Am I Saving Enough For Retirement?
January 14, 2022
Cliché though it may be, the new year will always spur a season of goal-setting—consequently, it’s an opportune time to take a look at your finances and ask:
- How much money should I be saving?
- Am I on track for my goals?
- What could I be doing better?
In this blog, we’ll discuss some savings benchmarks you should aim to meet in different stages of life. We’ll focus on your long-term retirement plan, which requires a different strategy than short-term goals like building an emergency fund or purchasing a home. Let’s start by addressing the first question…
How Much Money Should I Have Saved and When?
There are plenty of studies from top financial companies that provide benchmarks for retirement planning, and most of them are divided by age range. For example, Fidelity recommends you have the amount of your current salary saved by age 30. By 40, they recommend having saved three times your current salary; at 50, six times; at 60, eight times; and to retire at 67, they suggest having 10 times your salary safely stored away.
- Rowe Price’s recommendations are more conservative and offer ranges to guide you, suggesting you have half your salary saved by age 30, between one and a half and two times your salary by 40, and so on.
These numbers assume you have a growth-oriented portfolio and that you’ll withdraw about four percent annually by the time you retire at 65 or 70. So if you live more frugally, you may not need to save as much; but if you plan to retire earlier, you might need to save even more.
Am I on track to meet my retirement goals?
To determine if you’re on the right track for a well-funded retirement, start with these two steps:
- Review: Examine your previous year’s financial statements—how much money did you make and how much did you save in long-term savings plans like 401(k)s, IRAs, and investments?
- Compare: Look at studies like the ones mentioned above to see if you’re meeting the recommended benchmark—if you’re saving less, you might need to start playing catch-up. If you’re beyond the benchmark and have extra money stored away, you might consider retiring earlier or finding a better balance for your life now. After all, if you’re saving 50 percent of your income but not enjoying life, what is it for?
Of course, to know exactly how much you should have saved, the best strategy is to talk to your advisor and discuss your personal goals and situation.
How Do I Put My Savings Plan Into Action?
For a lot of people, it’s difficult to save ten percent of their income, and even that doesn’t always support the lifestyle they want in retirement. In fact, Vanguard just released the 2021 edition of their report, How America Saves, which shows the average and median balance in defined contribution plans across the country. The conclusion? America is grossly “undersaved.”
If you don’t want to become an underfunded retiree, here are some tips to improve your savings plan:
Get Ahead While You Can
Most people don’t take advantage of their most valuable asset—time (and compound interest). If you start saving just $10 a day at age 25, you can bank $1,000,000 by the time you’re 65. On the other hand, if you start when you’re 35, you’ll have to save about $23 a day—more than double the amount of money—to meet the same goal (assuming an eight percent return on your investments). To put it simply, the earlier you start, the easier it is to get ahead.
That said, finding balance between enjoying your life and preparing for the future is hard—we get that. So start saving what you can. Even if you can’t contribute the recommended amount to your retirement savings, start with something. The earlier you get in the habit of saving, the easier it becomes, and the less aggressive and systematic you’ll have to be later to reach your goals. Which brings us to our next point…
The Golden Rule of Saving
Pay yourself first. Don’t pay bills, buy your groceries, live your life, and then see what’s leftover—because there will
always be something else to buy. Lots of people think they can’t save anything because they have too many other expenses, but if you automate your savings and pay yourself first, you can usually find a way to make the rest of your budget work.
Is It Ever Too Late?
If you’re 35 or 45 and haven’t started saving for retirement, you still have time to let the “savings magic” work—but if you’re starting later, you might need to adjust your goals or expectations. You could be at a point where you’d need to save 40 or 50 percent of your income to retire when and how you want to—and that’s not always possible. If that’s the case, you might need to consider retiring later or adjusting your lifestyle.
If you want to buckle down on your retirement savings plan this year, remember these key points:
- Know Your Numbers: Take stock of what you’re saving and spending, and do so regularly—then make a plan you can stick to.
- Hold Yourself Accountable: If you have trouble staying motivated, find an advisor who will keep you on track and committed to your goals.
- Automate It: Automate all your savings contributions so you can pay yourself first and avoid getting caught up in needless spending that sends you off track.
If you have questions or want help with your retirement plan, we’re happy to talk with you! You can schedule a call with one of our advisors here.