How Much Should You Save for Retirement Based on Your Age?
If you are wondering how much money is needed to retire at age 65, you are not alone. Everyone wants to hustle at a young age to have a peaceful and stress-free life after retirement. Keep reading to learn more about how much you should save at every age to achieve your retirement goals.
Saving for retirement is never easy for people who are just starting their careers. Keeping a portion of your income aside for the future might be the last thing on your priority list, especially in your early 20s, when you have a long list of goals. However, the sooner you start saving, the better.
You may have a myriad of questions when saving for retirement. For instance, when is the perfect time to start saving? How much should go into your retirement account? Which account is the best for retirement savings? And the list goes on.
Most people calculate the average person’s retirement savings and follow the same number. That may not work for everyone. You may have different retirement goals than your friend or colleague. There’s no hard rule for how much you need to save. But knowing you are saving a specific amount for the future will give you peace of mind. If you start early, you will have enough to live your desired life after quitting your job.
Retirement Savings for Different Age Groups
Not everyone wants to retire at 65. While that’s an ideal age for most, some people want to quit their job in their early 30s. Sure, you may have investments and other plans for the future, but you need savings to fulfill those goals. Children’s education, unforeseen events, household expenses, and vacations are inevitable parts of our lives. Depending on your current job and age, retirement might seem far in the future, but if you start saving now, your financial burden will be drastically reduced when you cross your 40s.
As a general rule, you should have 10 times your income in your retirement account at age 67. Adjust it based on the age you plan to retire. The earliest age you can retire is 62. That’s when you can claim Social Security. However, retiring early means you need to put more into your savings account to balance five years with no income. Likewise, people retiring at 70 don’t need 10 times their income, as they have worked 3 years extra. Let’s see how much cash you must have saved at every age.
- At 30: Equal to your annual salary. If your annual income is $60,000, you must have that much saved by the age of 30.
- At 40: 3x your monthly income
- At 50: 6x your monthly income
- At 60: 8x your monthly income
- At 67: 10x your monthly income
Then again, the numbers might differ from one person to another depending on the type of retirement lifestyle you are expecting. But, these milestones will give you a good start. You can use the retirement savings by age calculator to determine ideal savings at every age. An average American lives 20 years after retirement, i.e., if they retire at 65. If that’s accurate, you need 75-90 percent of your current income.
Suppose your annual income is $60,000, and you plan retirement at 65. You will need 80% of this income. Precisely, $48,000 a year. Assuming you’ll live 20 years, you need $960,000 for your retirement.
How to Save for Retirement?
Now that you know how much you need to save at every age to have enough by retirement, the next step is to figure out how you will save. Ideally, you should invest 15% of your income starting at the age of 25. In addition to the investment, you need to deposit a portion of your salary into your retirement account. You know you are on track as long as you hit the above-mentioned milestones. Here are a few tips that can help.
Start Small and Soon
At the age of 20-25, it may seem too soon to start saving for retirement. And most people start jobs with a small wage initially and have many things on their priority list. However, starting retirement savings early can ease your financial burden. Even if you are saving 5% of your monthly income, that will be enough. You can have this amount deposited directly into your 401(k) account.
Monitor Your Progress
Once you have set your retirement saving goals, monitor your progress every quarter or year. This will show if you are behind your milestones or saving just enough to achieve your goals. Based on this, you can adjust your retirement savings. For example, if you are ahead of schedule, you can put the next month’s retirement savings into investment or other financial projects.
Automate Your Savings
You may have heard of the saying “pay yourself first.” If you are afraid you’ll spend your salary, you should automate savings. That way, you can have peace of mind knowing that a portion of your income will automatically be credited to your retirement account. You can do the same with investments.
Pur Extra Funds into Savings Account
Got a bonus or a tax refund? While it may sound tempting to get a designer handbag or your favorite outfit, experts suggest you should save the extra funds for retirement. Give yourself a small treat and have the rest stashed away in your retirement account.
Delay Social Security
You are eligible to get Social Security benefits at the age of 62, but why retire early? Delaying your social security is the easiest and most viable way to save more for retirement. For every year that you don’t retire, you are saving a considerable amount of your salary for retirement.
If you are having difficulty setting your retirement savings goals, seek help from a financial expert. They will help you decide how much you should save for retirement every month, when to start, and what accounts you should have for savings.