Let's face it: Saving money is hard. When you're young, you tell yourself you'll start saving once you start earning more. Then when that happens, you may have a mortgage, or kids, or other expenses that make it harder to save. Then all of the sudden, you're ready to retire, and you have little to no money in your retirement fund.
If that sounds like you, you're not alone. According to a study by the Economic Policy Institute (EPI), the median amount saved by working-age families (defined by the EPI as those aged 32 to 61) is just $5,000. Even for people nearing retirement age (56 to 61 years old), the median savings is a mere $17,000.
Needless to say, most people are falling behind on saving for retirement. But how much should you have saved at each age to be on track to retire?
The track to retirement
First of all, it's important to note that there's no single savings number that everyone should strive for. In addition, the amount of savings you'll need in retirement will depend on a variety of factors, such as the age at which you plan to retire, the kind of lifestyle you want to lead, and how long you expect to live (not a cheery thought, but an important one).
That said, a recent report by Fidelity lays out a simple path to a financially secure retirement, complete with savings targets you'll need to reach along the way. Fidelity's figures are based on a number of assumptions, so your goals may differ based on your situation. For example, Fidelity assumes you'll retire at age 67 and need income until age 92. They also assume that your savings will provide 45% of your annual pre-retirement income and that between those savings and your Social Security benefits, you'll be able to maintain your current lifestyle. Finally, Fidelity assumes that more than 50% of your retirement portfolio will be invested in stocks, which have historically returned about 7% per year, though future performance will vary.
Bearing in mind that your retirement plan should be tailored to your financial situation and your goals, Fidelity's simple retirement roadmap should give you an idea of whether you're in the ballpark.
By age 30
Although it's tough to start saving in your 20s, it's crucial, because it allows you to take advantage of compound interest. At this age, you're probably just starting your career and opening a 401(k) or IRA, and you need to start using them immediately.
By the time you reach your 30s, you should try to have the equivalent of your annual salary saved for retirement. So if you earn $45,000 per year, that's how much you should have saved. That money can come from different places, too, and it includes any matching employer contributions, the interest you've earned in savings accounts, or whatever extra cash you have saved here and there.
You can reach this goal by saving around 15% of your annual income each year. Say, for instance, you started saving at age 22 with a salary of $35,000 per year, increasing your savings by 3% each year (which is considered the average raise at U.S. companies) until age 30. Here's what you'd be saving each year, along with the total amount you'd have saved:
|Age||Salary||Retirement Savings Contribution||Cumulative Total|
So if you save 15% of your annual salary every year and receive a 3% raise each year, you'll actually come out quite a bit ahead of your goal of saving the equivalent of your salary. However, life isn't usually that predictable. Emergencies, job losses, and salary cuts happen, and sometimes you just can't scrape together 15% of your income to save. This savings goal leaves you some wiggle room in case life throws you a curveball.
By age 40
At this stage of your life, you should start kicking your savings into high gear. Both men and women reach their peak earning years around this time (with women peaking at age 39 and men at 48, on average), so take advantage of your increasing salary by saving as much as you can.
At this stage, you should have around three times your annual salary saved. Keep in mind that because your salary is likely increasing as you age, you should be saving more, too. And as your retirement fund grows, you'll start to see more of the benefits of compound interest taking effect.
By age 50
Similar to your 40s, your 50s are a time to save heavily and put as much as you can toward your retirement fund. By age 50, you should have about six times your annual salary saved.
This may sound like a crazy high number, but remember that you have compound interest on your side. So if you've saved, say, $200,000, and you're earning a 7% annual return on your investments, that's $14,000 you're earning per year even without contributing extra money of your own.
By age 60
At this point, saving for retirement is serious business. You're getting closer to retirement age, and you should have a good idea by now if what you have will be enough to last you through the next few decades.
By age 60, you should have about eight times your annual salary saved. Again, this sounds like a lot, but if you've been diligent about saving up to this point, compound interest should be doing a lot of the work for you.
It's also important at this stage not to let your guard down. While you can (and should!) pat yourself on the back for getting this far in the retirement game, you should also continue to save aggressively until the day you retire.
Finally, keep in mind that these are only guidelines. Everyone is different in regards to how much they'll need during retirement, and not everyone saves money in the same way. What works for one person may not work for another. But by using this guide as a rough estimate, you can get a better idea of how much you'll need when you retire and how close you are to meeting those goals.