost area requiring $120,000 annually
- Will receive only $24,000 in Social Security (lower lifetime earnings)
- Has no pension
- Still carries a $200,000 mortgage
- Has significant healthcare expenses due to a chronic condition
Despite above-average savings, this individual faces genuine retirement challenges that the balance comparison completely misses.
Why the Comparison Game Fails
Your retirement needs have nothing to do with what the average person saved. These comparisons ignore:
- Your specific expense structure and lifestyle requirements
- Your unique income sources beyond the 401(k)
- Your geographic cost of living
- Your health status and expected longevity
- Your legacy and estate planning goals
- Your risk tolerance and desired security margin
Being above average doesn't mean you're ready to retire, and being below average doesn't mean you've failed. The comparison game typically distracts from actually planning what you need for your unique situation.
As research from Capital Group demonstrates, the gap between retirement income expectations and reality stems not from failing to hit generic benchmarks, but from failing to plan based on actual circumstances.
Key Takeaway
Stop comparing your 401(k) balance to industry averages. Instead, calculate your specific retirement income needs and evaluate whether your total resources—including Social Security, pensions, taxable accounts, and real estate—can sustainably fund your actual lifestyle.
The Tax Ignorance That Destroys Actual Outcomes
Here's one of the most dangerous oversights in Fidelity's guidance: they celebrate account balances without adequately emphasizing that taxes dramatically reduce your spendable income. This tax blindness creates a false sense of security that can derail even well-funded retirements.
Fidelity reports an average 401(k) balance of $137,800. But here's what they should tell you more clearly: every dollar you withdraw from a traditional 401(k) gets taxed at ordinary income rates. If you're in a 24% combined federal and state tax bracket, that $137,800 balance doesn't provide $137,800 in spending power—it provides closer to $104,700 after taxes.
That's a $33,100 difference, or 24% of your perceived wealth, that simply doesn't exist for spending purposes.
The Real Math Behind Your 401(k) Balance
Let's examine a more substantial example relevant to high-net-worth savers. Suppose you follow Fidelity's 10X rule and accumulate $2 million by age 67. Sounds impressive, right? But that's your pre-tax balance.
Withdrawals from that pre-tax 401(k) are taxed as ordinary income, which according to current IRS tax brackets can range from 10% to 37% federally, plus state taxes in most states. For someone in a 24% federal bracket plus 5% state taxes (29% combined), here's the reality:
- Stated 401(k) balance: $2,000,000
- Federal taxes at 24%: -$480,000
- State taxes at 5%: -$100,000
- Actual spendable wealth: $1,420,000
You've lost $580,000—or 29% of your perceived wealth—to taxes. That's not a rounding error; it's a fundamentally different retirement reality.
The Compounding Tax Problem
The tax ignorance typically causes a 20-30% shortfall between perceived and actual retirement wealth. When you're planning your retirement, you need to think in terms of after-tax dollars, not the pre-tax balance displayed on your statement.
But the problem compounds in ways most savers don't anticipate:
1. Tax Bracket Increases from Large Withdrawals
Large 401(k) withdrawals can push you into higher marginal tax brackets. If you need $100,000 but calculate that in pre-tax terms, you might actually need to withdraw $135,000 to net $100,000 after 26% effective taxes—and that larger withdrawal pushes more income into the 32% or even 37% bracket.
2. Medicare IRMAA Surcharges
As JPMorgan's research on spendable wealth highlights, large 401(k) withdrawals increase your Modified Adjusted Gross Income (MAGI), potentially triggering Income-Related Monthly Adjustment Amounts (IRMAA) that can add $3,000-$6,000+ annually to your Medicare Part B and D premiums. These surcharges kick in at MAGI levels that many affluent retirees easily exceed.
3. Social Security Taxation
Up to 85% of your Social Security benefits become taxable when your combined income (including 401(k) withdrawals) exceeds modest thresholds—$34,000 for single filers, $44,000 for married couples. For a couple with $40,000 in Social Security benefits, having 85% become taxable effectively adds $34,000 to taxable income, compounding your tax burden.
