A lack of early savings has cost me dearly. Even though I started working at an early age, I had no idea how to save for the future. From past employment, I’ve accrued a couple 401(k) accounts, but I’ve never actively saved.
By the time I started to focus on my future, I realized I was behind and that meeting future savings goals would be an uphill struggle — but since I’ve taken specific actions, I’m now making progress toward my financial objectives. When it came to saving money, I might have easily given up for no good reason if I had followed the guidelines laid forth for me.
This post is for you if you’re in your early twenties and wondering how much money you should have saved by the age of thirty.
This post is just as useful if you’re in your 30s and worried that you’ve fallen behind.
It’s not too late to start budgeting for retirement planning and saving for your future. Look at how much money you should have saved by the age of 30 and how you may start saving money today.
- Savings goal over the next 30 years
- A guide to saving money on your own termsA guide to saving money on your own terms
- How to start saving today for a successful retirement
- Bottom line
Savings goal over the next 30 years
Most financial experts agree that the amount of money you’ll need in retirement depends on a variety of factors, including when you want to retire, how much you expect to spend, and how long you expect your savings to endure. However, there is a well-established rule of thumb that can help you zero in on a certain number.
Fidelity’s 1X recommendation
According to Fidelity Investments, a global asset management firm, you should begin saving for retirement at the age of 30 by setting aside 10 percent of your annual income. For example, if you make $50,000 per year, you should have $50,000 saved up by the time you’re 30. To reach your goal of saving 10 times your pre-retirement salary by the time you’re 67, this is the first step you must take.
Savings milestones recommended by Fidelity are as follows:
- 2X your income by age 35
- 3X your income by age 40
- 4X your income by age 45
- 6X your income by age 50
- 7X your income by age 55
- 8X your income by age 60
- 10X your income by age 67
On the basis of these assumptions, Fidelity’s savings milestones are established:
- Once you reach the age of 25, you begin setting aside 15% of your gross annual salary.
- You put more than half of your savings into the stock market on average.
- You can retire at the age of 67.
- In retirement, you want to continue living the same way you currently do.
Financial objectives are likely to be influenced by the age at which you want to retire and the lifestyle you wish to retain in retirement, according to Fidelity.
Price’s 1/2X is recommended by T. Rowe Price.
If you want to meet comparable savings goals, the investment management company T. Rowe Price advises you save at least 15% of your salary. Investment firms propose that you save half your yearly income by the age of 30.
These standards for retirement savings are provided by T. Rowe Price.
- 1X your income by age 35
- 2X your income by age 40
- 3X your income by age 45
- 5X your income by age 50
- 7X your income by age 55
- 9X your income by age 60
- 11X your income by age 65
In retirement, T. Rowe Price assumes that you would be dependent on your own savings and Social Security income. These savings criteria might be lowered if you have additional retirement income, such as a pension.
A guide to saving money on your own termsA guide to saving money on your own terms
Now that you have some context, you can look at your personal finances and lifestyle and set your own savings goal. First, you need to make some decisions about your ideal retirement:
- Determine the age at which you wish to stop working and begin collecting your pension. This should be a goal that is both reachable and practical. Depending on the age you plan to retire, you may not get your entire Social Security retirement income. However, you will not receive your full benefit if you begin receiving Social Security at age 62. The full retirement age for persons born after 1960 is 67 years old for those born in the 1960s and 1970s.
- Make a plan for how you wish to live once you retire. What is the cost of living in the area where you’ll be residing? In what ways do you wish to spend your time after work? Where do you see yourself participating in the future? Active travelling will be a primary focus for several retirees in their golden years. There are some who choose to spend their time working in their community or caring for their grandkids.
It’s time to crunch the figures after you’ve established your ideal lifestyle. To maintain the same quality of living in retirement, the average retiree will require between 55 percent and 80 percent of their present yearly income, according to Fidelity.
So, if your present family income is $100,000, you’ll need $55,000 to $80,000 per year after retirement to maintain your standard of living. For a 30-year retirement, you’ll need between $1.65 million and $2.4 million.
Consider these criteria while calculating your retirement savings:
- There are other ways to make money when you retire (pension, Social Security, etc.)
- Expected way of life and associated costs of living
- Expectations about one’s health, including any current issues
- Dreams and ambitions for future travel
- Having a reserve of cash laid up in case of need
- Tax bracket and inflation
Despite the fact that this may take some time, it will help you create a reasonable savings target. It’s time to start saving once you’ve worked out how much money you’ll need.
How to start saving today for a successful retirement
Set a weekly or paycheck period goal
Now that you know how much you want to save for retirement, you may break that goal down into smaller, more manageable chunks. A weekly or pay period objective might be set for this. As a result, it makes the objective seem more accessible by slicing it into manageable parts.
Savings may be broken down into manageable chunks in many different ways.
- You’ve set a modest retirement savings target of $500,000, and you’re well on your way.
