Ever wonder if you are saving enough money so you’re not broke in retirement? Unless you’re a cryptocurrency millionaire my guess is that you have. I also am guessing that a lot of you reading this (a) have no idea how much you should have saved by now, (b) have not invested or saved nearly enough, and (c) will never be a cryptocurrency millionaire (unless you get all of Steven Seagal’s virtual money, then you’re golden).
So? How much should I have saved for retirement at certain ages in my life? Knowing that amount is half* the battle. (A totally arbitrary number, unlike the figures I will be presenting below.)
According to the fine financial folk over at Investopedia, who should know, here are some guidelines to follow…
1. Retirement Income: the 80% Rule
Most experts say your retirement income should be about 80% of your final pre-retirement salary. That means if you are making $100,000 annually at retirement, you will need income of at least $80,000 per year to have a comfortable lifestyle after leaving the workforce.
How’s that working out for you so far?
2. Total Savings: The 4% Rule
To determine the amount you will need to have saved to generate the retirement income you want, one easy-to-use formula calls for dividing your desired annual retirement income by 4%. To generate the $80,000 cited above, for example, you would need a nest egg at retirement of about $2 million.
So much math, right? That’s why financial advisors exist.
3. Multiples of Your Salary
Fidelity suggests you should have 50% of your annual salary in accumulated savings by age 30. This requires saving 15% of your gross salary beginning at age 25 and investing at least 50% in stocks.
To accomplish this, you need to have started saving 15% of your gross salary beginning at age 25 and investing at least 50% in stocks. By age 40, you should have saved twice the value of your annual salary. By age 60, you should have saved six times your annual salary. And so on.
4. Another Multiple Formula
Another formula (like the one proposed by Fidelity) holds that you should save 25% of your gross salary each year, starting in your 20s. The 25% savings figure may sound daunting, but it includes a combination of 401(k) withholdings, employer match, cash savings and even debt repayment.
Using this formula, you should have three times your annual salary saved by age 40, six times your annual salary by age 55, and eight times your annual salary by the time you are 65-years-old.
5. How Much Can You Save?
Based on figures provided by the Bureau of Labor Statistics (BLS) in its 2015 “Consumer Expenditures Survey,” the percentage of income left over (and available for savings) for workers between the ages of 25 and 74 averages 19.8% on a pretax basis.
So based on this figure you the average person has somewhere between the the two formulas that use 15% and 25% as a benchmark for how much of your gross salary should be going into savings.
As Investopedia points out, all of these numbers are not hard and fast rules. Life sometimes throws you a curve and you can’t invest as much you’d like in any given period of time. The important thing is to do your best to try to meet your savings goals you have set for each stage of your life.