Retirement savings by age: What to know

Having goals for each decade of life can help secure your nest egg.

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The number of Americans 55 and older deciding to retire is rising amid the COVID-19 pandemic, with about half of people that age opting to step away from the workforce, according to Pew Research

Yet some are returning to the working world as inflation and bumpy markets slash into their nest eggs. That may have you wondering about your own retirement plans – no matter what your age.

The earlier you start preparing for retirement, the more your money works for you through compounding interests, noted Danielle Harrison, a certified financial planner and founder of Harrison Financial Planning in Columbia, Missouri.

“When you start saving as a young adult, time is on your side. You can begin setting aside a small percentage of your paycheck, let compounding do the hard lifting, and be well prepared for retirement,” Harrison said.

While it’s never too late to start, the longer you wait, the more you’ll have to sock away to reach your retirement goals, Harrison noted. By waiting, you “lose years of compounding,” Harrison said. “The percentage of your salary you must devote to retirement savings increases substantially.”

That’s why it makes sense to start right away. Start earning more money on your savings and build toward your retirement goals.

And, If you think you’re already behind, don’t lose heart. Many factors decide how much you can put aside for retirement. Your current financial circumstances, retirement timing, potential investment returns, expected lifestyle and corresponding living expenses (including anticipated medical care) all come into play.

One common goal for annual retirement is to ensure at least 80% of your working income. Consider automatically depositing a set amount into an account of your choosing. In addition to a 401(k) or pension plan, most experts point to IRAs (both traditional IRAs and Roth IRAs) as well as personal brokerage accounts as other ways to build wealth.

If you don’t have one, a Roth IRA could help you meet your retirement goals. Start exploring your options today.

Strategies and options, however, depend both on your age and how much you need and want to retire with.

What is my best retirement strategy by age?

“There is the old adage that ‘the best time to plant a tree was 20 years ago. The second best time is today.’ The same goes with saving for retirement,” Harrison said. “You can’t go back and change your past savings behavior, but you have the power to begin today and make a real difference in how your future self will live.”

Whatever your strategy, “make sure that the investment allocation within your retirement savings portfolio is in line with your personal risk tolerance,” said Martin A. Scott, a CFP and the founder of Lasting Wealth Principles in Freehold, New Jersey. 

Carefully scrutinize fees tied to those investments, Scott added.

Here are some strategy tips by age group:

  • 20s: Set a small amount for retirement aside automatically from each paycheck. If your firm offers a 401(k) or equivalent (especially if they offer “matching” funds”) then contribute the max allowed if you can.
  • 30s and 40s: “People in this age range still have approximately 25-30 years before they retire so there is still a long enough time horizon to accumulate wealth for retirement,” Scott said. Harrison suggested re-evaluating yearly and not waiting until your children graduate. This age “can be the perfect time for individuals to make great headway towards their retirement goals if they haven’t already.”
  • 50s and 60s: Regularly review your retirement savings and investments. Some experts recommend moving to 50% to 60% lower-risk investments as age 65 approaches. 
  • 65 and older: As you near 70, cut stock funds to 30% of your portfolio. If able, consider waiting as long as possible to start receiving social security.

Not sure about the best path forward? You can also speak to a financial advisor who can make recommendations based on your own personal circumstances.

How much money should I have saved for retirement by what age?  

The amount of money you have saved for retirement varies by age. Fidelity Investments, a major investment and financial services firm, recommends these general goalposts for individuals:

  • 30: Your annual salary
  • 35: 2x your annual salary
  • 40: 3x your annual salary
  • 50: 6x your annual salary
  • 55: 7x your annual salary
  • 60: 8x your annual salary
  • 67: 10x your annual salary

Say you earn $75,000 per year at age 30. You’ll need savings of $225,000 by age 40, $450,000 by age 50 and $600,000 by age 60, based on Fidelity’s calculations.

However, each situation is different when it comes to retirement savings. Variables include earnings and unexpected expenses, overall financial goals and potential health conditions, Harrison noted. 

“The typical rules of thumb when it comes to how much an individual should have saved for retirement tends to focus on having ‘X’ times their income saved at each age, but I think this is drastically different for each individual’s situation,” Harrison said. 

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