Tax-Efficient Planning Makes a Massive Difference
According to SmartAsset's analysis of tax-efficient withdrawal strategies, proportional withdrawals from taxable, tax-deferred, and tax-free accounts can reduce total lifetime taxes by 37-40% compared to the traditional approach of depleting accounts in sequence.
This means more spendable income from the same portfolio balance. For someone with $2 million across account types, a 40% tax reduction could mean $300,000-$400,000 more in lifetime spending—equivalent to several additional years of retirement income.
Key Takeaway
Your 401(k) statement shows pre-tax money, but you spend after-tax dollars. Proper retirement planning must account for taxes at every stage: during accumulation (Roth vs. traditional contributions), during the transition to retirement (strategic Roth conversions), and during distribution (tax-efficient withdrawal sequencing). Ignoring taxes creates an illusion of wealth that disappears when you actually need to spend the money.
The Social Security Coordination That's Completely Ignored
Fidelity's 10X salary formula makes a critical omission: it doesn't account for the fact that Social Security will provide $30,000-$50,000 or more annually for many retirees. This is guaranteed, inflation-protected income that dramatically reduces how much your portfolio actually needs to generate.
For high-net-worth individuals approaching retirement, this oversight can mean the difference between thinking you need $3 million and discovering you can retire comfortably with $2 million—or less.
How Social Security Changes Your Required Portfolio Size
Let's work through a detailed hypothetical scenario to illustrate this principle:
Imagine you want $100,000 in annual retirement income to maintain your lifestyle. Using Fidelity's salary multiple approach, you'd simply aim for 10X your income and hope it works out. But that completely misses the role of Social Security.
If your Social Security benefit is $40,000 annually (a realistic figure for someone with a strong earnings history), your portfolio only needs to generate $60,000—not the full $100,000. Using a conservative 3.5% withdrawal rate (recommended by Morningstar's 2025 State of Retirement Income research), here's the math:
- Income needed: $100,000
- Social Security coverage: $40,000
- Portfolio must generate: $60,000
- Required portfolio: $60,000 ÷ 0.035 = $1,714,000
Now compare that to ignoring Social Security:
- Income needed: $100,000
- Social Security: (ignored)
- Portfolio must generate: $100,000
- Required portfolio: $100,000 ÷ 0.035 = $2,857,000
That's a $1,143,000 difference—over $1 million in additional savings you'd need to accumulate if you ignore Social Security in your planning. Proper Social Security integration can reduce required savings by $500,000 to $1,000,000+ depending on your situation, as research from the Financial Planning Association demonstrates.
The Claiming Decision That Makes or Breaks Retirement
For higher earners with $2-5 million in savings, Social Security coordination becomes even more critical because the claiming decision—when you start benefits—can mean hundreds of thousands of dollars in lifetime value.
You can claim Social Security as early as age 62 or delay until age 70. Each year you delay increases your benefit by approximately 7-8% (plus inflation adjustments). According to the Social Security Administration's claiming guidance:
- Claim at 62: Receive 70% of your full retirement age (FRA) benefit
- Claim at FRA (67 for most): Receive 100% of your benefit
- Claim at 70: Receive 124% of your FRA benefit
For someone with a $3,000 monthly benefit at full retirement age:
- Age 62: $2,100/month = $25,200/year
- Age 67: $3,000/month = $36,000/year
- Age 70: $3,720/month = $44,640/year
Delaying from 62 to 70 increases annual income by $19,440—and that increase is permanent, inflation-adjusted, and continues for life. Over a 30-year retirement, that's nearly $600,000 in additional nominal benefits.
Strategic Coordination for Maximum Lifetime Income
But Fidelity's simple formula doesn't help you optimize this decision. Strategic Social Security coordination involves:
1. Portfolio Bridge Strategy
Use tax-deferred accounts to fund living expenses from 62-70 while delaying Social Security, allowing benefits to grow 8% annually. This strategy is particularly powerful if you have substantial 401(k)/IRA balances that need to be drawn down before Required Minimum Distributions (RMDs) begin.
