Do you know if you’re on track for your retirement savings? Even if you don’t know exactly how much money you’ll need in retirement, you’re likely not saving as much as you should. Whether that’s because your money is tied up in other financial obligations or because you’re just unaware of how much you should be saving, now’s the time to get informed on how much you should have saved for retirement.
Of course, there are many things to consider when it comes to retirement savings, but age is one of the leading factors. How much you have saved at certain milestones in your life will determine when you can retire and how comfortably you can retire. Let’s take a look at how much the average American has in retirement savings by age:
Median Retirement Savings By Age
According to a study conducted by Transamerica Center for Retirement Studies, median retirement savings for people in America by age are as follows:
- 20’s – $16,000
- 30’s – $45,000
- 40’s – $63,000
- 50’s – $117,000
- 60’s – $172,000
It’s important to know that these numbers represent total household savings. So, the numbers for individuals could be even lower.
Given these numbers, it’s safe to say that Americans have a retirement savings problem. Experts recommend having at least $1,000,000 saved for retirement by the age of 60. However, Americans, on average, come up more than two-thirds short.
In your twenties, you likely have student loans that you’re paying off. So saving for retirement may not be a priority since it’s so far away and debt is more immediate. That could explain the first low number.
Part of the problem with the next sets of savings by age is that Americans have missed out on the benefits of compound interest since they were not saving as much in their twenties. Compound interest works when your financial returns grow each year based not only on your initial investment but on the gains that investment has realized over the years as well.
In short, the earlier you start saving for retirement, the more compound interest your money will experience. The later you wait, the more you have to save to reach the same savings goal.
How Much You Should Have Saved For Retirement By Age
How much money you’ll need in retirement depends on a lot of factors, including your desired retirement age, location, lifestyle, and much more. Fidelity has come up with a set of savings factors to help you know if you’re on the right track to retiring financially sound. Here’s what’s proposed:
- Age 30 – 1x your salary
- Age 35 – 2x your salary
- Age 40 – 3x your salary
- Age 45 – 4x your salary
- Age 50 – 6x your salary
- Age 55 – 7x your salary
- Age 60 – 8x your salary
- Age 67 – 10x your salary
Fidelity’s guide assumes you plan to retire at age 67 and maintain your pre-retirement lifestyle.
Having 1x your salary saved for retirement by age 30 is a lofty goal. If you can reach that amount while taking care of other financial obligations like paying off student loans, buying a home, and saving for other goals, you’re in good shape. After that, with the power of compound interest, proper investing, and continual saving, you should be able to reach the next milestones as well.
The key here is staying on track each year. You can save money in employer sponsored plans such as a 401(k) or 403(b). You can also save money on your own in an individual retirement account (IRA) or Roth IRA.
Your salary is likely to increase as you get older as well. So 8x your salary right now might not seem like a whole lot. But at age 60 upon retirement, it’ll likely be more than you imagine right now. Keep that in mind when evaluating the suggested savings factors laid out by Fidelity.
What To Do If You’re Behind
If you’re behind by either standard – by what the average American has saved or by what you should save saved – you can still catch up. The simple answer is to save more. With employer sponsored plans, opt to have a larger percentage of your paycheck contributed into your retirement plan each pay period. You should be contributing the minimum that’s required in order for you to get the full company match, if offered.
If you don’t have an IRA or Roth IRA, now’s the time to open one. Contributions made to traditional IRA’s are tax deductible. On the other hand, contributions made to a Roth IRA can be withdrawn tax-free once in retirement. There are benefits to having both employer sponsored retirement plans and individually owned retirement plans.
Don’t forget Social Security benefits. Most retirees find this to be a significant portion of their income. The average Social Security benefit paid to retirees per month in 2016 is over $1,300.
Retirement savings is a highly personal subject. How much you’re able to save as well as how much you’ll need in retirement depend on so many different factors. Those factors vary from person to person. The numbers provided in this article are meant to serve as benchmarks.
It’s never too early to start planning your retirement savings. In fact, some people open IRA’s and begin contributing to their employer sponsored retirement plans as soon as they start their first jobs. The earlier you start saving, the more compound interest your money will accumulate. If you start early, you’ll have to save less money each month to reach your retirement goal. The longer you wait, the more you’ll have to save.
Setting yourself up for a financially secure retirement starts with a plan. Take some time to sit down and think about what you want out of retirement. Do you plan to live the same lifestyle or do you plan to travel more? Coming up with a detailed plan will help you know exactly how much money you’ll need in retirement. From there, you can set your savings goals accordingly.
Are these numbers alarming? Are your savings behind? Tell us about your new savings plan!