Here are some disturbing facts. Approximately 25% of American adults have nothing—ZERO—saved for retirement and only 36% are on track with retirement savings. Don’t be discouraged if you’re behind in saving; it’s never too late to begin. The question is, “What should I do and what savings goals should I shoot for along the age spectrum?”
As a guide, three of the largest investment firms, Fidelity Investments, J.P. Morgan, and T. Rowe Price, have created age benchmarks to guide you along the way. There are assumptions built in. For example, the Fidelity guide is based on retiring at age 67 with 10 times your final salary. But these are guidelines; use what works in your situation.
Retirement Goals by 30
Your goal here is to start saving by the time you’re 30. If you’ve saved money before then, that’s great. But before 30, many people are figuring out career paths, starting families, assuming responsibilities, and understanding the importance of saving for retirement and what savings vehicles are available.
In your 30’s, regular contributions to a retirement plan, even a small amount, can grow into significant wealth by the time you retire because of the magic of compound interest.
In your 30’s is also the time to build an emergency fund of liquid cash in case you lose your job or have unexpected expenses. The emergency fund should equal three to six months of living expenses.
How much should you have saved by 30? Here’s what the investment firms say.
- Fidelity: The equivalent of your starting salary
- P. Morgan: 80% of your annual income
- Rowe Price: 50% of your annual income
Retirement Goals by 40
In this ten-year period, you can still lean toward risker investments in your portfolio. You have time to recover from any severe market declines because you don’t need the money yet for retirement.
Besides retirement, there are two other goals you should be working toward in your 40’s. The first is protecting your family and the best way to do that is with life insurance. Remember, life insurance is not an investment. It’s to pay for things you haven’t saved enough for if you die, things like paying off the mortgage, paying off outstanding debts, providing income for your surviving spouse, and paying for college. You can choose term insurance or some version of whole life cash value, but be careful. Purchase what you need. Avoid being sold what you don’t need.
The second goal in your 40’s is preparing for your kids’ college career. You can save money in a savings or investment account with the possibility of paying taxes on the money. You can also put money into a 529 Education Savings Account. In some states, you receive a tax deduction for your contributions. But the biggest advantage to a 529 is tax-free growth and tax-free withdrawals as long as the money is spent on qualified education expenses.
How much should you have saved by 40? Here’s what the investment firms say.
- Fidelity: 3 times your starting salary
- P. Morgan: 1.7 times your annual income
- Rowe Price: 1.5-2.5 times your annual income
Retirement Goals by 50
Now you’re in your 50’s. This is the time to dial down your investment risk. You have less time before you need the money for retirement and have less time to recover from any major corrections or bear markets. Now is the time to do a major review of your portfolio and your goals.
Once you hit 50, you have additional opportunities to save for retirement in IRAs and 401(k) plans with catch-up contributions. In 2022, there is an IRA catch-up contribution of $1,000 above the $6,000 limit, and a 401(k) catch-up contribution of $6,500 above the $20,500 limit.
How much should you have saved by 50? Here’s what the investment firms say.
- Fidelity: 6 times your starting salary
- P. Morgan: 3 times your annual income
- Rowe Price: 3.5-6.0 times your annual income
Retirement Goals by 60
By 60, you can almost touch retirement. You may want to become even more conservative with your investments because now, a primary goal is capital preservation. Yes, you want to grow the money to keep up with inflation, but it has to last a long time and retirement could be 20-30 years.
You want to focus on getting out of debt by the time you retire. The less you owe the less income you have to come up with.
This is also the time you begin to refine your retirement plan by asking lots of questions:
- Do I enjoy my job?
- How long will I have to work to have enough money to retire?
- Is my health good or not so good?
- Where will my health insurance coverage come from?
- What will my retirement budget be?
- Where will my retirement income come from?
- Will I work part-time in retirement?
- When should I begin receiving Social Security and how much will it be?
- What’s the Social Security penalty if I work and earn too much before my Full Retirement Age?
How much should you have saved by 60? Here’s what the investment firms say.
- Fidelity: 8 times your starting salary. 10 times by age 67
- P. Morgan: 5.2 times your annual income. 6.8 times by age 65.
- Rowe Price: 6-11 times your annual income
Wherever you are in this journey called life, don’t miss any steps that will keep you from having the retirement you’ve always dreamed of.