2. Spousal Coordination
For married couples, the optimal strategy often involves the lower-earning spouse claiming earlier while the higher earner delays to 70. This maximizes the survivor benefit, since the surviving spouse will receive the higher of the two benefits.
3. Tax Optimization Integration
Delaying Social Security while doing strategic Roth conversions during low-income years (62-70) can dramatically reduce lifetime taxes. This coordination is sophisticated but powerful for high-net-worth individuals.
Key Takeaway
Integration of Social Security benefits typically shows that someone with $1.5 million and optimized Social Security can have better retirement outcomes than someone with $2 million who hasn't coordinated their claiming strategy. Your retirement plan must integrate Social Security as a foundational income source, not an afterthought.
The Spending Reality Fidelity's Formula Completely Misses
Fidelity's formula assumes you need to replace your full salary in retirement, essentially that you'll spend in retirement what you spent while working. But actual retirement spending research shows this assumption is dramatically wrong for most people, and especially wrong for high earners.
Most retirees need about 55-80% of their working income, not 100%, according to Fidelity's own spending research. The gap between working income and retirement needs stems from several major expenses that disappear when you stop working.
The Expenses That Automatically Disappear
Let's break down the typical expense reductions for a high-earning professional:
1. Retirement Savings (8-15% of income)
You're no longer saving for retirement because you're already retired. If you were maximizing 401(k) contributions, this alone represents $23,000-$30,500 annually (the 2024-2025 contribution limits plus catch-up contributions) that's no longer leaving your paycheck.
2. Payroll Taxes (7.65% of wages)
Social Security and Medicare payroll taxes of 7.65% vanish because you're not earning wages, as T. Rowe Price's retirement income research notes. For someone earning $150,000, that's $11,475 annually in taxes that simply disappear.
3. Work-Related Costs (1-3% of income)
Commuting expenses, professional attire, dry cleaning, parking, lunches out, and professional dues typically total $2,000-$5,000+ annually for high earners. According to White Coat Investor's analysis, these costs disappear entirely in retirement.
4. Mortgage Payments (15-25% of income for many)
Many retirees have paid off their mortgages by retirement age, eliminating their largest single expense. For someone with a $2,500 monthly mortgage, that's $30,000 annually in expenses gone.
A Realistic Spending Analysis
Let's examine a common situation with actual numbers:
Working Years (earning $150,000):
- Gross income: $150,000
- 401(k) contributions: -$23,000
- Payroll taxes: -$11,475
- Federal income tax (22% effective): -$33,000
- State income tax (5%): -$7,500
- Work-related costs: -$3,000
- Mortgage: -$30,000
- Remaining for lifestyle: $42,025
Retirement (same lifestyle):
- Required income: $42,025 (to maintain same actual lifestyle)
- Federal income tax (lower bracket): -$6,303 (15% effective)
- State income tax: -$2,101
- Net lifestyle spending: $42,025
To maintain the same lifestyle, this person needs only about $50,000 in gross retirement income—just 33% of their working salary, not 100%. When you add $35,000 from Social Security, their portfolio only needs to generate $15,000 annually.
Using a 3.5% withdrawal rate, they need just $428,000 in portfolio assets—not the $1.5 million that Fidelity's 10X rule would suggest for someone earning $150,000.
The High-Earner Advantage
This spending reduction is particularly pronounced for high earners because:
- You save a higher percentage of income (20-30% vs. 10-15% for median earners)
- Marginal spending doesn't increase proportionally with income (you don't need 2X the retirement income just because you earned 2X more)
- Tax rates often drop significantly in retirement when earned income disappears
- Work-related expenses tend to be higher for professionals
Key Takeaway
Fidelity's income replacement targets don't account for the substantial expenses that automatically disappear in retirement. For high earners, this causes people to work longer than necessary or save more than they actually need. Calculate your actual retirement expenses based on your specific spending patterns, not generic salary replacement ratios.
