Are you on track to save enough for a comfortable lifestyle after you retire? That depends on a few different factors. For example, what is your definition of "comfortable?" How much have you saved so far? How much are you consistently putting away now?
Of course, you came here for answers, not more questions. Here are four benchmarks for you to measure your performance when it comes to retiring comfortably. We will answer, once and for all, the question, "How much should I be saving?"
The most important general advice we can offer is simple – start young! Let's begin there...
Saving in your 20's – Start young!
Say it with us: "Compounding!" This little word holds immense power regarding your retirement. When you're a twenty-something, the temptation to ignore retirement savings is a pretty big one. There seem to be so many other pressing things...like student loans. But consider the payoff for starting your nest egg young. The longer your money is saved, the more compound interest it earns. Use the simple compound interest calculator from the US Securities and Exchange Commission to see what a difference saving in your 20's can make.
Saving in your 30's
Many of us at this life stage are now facing a house payment, expenses for raising children, and more. Facing these expenses can distract you from your retirement goals. Your savings at this stage should equal your annual salary. For example, if your yearly paycheck is $60,000, your retirement account should reflect the same number. Research shows many of us don't have nearly that much saved yet. If you aren't taking advantage of your employer-sponsored 401(k), that is often the easiest place to start. Many employers offer a matching benefit that can also increase your savings goals.
Saving in your 40's
"How much should I be saving if I'm 45?" Great question. By the time you've celebrated that "Over the Hill" birthday party, your retirement savings should be about three times your annual salary. Yes, this can seem daunting! Consider diversifying your savings game to increase your returns. If that seems scary, an experienced financial planner can be a great resource.
Saving in your 50's
At this point in the savings game, experts suggest your retirement savings should be four to five times your current annual salary. So if you're bringing home $50,000 a year, your savings should be at least $200,000. But what if you've decided to start your own business and no longer have the advantage of your employer-sponsored 401(k)? A traditional or Roth IRA can offer some great retirement benefits at this stage. After age 50 you can contribute up to $6,500 per year to either IRA. If you aren't sure which one offers more benefits for your situation, a financial planner can help you sort it out.
We hope these benchmarks have helped you better answer the "How much should I be saving?" question that we all ask throughout our lives. Do you still have questions about what type of retirement plan would be best for your financial situation? The IRS has an easy-to-read, comprehensive list of plans that might work for you.
Remember, you're not alone through the journey. We are building our own personal retirement accounts too, and it's a privilege to cheer you on together.