How Much Should I Save for Retirement? Average Retirement Savings Rates for Every Age
Keeping your retirement savings on track helps you meet your retirement goals. That seems like a very simple concept, and in a way it is. But living with that plan every day isn’t quite so simple.
Why You Need to Save for Retirement
More than 1/3 of Americans don’t have a retirement plan to speak of. But with people living longer lives, you could need 20 years or more of retirement income. Without being in the workforce, it has to come from somewhere. And that “somewhere” is your retirement plan.
Social Security isn’t intended to sustain you on its own. And unless your retirement lifestyle goals are meager to say the least, it can’t. So what should you do to ensure a financially stable retirement? Save. Well, save and invest.
How Much Should I Save for Retirement?
For every person who will ultimately retire, there’s a way to plan and save for it. There’s no single right way, and there’s also no ultimate wrong way.
Unless, of course, you don’t plan at all.
The important thing is getting started, getting caught up if you need to, and staying on track until you’re ready to start taking those distributions.
How much YOU need to save is dependent on your lifestyle, how old you are, how long you will live, when you will stop working and many other factors unique to you alone.
The best way to figure out how much to save for retirement is to use an excellent retirement calculator. NewRetirement can help you devise the perfect retirement plan for you. And if your situation changes, as life has a habit of doing, you can work up a new plan and reroute your course accordingly. Check out the NewRetirement retirement calculator and start on your path to retirement financial freedom today.
Although everyone’s income and retirement goals are different, here’s a general idea of where your plan should be at different stages of your life.
How Much Should I Save for Retirement — Average Retirement Savings in Your 20s
People in their 20s generally earn less than they will later on. But savings is still important, no matter what you earn. The average salary, for Americans ages 20-24 floats around $33,280. According to Bankrate, a smart goal is to save at least 10% of your income either in a 401(k), an IRA, an emergency fund, or all three.
By 25, those savings should grow to about $4,700 a year, assuming your salary has increased to the $47,000 range as it could.
People in their 20s often also have student loan debts they have to pay off, which can make saving for the distant future seem even more difficult. But the more money you put away now, the easier your life will be in even ten years.
Investment giant Fidelity suggests people in their 20s should save 15% of their pre-tax income. Fidelity senior vice president Jeanne Thompson says, “when you are young is precisely the time to start saving for retirement. Even though it can be a challenge to save for the future, giving your savings those extra years to grow could make the struggle worth it.”
How Much Should I Save for Retirement — In Your 30s
Earnings tend to improve in your 30s as you get settled in a career and start building working relationships. And the savings you started in your 20s keep adding up. Fidelity suggests you also boost your savings rate to 18% of your pre-tax income. The pain of giving up more spending money can be made easier if you put your raises directly into your retirement account. And if your employer offers a 401(k) match, take it! That’s free money, and who would turn down free money?
If you’re earning $47,736 annually, by your 31st birthday you should have over $43,000 in retirement savings. If your income has grown to about $59,000 by the time you turn 36, you should have put just shy of $70,000 in your 401(k), IRA, emergency fund, or split between the three.
A good rule of thumb as you reach 35 is to have 1.5 times your annual salary saved in a retirement account. Every five years the amount you have should increase by 0.5 times, so when you turn 40 you should have 2 times your salary saved, when you turn 45 you should have 2.5 times your salary saved and so on.
If you didn’t do it in your 20s, consider setting up a Roth IRA while your earnings are still relatively low compared to what you might be earning in your 40s. Roth IRA contributions are taxed when you put them in, but the distributions — after they’ve had 40 years to grow — are tax-free.
How Much Should I Save for Retirement — Average Retirement Savings in Your 40s
For the average American in their 40s salaries settle around $60,000. Yet, if saving 10% of your income, by the end of your 40th year you should have put about $92,126 into retirement savings.
To be really ahead of the game, consider boosting your retirement contributions during this highest-earning decade of your life to 23% of your pre-tax income.
Your 40s are also a good time to buy life insurance to protect your loved ones and others who depend on you, if you haven’t done so already.
How Much Should I Save for Retirement — Average Retirement Savings in Your 50s
The average American worker in their 50s earns around $56,000. If that’s the course you’re on, you should have saved slightly more than $175,000 by the age of 55. Closing out the 50s, retirement savings should be around $200,000 at age 60. That’s quite a leap from a decade earlier, but the more that you save the more that it grows.
Your 50s are a particularly crucial decade for retirement. Workers over 50 are more likely to be laid off than younger workers, and the Center for Retirement Research at Boston College estimates that 75% of workers between 50 and 62 don’t have an employer-sponsored retirement plan. This is the decade where keeping up-to-date on your retirement plan is absolutely crucial.
How Much Should I Save for Retirement — Average Retirement Savings in Your 60s
Your 60s may not be the pinnacle of your earning years. By age 65, the average American salary has fallen to $52,000. But according to Personal Capital, with so much already invested in your 401(k), the average balance for ages 55-64 should be about $500,000.
If you retire at the average age of 62, saving on the track outlined here should provide you with slightly over $500,000 in your 401(k) alone. That’s a lot more than you might have imagined when you were in your 20s and just getting started. The key is finding a plan and committing to it for life. Social Security can’t support you. But dedicated earnings throughout your working years absolutely can.
I Am Saving — Where Should I Put the Money?
If you work at a company with a 401(k) plan, that is a great place to start. Many companies provide matching contributions from 3% to 6% or higher as an employment perk.
In addition to a workplace 401(k), you can also open a traditional or Roth IRA. These tax-advantaged savings accounts can take contributions in addition to your workplace contributions.
Employer-sponsored 401(k)s and IRAs have contribution limits, and if you want to save more you may want to open a regular taxable brokerage account.
The money you put into a regular brokerage account has already been taxed, and the income you make in the account will either be taxed as regular income or as capital gains. But in recent years online and mobile-only stockbrokers like Charles Schwab and Robinhood have cut transaction fees to the bone, so buying and selling stocks, mutual funds (if they’re offered), and ETFs making these accounts an easy and inexpensive way to invest your money.
Having a regular brokerage account also lets you invest in alternatives like gold, real estate and hybrid securities like convertible corporate bonds.
Just be sure to do your research and realize you’re in it for the long haul!