What Actually Works: The Comprehensive Alternative Approach
Now that you understand the fundamental flaws in conventional advice, let's examine what actually works for retirement planning when you have substantial assets. The alternative isn't another simple formula—it's a comprehensive, individualized approach that accounts for your specific circumstances.
Step 1: Calculate Your Actual Retirement Expenses
Instead of guessing what percentage of your salary you'll need, calculate your actual retirement expenses with precision:
Start with current spending: Track your actual spending for 3-6 months to establish a baseline. Don't estimate—use actual credit card statements, bank records, and receipts.
Adjust for retirement-specific changes:
- Subtract: Retirement contributions, payroll taxes, work expenses, commuting costs
- Subtract: Mortgage payments (if you'll have it paid off)
- Add: Increased healthcare costs before Medicare
- Add: Increased travel and leisure spending (if planned)
- Add: Long-term care insurance or self-funding reserves
- Adjust: Other expense categories based on your specific retirement vision
Build in inflation protection: According to Morningstar's updated safe withdrawal rate research, use realistic inflation assumptions of 2.5-3% annually for planning purposes.
This exercise typically reveals you need 30-50% less than generic formulas suggest.
Step 2: Integrate Social Security Optimization from Day One
Don't treat Social Security as an afterthought. Model different claiming strategies to maximize lifetime benefits:
Analyze claiming ages: Use the Social Security Administration's online calculator to model benefits at ages 62, 67, and 70. Consider your health, longevity expectations, and need for income.
Optimize spousal coordination: For married couples, model scenarios where:
- Lower earner claims early, higher earner delays to 70
- Both delay to maximize benefits
- One claims early to provide income bridge
Account for taxation: Understand that 0%, 50%, or 85% of benefits may be taxable depending on your other income sources. Model the tax impact of different withdrawal strategies on Social Security taxation.
As research from the Financial Planning Association demonstrates, proper Social Security optimization integrated with withdrawal planning can add hundreds of thousands of dollars in lifetime wealth.
Step 3: Implement Tax-Efficient Withdrawal Strategies
This is where substantial wealth is created or destroyed in retirement. Minimize your lifetime tax burden through strategic withdrawal sequencing:
The proportional withdrawal approach: According to SmartAsset's research, withdrawing proportionally from taxable, tax-deferred (401k/IRA), and tax-free (Roth) accounts can reduce total taxes by 37-40% compared to the traditional "taxable first, then tax-deferred, then Roth" sequence.
Strategic Roth conversions: Convert traditional IRA/401(k) dollars to Roth during low-income years (often ages 62-70 before RMDs begin). This locks in known tax rates, creates tax-free growth, and reduces future RMDs.
Tax bracket management: Carefully manage withdrawals to stay within target tax brackets, avoid IRMAA surcharges, and minimize Social Security taxation. For high-net-worth individuals, this often means "filling up" the 22% or 24% bracket with Roth conversions while avoiding the 32% bracket.
Consider qualified charitable distributions (QCDs): For those 70½ and older, QCDs allow up to $100,000 annually to flow directly from IRAs to qualified charities, satisfying RMDs without creating taxable income.
Step 4: Account for Healthcare and Longevity
Two critical factors that generic formulas ignore:
Healthcare costs before Medicare: If you retire before 65, factor in $15,000-$25,000 annually for private health insurance. This is a substantial bridge expense that dramatically affects early retirement feasibility.
Long-term care planning: For high-net-worth individuals, decide whether to self-fund long-term care costs or purchase insurance. According to Fidelity's spending research, a 65-year-old couple retiring today should expect to spend $315,000 on healthcare throughout retirement.
Longevity risk management: Plan for at least age 95 to ensure you don't outlive your assets. Use conservative withdrawal rates (3.5-4%) to protect against sequence-of-returns risk in early retirement.
