Saving for retirement is the biggest financial goal and commitment you’ll make in your life, but the majority of people aren’t saving enough to maintain their standard of living after they stop working.
19% of Americans say they’ll retire with less than $10,000 in retirement savings and 45% of Americans will retire with zero savings at all. That means 64% of Americans will retire broke with no plan on how to pay their bills once their paycheck stops coming in.
You may think that these statistics only apply to low-income earners working paycheck to paycheck, but that isn’t always the case.
Surprisingly, retirement savings for high-income earners is only a little better than the average worker. In fact, 27% of high-income earners making more than $137,700 per year have $0 saved for retirement.
If you want to be better off in retirement than the majority of Americans, the first step is figuring out how much you need to live comfortably in retirement and how much money you need to put aside every month.
Use a retirement savings calculator to figure out what you need to save per month then use a retirement savings calculator spreadsheet to keep track of your progress and stay on track with your goals.
How Much to Save for Retirement?
The standard rule of thumb is you should save 15% of your pre-tax income for retirement. This assumes you invest from ages 25 to 67, and your retirement spending will be between 55% and 80% of your current spending.
Saving 15% of your income is a good starting point, but it doesn’t work for everybody. If you start saving for retirement in your 40s or 50s or want to keep your same level of spending into retirement, you need to save a larger percentage of your salary.
Using a retirement savings calculator lets you plug in different scenarios until you figure out the perfect savings amount for you and your retirement plans.
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The Impact of Time on Your Retirement Savings
Time is your best friend when it comes to saving for retirement. The longer your money is in the stock market and compounding, the less principle you have to invest to have enough saved for retirement.
For example, Robert and Mark both save $30,000 over a 20 year period. They invest $1,000 per year for the first 10 years and $2,000 per year the last ten years.
Robert starts investing at age 25 and stops investing at age 45. Mark starts investing at age 45 and stops at age 64.
They both retire at age 65. Assuming a modest annual return of 6%, Robert has $160,300 and Mark only has $49,970.
They both invested the same amount of their own money, but since Robert invested at a younger age, his money grew significantly more thanks to compound interest.
Even small amounts invested at a young age turn into large sums of money decades down the road.
How Much Should You Have Saved for Retirement Now?
Everybody is at different places financially, so it is difficult to tell you exactly where you should be at each stage of your life.
However, there are some milestones you should be striving to reach every decade:
1x annual salary
3x annual salary
5x annual salary
7x annual salary
9x annual salary
Even if you’re not on track to meet these milestones right now, there are ways you can get your retirement savings back on track.
Saving for Retirement in Your 20s
It may seem impossible to start saving for retirement in your 20s when you’re making a lower wage and have tens of thousands of dollars in student loan debt.
The most important thing you can do in your 20s is set up a tax deferred pension and retirement savings plan like a 401(k). If your company offers an employer match, take advantage of that to its fullest extent.
Another important thing to do in your 20s is build an emergency fund of 3 to 12 months of living expenses, so you don’t have to dip into your retirement savings if an unexpected emergency happens.
How to Save for Retirement in Your 30s
You should be making more money in your 30s, but you’ll likely have new financial responsibilities like a family. It can be hard to balance your everyday financials with your long-term retirement savings.
If you’re getting the full employer match in your 401(k), consider opening a Roth IRA. You fund your Roth IRA with post-tax dollars, but you aren’t taxed on the principle or capital gains when you withdraw the money in the future.
Saving for Retirement in Your 40s
In your 40s, you’re nearing your peak earning years, so it is important to up your retirement contributions.
If you’ve already maxed out your 401(k) and Roth IRA, open a taxable brokerage account to invest your extra savings.
This is also the time to decide whether you want to rely on tax-free savings vs a retirement annuity. You can retire with just your 401(k) and Roth IRA, but some people prefer to pre-fund a retirement annuity that will pay them monthly in retirement.
Lastly, beware of lifestyle creep in your 40s and don’t let your cost of living increase too much and eat aware all your extra income.
How to Save for Retirement in Your 50s
Your 50s are a very exciting time. Most people’s peak earning year is at age 56, so you need to take advantage of your best working years and save as much as possible. If you haven’t already, max out your 401(k) and Roth IRA then open a taxable brokerage account.
You should also start thinking about your retirement plan. Use a retirement calculator to make sure you’re still on track and make any necessary adjustments.
To help you develop your retirement plan, consider reading books like Retirement Income Redesigned by Harold Evensky and Deena Katz to learn how at what rate to withdraw retirement savings to never run out of money.
Saving for Retirement in Your 60s
You’re in the home stretch! These are the last few years you have to save for retirement before you get to use your hard-earned savings.
In your 60s, review your portfolio allocation and make sure it isn’t too risky. Experts suggest you have a 60/40 allocation of stocks to bonds in retirement, so you’re protected if there is a market crash.
he Bottom Line
Saving for retirement often feels like an impossible task. Even if you feel like you’re behind, making small steps now will put you in a better position when it’s time to retire.
It’s important you always know where you stand with your retirement savings, so you can make any adjustments you need along the way. A retirement calculator is one of the best ways you can stay on top of your retirement progress and goals and stay on track.
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