The Race for Retirement
If you're like the majority of people, you probably need to step up your retirement-saving聽efforts. An Oct. 2017 Government Accountability Office (GAO) analysis found that the median retirement savings for Americans between age聽55 and 64 was $107,000. The GAO notes this聽sum would聽only translate into a $310 monthly payment if it was invested in an聽inflation-protected annuity.
- Household savings in all retirement accounts have dramatically increased since their pre-recession levels, including among millennials ($9,000 in 2007 to $36,000 in 2017), Generation X ($32,000 to $71,000), and baby boomers ($75,000 to $157,000).
- If you can't realistically save 15% of your salary, save as much as you can, and make sure聽you save enough to聽get the full benefit of your company's聽matching contribution聽if one聽is offered.
- It's never too early in your career to put a plan together, but it's never too late to start, either.
Household savings in all retirement accounts have dramatically increased since their pre-recession levels, including among millennials ($9,000 in 2007 to $36,000 in 2017), Generation X ($32,000 to $71,000), and baby boomers ($75,000 to $157,000), according to a Sept. 2018 report from the Transamerica Center for Retirement Studies.
Let's look at what people in various age groups have saved for retirement and how it stacks up to what the experts recommend.
If you're in your twenties and just starting out in your career,聽your paycheck probably reflects that fact. You're also likely to be carrying a good amount of聽student loan debt. The average monthly student-loan payment for someone in their 20s聽was $393, according to 2016 data from the Federal Reserve Bank of Cleveland. High levels of debt combined with an entry-level salary help explain聽why the average twentysomething has an estimated median amount of $16,000 socked away, according to a 2015 survey by Transamerica.
On the bright side, those in their聽20s should have around 40聽years before they retire, which is a lot of time to make up a shortfall. The single most important thing to do is to contribute to your employer-sponsored retirement plan, such as a聽401(k) plan or 403(b) plan. You can contribute up to聽$18,500 in 2018 and up to $19,000 in 2019.
Investment management firm Fidelity聽recommends that you聽put aside at least 15% of your pre-tax income a year for retirement. If you can't realistically save 15% of your salary, save as much as you can, and make sure聽you save enough to聽get the full benefit of your company's聽matching contribution聽if one聽is offered. Don鈥檛 turn away free money.
Nashville: How Do I Invest for Retirement?
If you're in your 30s, you鈥檝e likely moved up the ranks at your company or you鈥檝e gained enough experience to get out of those entry-level pay grades. But life may be more complicated now. You might be married, have a few kids,聽maybe a home, and you're likely still paying off your student loans. With everything from the mortgage to soccer cleats to that unexpected car repair taking a bite out of your paycheck,聽saving for retirement may fall by the wayside.聽
Transamerica data shows聽thirtysomethings have a median $45,000 saved. Depending on your age and annual salary, you might be okay. According to Fidelity, you should have about the equivalent of your annual salary saved as a nest egg at age 30, twice your salary at age 35, and three times your salary by the time you exit your 30s.聽
To reach these goals,聽it is a good idea to聽tighten up your family budget where you can, and try to increase the percentage of your salary that you're saving annually if at all possible. If you聽haven't started saving yet, you will聽need to save a higher percentage of your annual income. For instance, if you don't start saving until you are 30, Fidelity recommends you put aside 18% of your salary a year, while someone starting at age 35 should try to save 23% a year. Putting aside nearly a quarter of your income for retirement聽is a tall order for anyone with monthly bills and debt, and this underscores the importance of saving early.聽
Finally, don鈥檛 be too conservative with your investing choices. You鈥檙e still young enough to weather big market downswings聽because your portfolio has time to recover.聽
If you鈥檙e in your 40s, you're probably in the prime of your career. You鈥檝e paid your dues and now, hopefully, you have a salary that reflects that. With any luck, you鈥檒l come to the end of those student-loan payments sometime in this decade, freeing up more money.
But聽the house is bigger, the kids are older and may need help buying a car or paying for school, and if you鈥檙e honest, you might be blowing money on things you could do without.
Statistically, most Americans are dangerously behind at this point, with an estimated聽median savings of only $63,000. Remember that Fidelity recommends that you have three times your annual salary saved by the time you reach 40. So, if you鈥檙e making $55,000, you should have a balance of $165,000 already banked. At age 45, it is recommended you have four times your annual salary saved and six times that level by the time you reach 50.
If you are behind (and even if you're not), you should try to max out your 401(k) contributions. If you don鈥檛 already have an IRA, start one and try to max that out as well. The amount you can contribute to an IRA is $5,500 in 2018 and $6,000 in 2019. To reach these goals, consider putting any raises you get toward retirement savings. And if you no longer have student loan payments, commit those sums to your nest egg as well.
If you're in your 50s, you're nearing retirement age but still have time to save. You also might be paying your children's college tuition, helping with car payments, gasoline, and any number of other expenses. The house may be getting older and need聽fixing up, and your medical bills are almost certainly rising.
The estimated median savings of聽fiftysomethings is about $117,000鈥攆ar shy of the desirable six to eight聽times聽annual income that Fidelity recommends.
If you are over 50, you can contribute an extra $1,000 a year to your IRA and an extra $6,000 a year to your 401(k) or 403(b) in what is known as a catch-up contribution.聽Besides taking advantage of catch-up contributions, consider downsizing by selling your home and collecting any appreciated value. If you have company stock options or other assets, don鈥檛 forget to consider those as part of your retirement balance, even if they don鈥檛 sit in a retirement account. Consider meeting with a financial planner, especially one who specializes in retirement, to get things in order.
This is typically the decade when you begin to reap the rewards of decades of saving. By the time you reach 60, you should have eight times your annual salary saved, according to Fidelity, while those who are 67 should have 10 times their salary saved.聽
Unfortunately, Transamerica reports the estimated median savings for聽sixtysomethings is $172,000.聽At this point, it鈥檚 harder to save enough to make up for any shortfall. If you are behind on your savings, take a hard look聽at your assets and see what can be monetized at some point to help sustain you.
This is also the decade you can start receiving聽Social Security聽benefits. Most seniors find this to be a significant source of monthly income. The average monthly benefit for a retired worker in 2018 is $1,413 per month.
The Bottom Line
The amount needed for retirement is different for everyone. Nevertheless, there are benchmarks you can try to hit at every decade of your life. It's never too early in your career to put a plan together, but it's never too late to start, either.