- Your retirement age is 65 years away, and you’re just 30 years old. You’ve got 25 years to put money down.
- You’ll need to set aside $20,000 a year to save $500,000 over the course of 25 years.
- Because there are 52 weeks in a year, you’ll need $385 a week in savings.
An app like Digit, which may help you save money, is a viable option to explore. Check your bank account balance using the app to see how much money you have left in your checking account. That money is then deposited into a savings account, which may be used for emergencies. The program costs $5 a month, but it’s an easy method to save automatically. Alternatively, most checking accounts allow you to set up free automatic transfers to savings.
Open up an IRA
Retirement savings accounts such as Individual Retirement Accounts (IRAs) are ideal for two reasons:
Many investment choices are available, as well as tax advantages. Withdrawals from a conventional IRA are taxed according to your income tax bracket when they are taken out of the account in retirement. In the case of a Roth IRA, contributions are made with post-tax monies, which implies that payouts in retirement will not be taxed.
It’s possible to select your own stock, bond or mutual fund portfolios with several IRA providers. When investing on your own, keep in mind your current age and level of risk tolerance. With more time on your side, younger people may be more willing to take on greater risk since they have more time to recover from any losses. If you’re over the age of 50, you may benefit from a less risky investment strategy.
Automating your IRA contributions is usually possible. Most IRA providers make it simple by letting you pick how often you want to contribute to your account. Be aware that IRA contributions are limited by federal law. As of 2020, you can contribute a maximum of $6,000 per year ($7,000 if you’re over the age of 50).
Start a 401(k)
Your retirement funds may be at jeopardy if you’ve reached your IRA contribution limit. The yearly contribution maximum for 401(k) contributions is substantially larger than for an Individual Retirement Account (IRA). For persons under the age of 40, the contribution cap is $19,500 for 2020.
You may be able to pick between a traditional 401(k) and a Roth 401(k) depending on your employer’s plan (k). This implies you can opt to be taxed now vs in retirement on your contributions. In most cases, the 401(k) provider will match you with a portfolio based on your risk tolerance and investing preferences.
If your company provides a 401(k) plan and matches any portion of your contribution, consider at least contributing up to the amount that is matched. If you’ve got the extra cash lying around, don’t waste it.
Open a high-yield savings account
A high-yield savings account is a terrific place to keep your money after you’ve set up your IRA and 401(k) contributions. The interest rates on these accounts are far higher than those of typical savings accounts, and opening one is as simple as filling out an online application.
If you’re looking to create a large number of savings accounts, you’ll most likely be able to discover them through online banks. If you’re saving for retirement and a down payment on a house, for example, having more than one savings account might make it easier to keep track of your progress.
Evaluate your student loan debt
The likelihood is high that you, like many other millennials, are saddled with student loan debt. As a result, you must decide whether to begin saving for retirement, pay off debt, or do both at the same time.
Consider the interest rate on your student loans before making a decision:
- Your student loan interest rate may be so low that you may want to take the next step and focus on investing your money, hoping that your return on investments would outweigh any interest you may be paying. The stock market’s annualized return has typically been approximately 10%.
- If you have a loan with an interest rate of more than 10%, you may choose to tackle that debt first. If you don’t, the increased interest rate on your debt will negate whatever gains you make on your assets.
A student loan refinance may be an option if you’re concerned about the high interest rate on your current loan. If your financial condition has improved since you first took out the loan, you may be eligible for lower interest rates.
If your company matches a percentage of your payments to a 401(k), investing for retirement is still a no-brainer (k). Even if your company doesn’t offer a match, you may still pay down debt while saving for retirement.
Investment beyond your retirement accounts is the next step once you’ve established your 401(k), IRA, and savings. Investing in the stock market has become a lot easier thanks to online brokerage accounts.
Mutual funds and exchange-traded funds (ETFs) are frequently available through the best online stock trading accounts. All of the stocks in these funds are professionally managed, making it simple to invest. Before deciding on a brokerage, make sure you know what kind of fees are associated with the fund you are considering. Regardless of the fund’s performance, these costs are always going to be there, and knowing what they are may have a significant impact on your bottom line.
Another option is to use a robo adviser. Algorithms drive robo advisors, which operate with no oversight from humans. Answer a few questions about your tolerance for risk, and the business will match you with a portfolio that reflects that tolerance.
Robo advisers incur yearly fees that range from 0.25 to 0.50 per cent, which means you don’t have to worry about keeping track of your investments. However, these aren’t the only costs to watch out for, so like with any investment, be sure to read the tiny print.
There is no one-size-fits-all approach to a financially secure future. If you’re at a loss about what to do with your money, you can benefit from consulting with a financial planner. They will assist you in developing a strategy that is suited to your unique circumstances.
For those in their early 20s, there is plenty of time to save for a 30-year goal. Make no mistake: If you’ve just reached your 30s and are behind in your savings, do not give up. In order to attain your financial and retirement fund objectives even if you have to work more, you need to increase your savings rate.