Whether you are just starting out in your career or starting to wind things down after working for decades, it’s never a bad time to be thinking about how you plan to finance your non-working years once you retire. In fact, the earlier you start thinking about—and planning for—your golden years, the better. And while there is no one recipe for success or one magic sum of money that is the key to a happy and financially stable post-work existence, there are some general guidelines for how much you should have saved for retirement by certain points of your life that experts say are worth following.
Using recommendations from Fidelity and Ally Bank, as well as the insights from a number of financial experts, GoBankingRates recently broke down how much people should have saved for retirement by ages 30, 40, 50, and 60. Read on to discover how much you should have saved at your age, as well as some tips to take and pitfalls to avoid that will help you along the way.
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How much you should have saved: Equal to your annual earnings
According to GoBankingRates, both Fidelity and Ally Bank say that by the time you reach age 30, you should have an amount equal to your current annual salary. So if you are making $75,000 a year, you should have $75,000 saved for retirement. In order to do that, it’s important to start setting money aside as soon as you begin your career, experts say.
“When starting your career, commit to automatic savings of 20 percent per year into your 401(k). It will discipline you to live and give on the remaining 80 percent,” Jason Parker of Parker Financial in the Seattle area, told GoBankingRates.
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How much you should have saved: Three times your annual earnings
While having three times your annual salary saved by age 40 may sound like a tough task, experts say it’s completely possible—so long as you get started early and don’t make some all-too-common mistakes.
“The most common mistake is that people let their spending increase commensurate with their new salary,” Robert R. Johnson, PhD, a professor of finance in the Heider College of Business at Creighton University, told GoBankingRates. “For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise.”
The smart thing, Johnson says, would be to invest however much your new salary increased by—or at least some of it. “Suppose one receives a $5,000 annual raise early in one’s career. If you simply invest that $5,000 annually into an investment account growing at a 10 percent annual rate, you will have accumulated over $822,000 in 30 years,” he said.
How much you should have saved: Five times your annual earnings
Chances are you might find yourself having fallen behind when it comes to meeting this target goal for age 50. After all, college tuition and other expenses that come with having children are just some of the things that can prevent you from saving as much as you’d like. But that doesn’t mean you have to panic.
According to the experts at GoBankingRates, there are things you can do to get back on track—from making an extra contribution to a tax-advantaged retirement account to downsizing your home and lowering your monthly mortgage payment.
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How much you should have saved: Seven times your annual earnings
In addition to having seven times your annual earnings saved by age 60, this is also the time to make a real effort to minimize your debt so that you enter retirement owning the minimum amount possible.
In addition, Johnson recommends speaking to your financial adviser about lowering the level of risk in your retirement accounts. “A large downturn in the market immediately preceding retirement can have devastating effects on an individual’s standard of living in retirement,” he told GoBankingRates.
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