Table of Contents
- Using age and income-based savings benchmarks can help track retirement savings progress.
- Saving 15% of annual income (including employer contributions) is a good goal for many.
- The optimal savings amount is specific to your lifestyle and individual circumstances.
- Small business owners have several options for retirement plans, such as SEP-IRAs and individual 401(k)s
Retirement planning can be a daunting task, especially for those just starting out in their careers. With so many competing priorities, it can be challenging to balance saving for retirement with paying off student loans, saving for a down payment on a home, or even saving for your children’s education.
So, how much should you have saved for retirement by now?
Savings Benchmarks By Age
One way to track your progress toward saving for retirement is to use savings benchmarks based on age and income. These benchmarks can serve as a helpful guide to ensure you’re on track to meet your retirement goals:
|30||0.5x to 1x annual salary|
|35||1.5x to 2x annual salary|
|40||2x to 3x annual salary|
|45||3x to 4x annual salary|
|50||4x to 6x annual salary|
|55||5x to 8x annual salary|
|60||7x to 11x annual salary|
|65||7x to 13.5x annual salary|
Remember, these benchmarks are meant to serve as more of a rough outline than a rigid plan. When deciding how much to save for retirement, it’s essential to consider factors, such as:
- Desired retirement age
- Type of lifestyle
The Rule Of 25
A popular approach to figuring out your retirement savings goal is the rule of 25:
Start by estimating your monthly expenses. Let’s say you think you’ll need $2,500 per month to live comfortably. Multiply that by 12 to get your annual withdrawal amount of $30,000. Finally, multiply your annual withdrawal amount by 25 to arrive at your retirement savings target of $750,000.
Delve deeper. Take a look at our step-by-step guide on how to open a savings account.
How Much Income You Should Save For Retirement
Saving for retirement is an essential part of financial planning, and knowing how much to save can be confusing. While there’s no one-size-fits-all answer, saving 15% to 20% of your income each year, including any employer contributions, is a good benchmark.
However, higher earners may need to save more to ensure they have enough assets to support their retirement lifestyle. Regularly reviewing and adjusting your savings strategy is crucial to ensure you’re on track to achieve your retirement goals.
One effective method to begin managing your finances is by implementing the 50/30/20 monthly budget. This approach involves allocating 50% of your income toward needs, 30% toward wants, and 20% toward saving and paying off debts.
Retirement Planning Later In Life
If you’re in your 50s or 60s and haven’t started saving yet, don’t panic. It’s not too late to make a meaningful difference in your retirement outlook. Even if you’re behind, the strategies for catching up are largely the same as they are for younger savers.
One of the most important things you can do is to work with a financial advisor to make sure you’re saving enough to meet your goals. An advisor can help you figure out where you stand today, how much you’ll need in the future, and how you can best reach your goals given your current financial situation.
Here are some other strategies that can help you get back on track:
- Increase your savings rate as much as possible. Even if you’re already saving some, you might need to save more to catch up. Consider redirecting some discretionary spending to your retirement account.
- Take advantage of catch-up contributions. If you’re 50 or older, you can make extra contributions to your 401(k) or IRA. In 2023, the catch-up contribution limit for 401(k)s is $7,500, and for IRAs, it’s $1,000.
- Reconsider your retirement date. Working a few extra years can make a big difference in your retirement savings. Consider working longer or part-time in retirement to stretch your savings.
- Adjust your retirement lifestyle. Your retirement lifestyle choices can have a big impact on how much you’ll need to save. Consider downsizing your home, relocating to a lower cost-of-living area, or cutting back on travel.
- Be mindful of investment risk. If you’re behind on your savings goals, you may be tempted to take on more risk to catch up. While this can be a strategy, it’s important to balance the potential for greater returns with the potential for greater losses.
Where Should You Keep Your Savings?
There are plenty of types of savings accounts, all with different benefits and downsides. The most popular are the following:
- A high-yield savings account is a type of savings account that typically offers a higher interest rate than traditional savings accounts, allowing you to earn more on your savings.
- A Certificate of Deposit (CD) is a type of time deposit account that requires you to keep your money in the account for a set period of time, typically ranging from a few months to several years, in exchange for a fixed interest rate.
- A money market account is a type of savings account that typically offers a higher interest rate than traditional savings accounts and allows you to write checks or use a debit card to access your funds, but may require a higher minimum balance.
- An Individual Retirement Account (IRA) is a type of retirement account that allows you to save for retirement with potential tax benefits. There are several types of IRAs, including traditional IRAs, Roth IRAs, and precious metal IRAs, each with their own unique features and eligibility requirements.
Want to know more about IRAs? Check out our guide on the best Roth IRA accounts.