Get Your Retirement Savings on Track

Knowing where you stand with your retirement savings challenges even the best-prepared investors. After all, when you add modest amounts to your retirement accounts each month, market fluctuations can easily wipe out several months' worth of contributions.

The best way to keep the ups and downs of the markets from distracting you from your long-term goals is to have a roadmap for your retirement planning. That way, you can look forward to milestones along the way that will tell you you're still on track. Let's take a look at four different age groups to give you a sense of how you're doing with your savings.

Age 25-35: Just get started
Getting an early start on your retirement planning can be tough for young adults, but it's extremely rewarding. At this point, how much you set aside isn't as important as building a healthy habit of saving. While you might feel like you'll have to work forever, that won't be the case if you can set aside just $100 or $200 each month.

Get off to a good start by taking advantage of any employer's matching contribution in your 401(k), invest aggressively with high-growth stocks like Orbital Sciences (NYSE: ORB  ) and Mindray Medical (NYSE: MR  ) , and get a regular investment program going. If you reach age 35 with $20,000 saved up, you're doing pretty well -- and a lot better than many people your age.

Age 35-45: Kick it up a notch
By now, you're probably starting to make some progress financially. You've gone beyond entry-level jobs, you hopefully have your loans paid down, and you're making more money. At the same time, though, you may have other demands on your savings -- especially if you've started a family and bought a home.

Now's the time to start upping your monthly savings. As Foolish retirement expert Robert Brokamp explains in a recent issue of our Rule Your Retirement newsletter, an excellent goal for a 40-year-old is to save about 20% of your pay. But even if you can't manage that much, $500 a month can get you to between $100,000 and $150,000 by age 45 -- and that will leave you in decent shape for the future.

As for investments, fixed-income starts to play a role in your portfolio as you get older. But to give you both growth potential and dividend income, adding more conservative blue-chip stocks like Procter & Gamble (NYSE: PG  ) and Johnson & Johnson (NYSE: JNJ  ) to your portfolio can give you the best of both worlds.

Age 45-55: Get into the groove
With 10 to 20 years left to go, you're in the sweet spot of retirement savings. You've hopefully made strides toward financial security in the rest of your life, yet you still have long enough before retirement that the money you set aside now will provide you with reasonable growth.

If you've accumulated a reasonable nest egg so far, saving $1,000 per month during this decade should get you close to $500,000. It's a good time to check your portfolio and fill in any gaps to add diversification. For instance, real estate exposure from a REIT fund like the iShares Dow Jones U.S. Real Estate ETF (NYSE: IYR  ) can provide income that's not correlated to the stock market. Also, make sure you've got some foreign stocks, such as Toyota Motor (NYSE: TM  ) and Sanofi-Aventis (NYSE: SNY  ) , to keep yourself from being too reliant on the U.S. economy.

Age 55-65: Race to the finish
Ideally, you can use your last decade to put the finishing touches on your retirement portfolio. If you've done better than expected, then early retirement becomes an attractive option. On the other hand, if you got a late start, you can use this time to catch up.

Saving $2,000 per month -- which becomes a lot easier at this age, as kids have mostly left home, and your mortgage may be close to being paid off -- can bring your nest egg up over the $1 million mark by your early 60s. If you decide to work to age 65, then $1.5 million is a reasonable target.

As you can see, saving for retirement doesn't have to be complicated. With steady effort, you can reach your financial goals without fear. By using these guidelines, you can see whether you're on track for the retirement of your dreams.

Learn more about building a great retirement:

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2011, at 9:33 AM, Devlin7 wrote:

    Wow, major assumption on what income people who read the Fool make. If I socked away 500 per month I'd loose my home, have to ride a bike to work, freeze in the winter, etc...

    How about some advice aimed at the working class? The upper middle and upper class usually have professionals invest for them.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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