Two-thirds of millennials, or 66%, don't think they're on track when it comes to their retirement savings, according to a 2019 TD Ameritrade report, which surveyed 1,015 U.S. adults 23 and older with at least $10,000 in investable assets. And about 1 in 4 Americans have nothing put away for retirement at all.
Generally, experts suggest you invest at least 10%-15% of your income each year for retirement and that you set a savings goal for retirement that's enough to replace 80% of your pre-tax annual income. Exactly how much should you have saved for your future by age 30, though — or 40, or 50?
Some 401(k) providers have set benchmarks of how much you should aim to have at various ages to help you stay on track toward your larger goal. Here's what they recommend.
- By age 30: Have an amount equivalent to 1x your annual salary saved
- By age 35: Have an amount equivalent to 2x your annual salary saved
- By age 40: Have an amount equivalent to 3x your annual salary saved
- By age 45: Have an amount equivalent to 4x your annual salary saved
- By age 50: Have an amount equivalent to 6x your annual salary saved
- By age 55: Have an amount equivalent to 7x your annual salary saved
- By age 60: Have an amount equivalent to 8x your annual salary saved
- By age 65: Have an amount equivalent to 10x your annual salary saved
Increasing your retirement savings to put aside 15% might sound like a tall order, especially if you've fallen on hard times, like having a disruption in income due to the coronavirus pandemic.
"If you're struggling with saving, just really look at, 'What can I do temporarily right now to increase my income or to really slash my expenses?' Think of it as a short-term period, it's not for the rest of your life, and that'll help you establish some discipline regarding your money that's going to help you in the long-term to live the lifestyle," says Niv Persaud, a certified financial planner and managing director at Georgia-based Transition Planning & Guidance.
The average worker with a 401(k) is using it to put aside about 9% of their income, according to Fidelity data from the first quarter of 2020. The average employer match is 4.7%, so if you're eligible for one and already contributing the average of 9% of your income, that puts you at a total contribution rate of 13.7%, or close to the recommended target of 15%.
Based on a Grow analysis using Social Security Administration data, a 25-year-old earning $50,000 today could very well need $1.6 million saved in order to retire comfortably at 67.
The exact amount you put away will depend on several factors, including when you started saving, when and where you plan to retire, your saving habits in the past, and the lifestyle you envision in retirement. Check out Grow's retirement calculator to help you figure out how much money you'll need based on your specific situation.
Here are a few smart moves you can make right now to grow your wealth for the future.
If you start saving as soon as you have a source of income, you're setting yourself up for a comfortable retirement, thanks to the power of compound interest. Compounding helps your money to grow faster because you earn interest on both your retirement contributions and the interest you've already earned on your savings.
Retirement can seem impossibly far away when you're in your 20s. But if you set up automatic deductions from each paycheck to put towards your retirement, your future self will thank you.
"Consistency is extremely important," says Mark La Spisa, a certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. "Learning how to save earlier is going to pay off more than later. That just goes back to the time value of money, and compounding. … The earlier you start, the more impact you're going to have on your finances."
Keep in mind, too, that the average life expectancy in the U.S. is 78½ and many people are living even longer than that. You may be "talking about at least 30 years where you're not going to have an income from a job," says Persuad.
By developing that savings muscle early on in your career, says Persuad, "you learn to live on the money that gets deposited into your checking account."
Video by Ian Wolsten
One way to build wealth over the long-term is to take advantage of your employer's 401(k) match, assuming you're offered a workplace retirement plan. If you're not contributing enough of your annual income to get the employer match, experts say, you're leaving money on the table.
Companies kick in matching contributions as incentives to encourage their employees to save for retirement. Depending on your employer, there are different matching formulas, but two-thirds of companies match between 3% and 6% of pay, according to Vanguard's How America Saves 2019 report.
The employer match can help you meet that minimum 10% savings goal, since it also counts towards your total. If you save 4% and your company matches 4%, you're already at 8%. Why not take advantage of what is essentially free money?
Those extra percentage points can add up to thousands of extra dollars in savings each year. For example, if you make $60,000 and put in 6% of your annual salary, you'd have $3,600 saved in a year. If your employer matches 3%, you'd have an additional $1,800 — bringing your total to $5,400 saved for retirement that year.
And if you can, boosting your contributions over time can make a significant difference to your bottom line. Even small increases, like a 1% bump in your savings rate, can add up meaningfully over time.
To make sure you're on track, review your account statements each quarter, but don't switch up your plan based on what the market is doing, even when it's experiencing volatility. It's important to remember "that it's not timing of the market, it's time in the market," says La Spisa.
- 20s and 30s: 90% to 100% in stocks (because of your long investment timeline), with up to 10% remaining in bonds.
- 40s: 80% to 100% in stocks, with up to 20% remaining in bonds.
- 50s: 60% to 80% in stocks, 20% to 30% in bonds, and up to 10% in cash.
- 60s: 50% to 65% in stocks, 25% to 35% in bonds, and 5% to 15% in cash.
If you're going through a hard time or watching the market tank, take the long view. "Remember that what we're experiencing right now is very short-term," says Persud. "You've got so many years ahead of you."
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