How Much Should You Save for Retirement? A Complete Guide by Age – FangWallet

Saving for retirement is one of the most important financial goals you can set, but figuring out exactly how much you should save at each stage of life can be tricky. There isn’t a one-size-fits-all answer, as your retirement savings depend on your lifestyle, desired retirement age, and other factors. However, following some basic guidelines and adjusting as needed ensures you’re on track to retire comfortably.

This article shows how much you should aim to save at different ages to reach your retirement goals. We’ll also cover some of the factors that could impact these numbers and how to adjust your savings strategy as life changes.

The Basics of Retirement Savings

Before we break it down by age, it’s important to understand the general retirement savings recommendations:

• Target Savings Goal: Many financial experts recommend saving at least 15% of your pre-tax income for retirement each year, starting as early as possible. This can include contributions to 401(k)s, IRAs, and other retirement accounts.
• Replacement Rate: Most retirees aim to replace about 70-80% of their pre-retirement income. This means earning $50,000 before retiring would require $35,000-$40,000 in annual retirement income.
• Inflation: It’s crucial to factor in inflation, which generally increases the cost of living yearly. Your savings should cover your expenses as they are today and account for rising prices over the decades.

While retirement is a phase we look forward to, it’s also something you need to plan so you can set your retiree-self up for success. There is a lot of advice retirees wish they knew sooner and knowing how much to save is a good place to start.

In Your 20s: Start Early, Save Consistently

Retirement seems far off in your 20s, but the earlier you start saving, the better. Compounding interest works best when you give it time to grow, so it’s critical to begin saving for retirement in your 20s.

Goal by Age 30: Aim to have 1x your annual salary saved by the time you hit 30. If you’re earning $50,000, you should aim to have $50,000 saved in your retirement accounts by the time you turn 30. This may seem like a lot, but this goal is achievable if you consistently save a portion of your income starting in your 20s.

How to Achieve It:

• Start contributing to your employer’s 401(k) plan, especially if there’s a match. This is essentially free money.
• If you’re eligible, open an IRA (Individual Retirement Account) and contribute regularly.
• Keep saving as much as possible, even if it’s a small amount initially. It’s more important to start the habit of saving than to save a significant amount initially.

In Your 30s: Ramp Up Savings

In your 30s, you may have a family or a mortgage, but it’s still important to focus on building your retirement savings. By now, you should be well-established in your career and likely have a better idea of how much you need to live comfortably.

Goal by Age 40: Aim to have 3x your annual salary saved by age 40. For example, earning $60,000 by age 40, you should have $180,000 saved for retirement.

How to Achieve It:

• Max out your 401(k) contributions, or at least contribute up to the employer match.
• Consider opening an IRA if you haven’t already, especially if you want more investment flexibility.
• Focus on paying down high-interest debt (like credit cards) and avoid taking on new debt that could impact your ability to save.
• Make sure you’re increasing your savings rate as your income grows. Aim to save 15-20% of your gross income for retirement.

In Your 40s: Stay Consistent and Avoid Lifestyle Creep

By your 40s, you may feel more financially stable, but lifestyle creep can be an issue. As your income increases, it’s easy to start spending more on things like bigger homes, cars, and vacations. However, the 40s are critical for building wealth, so don’t let increased expenses derail your retirement goals.

Goal by Age 50: Aim to have 6x your annual salary saved by age 50. If you’re earning $75,000, you should have $450,000 saved for retirement by the time you turn 50.

How to Achieve It:

• Increase your retirement contributions as much as possible. If you’re not already contributing the maximum allowed to your 401(k) and IRA, now is the time to do so.
• If you have a pension, understand how it works and factor it into your overall retirement plan.
• Consider catching up on savings by contributing to catch-up provisions in retirement accounts. For 401(k)s and IRAs, you can contribute more once you reach age 50.
• If you haven’t already, work with a financial advisor to ensure your investment strategy aligns with your retirement goals.

In Your 50s: Play Catch-Up

In your 50s, retirement is closer than ever, so it’s time to accelerate your savings. If you’re behind on your savings goals, you’ll need to take advantage of catch-up contributions and invest strategically to close the gap.

Goal by Age 60: Aim to have 8x your annual salary saved by age 60. If earning $80,000, you should have $640,000 saved for retirement by age 60.

How to Achieve It:

• Take full advantage of catch-up contributions. If you’re 50 or older, you can contribute up to $30,000 per year to your 401(k) in 2024 (the limit is $22,500 for those under 50).
• Consider shifting your portfolio toward more conservative investments to reduce the risk as you approach retirement.
• Work on paying down any remaining debt, especially high-interest debt, so you can live on a fixed income in retirement.

In Your 60s: Final Push Toward Retirement

By your 60s, you should have a solid retirement savings foundation, but this is the final push if you haven’t reached your goal yet. You’ll often be balancing retirement savings with planning for how and when to retire.

Goal by Age 67: Aim to have 10x your annual salary saved by age 67. If you’re earning $90,000, you should save $900,000 for retirement.

How to Achieve It:

• If you’re nearing retirement and haven’t yet retired, focus on saving as much as possible during your final working years.
• Consider delaying retirement if you’re not on track to meet your savings goals.
• Max out your catch-up contributions to 401(k)s and IRAs.
• Ensure your portfolio is diversified and your risk level is appropriate for your time horizon.

Final Thoughts

The amount you should save for retirement varies based on your personal goals, income, and lifestyle, but having a savings target for each stage of life can help you stay on track. The earlier you start, the more time your money has to grow. And even if you’re behind on your savings, it’s never too late to adjust your plan and catch up.

While these guidelines provide a helpful benchmark, you should constantly tailor your savings plan to your retirement goals and lifestyle. If you need help, a financial advisor can help you develop a plan specific to your needs and make adjustments as needed. The most important thing is to start saving—and keep saving—as early and consistently as possible.

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