Saving for retirement can be tricky, especially since it's tough to tell just how much you need to save. Your savings goals will depend on several factors, including your current age, the age you plan to retire, and how much you expect to spend each year in retirement.
Furthermore, because everyone has different savings goals, you can't necessarily compare your numbers with those of your neighbor or co-worker to see whether you're on track. But new research reveals there may be an easier way to tell how much you should be saving based on your age and salary.
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How much should you have saved by now?
A recent study from JPMorgan reveals just how much workers should have stashed in their retirement fund depending on their income and age. First, though, it's important to understand the assumptions behind the calculations.
For one, these numbers assume you're currently saving 5% of your annual income and will continue at that rate until retirement. The calculations also assume you'll live approximately 30 years in retirement, that you'll be spending roughly the same amount in retirement as you are now, and that if you're the primary earner, you'll retire at age 65 with your spouse retiring at 62. Finally, the analysis assumes that your pre-retirement investments are earning a return of around 6% per year, while your investments during retirement see returns of around 5% per year.
Now, on to the fun part: figuring out how much you should save based on your salary. To use the chart, find your closest age on the far left-hand column, then find the number closest to your annual household income (before taxes) along the top row. The intersecting point is the amount you should have saved for retirement right now. So, for instance, if your annual household income is $70,000 and you're 50 years old, you should ideally have around $287,000 saved now.
| $30,000 | $40,000 | $50,000 | $60,000 | $70,000 | $80,000 | $90,000 | |
|---|---|---|---|---|---|---|---|
| 25 | $12,000 | $16,000 | $25,000 | $36,000 | $56,000 | $72,000 | $99,000 |
| 30 | $21,000 | $32,000 | $45,000 | $60,000 | $84,000 | $112,000 | $135,000 |
| 35 | $33,000 | $48,000 | $65,000 | $90,000 | $119,000 | $160,000 | $189,000 |
| 40 | $48,000 | $72,000 | $95,000 | $120,000 | $168,000 | $208,000 | $261,000 |
| 45 | $66,000 | $96,000 | $125,000 | $162,000 | $217,000 | $280,000 | $333,000 |
| 50 | $90,000 | $128,000 | $165,000 | $216,000 | $287,000 | $360,000 | $432,000 |
| 55 | $117,000 | $164,000 | $215,000 | $276,000 | $364,000 | $456,000 | $549,000 |
| 60 | $147,000 | $208,000 | $275,000 | $348,000 | $462,000 | $576,000 | $684,000 |
| 65 | $192,000 | $272,000 | $350,000 | $450,000 | $588,000 | $728,000 | $873,000 |
Source: J.P. Morgan
Keep in mind that these numbers are only a rough estimate of what your saving goal should look like, and there are several factors that could impact how much you should save. If you plan on retiring earlier than 65, for example, you may need to save more than what this research suggests. Or if you expect to spend more in retirement than you're spending now, that could also result in a larger savings target.
How Social Security benefits affect your savings
As you're preparing for retirement, it's also important to think about how Social Security benefits will impact how much you must save.
The age at which you begin claiming benefits affects how much you'll receive each month. By claiming at your full retirement age (FRA) -- which is either age 66, 67, or somewhere in between, depending on the year you were born -- you'll receive the full benefit amount you're entitled to. Claim before that age, and your benefits will be reduced by up to 30%. On the other hand, if you wait to claim benefits until after your FRA, you'll receive extra money each month in addition to your full benefit amount.
Claiming early or delaying benefits could significantly affect the size of your monthly checks. Say, for example, you have a FRA of 67 and would receive $1,500 per month by claiming at that age. If you were to claim at 62, your benefits would be reduced by 30%, leaving you with $1,050 per month. But if you were to wait until 70 to begin claiming, you'd receive an additional 24% on top of your full amount, resulting in around $1,860 per month.
Consider what age you expect to claim benefits, then determine how that will affect your retirement savings. You may need to save more if you claim early, so make sure your savings are aligned with your Social Security plans.
Preparing for retirement is a monumental task, but it helps to be able to tell whether your savings are on the right track. By checking in on your progress every so often and thinking about your long-term plans, you'll be able to ensure you're doing everything possible to build a healthy nest egg.