Step 5: Conduct Annual Reviews and Adjustments
Retirement planning isn't set-it-and-forget-it. Commit to annual reviews that:
- Reassess spending patterns and adjust projections
- Optimize tax strategies based on current year circumstances
- Rebalance portfolios to maintain target asset allocation
- Adjust withdrawal rates based on portfolio performance and remaining time horizon
- Review Social Security claiming decisions as you approach key ages
- Update estate plans and beneficiary designations
The Comprehensive Approach Advantage
This individualized planning typically reveals you can retire with 30-50% less than Fidelity's formulas suggest necessary when you account for:
- Your actual spending needs, not salary replacement ratios
- Optimized Social Security providing guaranteed inflation-protected income
- Tax-efficient withdrawals creating 37-40% more spendable wealth
- Strategic Roth conversions reducing lifetime tax burden
- Healthcare and longevity planning appropriate for your situation
Key Takeaway
Your retirement depends on your situation, not Fidelity's average customer or generic industry formulas. A comprehensive approach addresses taxes, benefits, actual spending, and longevity systematically. This individualized planning reveals whether you're actually ready versus comparing to meaningless benchmarks that don't reflect your reality.
Conclusion: Move Beyond Generic Formulas to Personalized Strategy
Fidelity's 10X salary rule and average balance comparisons fail high-net-worth savers because they ignore the factors that actually determine retirement success: taxes, Social Security optimization, and real spending needs.
If you're approaching retirement with $2-5 million in savings, you've worked hard to accumulate substantial wealth. You deserve a retirement plan that recognizes your unique circumstances rather than treating you like the "average" saver.
The comprehensive alternative approach—calculating actual expenses, integrating Social Security, implementing tax-efficient withdrawals, and planning for longevity—typically reveals one of two powerful insights:
- You can retire sooner than you thought because your actual needs are significantly less than generic formulas suggest, or
- You have specific gaps to address that were hidden by comparing yourself to meaningless industry averages
Either insight is valuable. The first gives you permission to retire and enjoy the wealth you've built. The second gives you a clear roadmap for addressing specific issues rather than vague anxiety about whether you're "on track."
For those in or approaching the Critical 15 (within 15 years of retirement), now is the time to move beyond generic advice and build a plan based on what actually matters for your situation. The difference between conventional formulas and comprehensive planning can easily mean $500,000-$1,000,000+ in additional lifetime wealth or several extra years of retirement freedom.
Your retirement success won't be determined by whether you hit 10X or any other arbitrary multiple. It will be determined by whether you've built a comprehensive, tax-efficient, personalized strategy that integrates all your income sources to fund your actual lifestyle needs.
Important Disclaimers
MOKAN Wealth Management, LLC is a Registered Investment Adviser. Content may include topics related to tax planning and estate planning but should not be considered tax or legal advice. This material is for informational purposes only and not personalized advice. Investing involves risk. Past performance is not indicative of future results. Always consult your CPA, attorney, or financial planner before making financial decisions.
Sources & References
- Fidelity Investments - How much do I need to retire?
- Fidelity Investments - How much money should I save each year for retirement?
- Fidelity Investments - Average retirement savings by age
- Fidelity Investments - How much will you spend in retirement?
- Fidelity Investments - Tax-savvy withdrawals in retirement
- Fidelity Investments - 401(k) contribution limits 2024-2025
- Vanguard - How America Saves 2025 / SmartAsset
- Financial Planning Association - Tax-Efficient Retirement Withdrawal Planning
- SmartAsset - Tax-efficient withdrawal strategy
- T. Rowe Price - How to determine the amount of income you will need at retirement
- White Coat Investor - Percentage of Current Income Needed in Retirement
- Capital Group - Retirement income expectations vs. reality
- JPMorgan - This powerful strategy can create more spendable wealth
- Social Security Administration - Filing Rules for Retirement
- Morningstar - Safe Withdrawal Rate Research 2025 (Plan Adviser)
- IRS - Tax Year 2024 Inflation Adjustments
- Bureau of Labor Statistics - Consumer Expenditure Survey
