Your neighbor’s savings aren’t on display. But you can still get a good idea of how you compare – and where your savings should be versus where they are.
You might think the main factor that defines where your retirement plan should be is how much money you’re making right now. But it’s not! The most formative factor for most savers can be how much more time you’ve got until you retire. The longer the time, the larger the nest egg.
If you already know enough to have started setting up some kind of retirement account (even if all you’ve done is gotten hired at a job with automatic enrollment in the company retirement plan), then you already know that the earlier you start saving, the better your retirement will be. Each year of saving adds up, and compound interest does its mathematical magic on top of that. Thus, different ages tend to have different priorities when it comes to retirement. That fact can make figuring out your personal ‘shoulds’ and ‘oughts’ and 'might-could-haves' a little more rational.
Here’s another, related set of facts to help guide your strategy: where everyone else in your age group is as far as their retirement goes. For that, we can turn to Northwestern Mutual’s 2021 Planning & Progress Study as well as the Federal Reserve System, which has calculated average retirement account balances for individuals in 2019, the most recent year for which information was available.
By Generation: Where We Are
Millennials, the cohort 25 to 40 years old, have a reputation for having the bleakest worries about retirement. But on average, they’re, well, average – that is, they’re right in the middle of other generations when it comes to retirement and savings. The average millennial has $51,300 in personal savings and $63,300 in retirement accounts.
The next oldest group, often-overlooked Gen X, we can define as being between the ages of 41 and 56. They’re not too far off their millennial neighbors, with an average personal savings of $67,100 and $98,900 set aside for retirement.
The next group younger than millennials, the “zoomers” of Gen Z, are aged 6 to 24, and have an average of $35,900 in personal savings and $37,000 set aside for retirement.
Of course, all of those cohorts pale next to the boomers who, between the ages of 57 and 75, have an average of $102,400 in savings and retirement.
By Numbers: Where We’d Like to Be
Every person’s situation is different, and everyone’s goals are also different (which is why it’s so useful to talk to a financial advisor about your specific circumstances). That said, there are some general rules of thumb for how much you should be saving based on your age. Again, these are general, and your specific situation might well be different.
In your 20s, if you can, set aside a small emergency fund but take advantage of any employer match for a 401(k) or similar fund.
By age 30, it’s a good idea to have the equivalent of six months of salary put aside in savings and retirement funds. Through your 30s, the guideline would be to work up to a year’s salary saved up, while keeping an eye on long-term goals like college funds for your kids.
By 40, it would be good to have two to three times your salary socked away. This is a good decade to max out 401(k) contributions, open an IRA, and start investigating annuities as well.
By your 50s, aim at saving around six times your annual salary. Don’t fret if you’re not near that goal: The median American fifty-something has saved $107,000. You might be able to outperform that average by making “catch-up contributions” to your IRA and 401(k) or 403(b) and taking advantage of company stock options, if possible.
By your 60s, between seven and nine times your annual salary makes a respectable nest egg. At this point, retirement is around the corner and you might consider downsizing by selling off unnecessary assets, like homes or cars, in order to get your nest egg in the best shape possible.
According to the Employee Benefit Research Institute, the median age for retirement in America is 62. That’s also the age you can start drawing on Social Security (at a reduced rate, so wait if you can).
By 70, aim for having saved around 10 times your annual salary if you can. If that seems impossible now, remember that starting early puts compound interest on your side … and once you’re in your 70s, you should have Social Security (and, potentially, a pension plan) helping out with cash flow above and beyond your savings.
Using Roth IRAs for retirement can also boost cash flow later in life because withdrawals become tax-free once you’re older than 59 ½ … as good a reason as any to celebrate a half-birthday.
Again, these numbers are only general guidelines. For specific advice for your unique situation, meet with a financial advisor. We would love to chat with you about where you are and how we can help!