Your golden years should be spent doing the things you love, enjoying life to the fullest surrounded by those that you hold dear. Unfortunately, the majority of Americans have fallen short on retirement savings, leaving them in a bind financially. If your retirement years are looking less-than-relaxing based on your current savings, it’s not too late to get on track. But how much should you have in savings to enjoy retirement?
Generally speaking, you should aim to save 15% of your pre-tax income each year. However, this can vary depending on the age at which you start contributing to retirement savings, as well as when you plan to retire.
Retirement planning in your 20s
If you’re reading this and are currently in your 20s, time is in your favor. The more time your savings have to grow in retirement accounts, the better. The key in your 20s is simply starting. Depending on your income and expenses, setting aside a small portion each month will pay off big when you’re in retirement. There’s no rule about how much you should have in your savings just yet. It can be tempting to think that retirement is so far away as to be unimaginable; don’t fall into that trap. Keeping time on your side is one of the best pieces of investment advice we can offer.
That being said, don’t forget to create a healthy savings cushion for emergencies. You never know when you might need to pay for unexpected expenses, such as medical care or to cover expenses in between jobs. Ideally, you should avoid tapping into your retirement accounts for those types of situations. If you have yet to purchase a home, now is a great time to save up for that downpayment and start investing in your own home.
Retirement planning in your 30s
By the time you’re 30, there’s a good chance you’re secure in your career and have been contributing to a workplace or individual retirement account. The goal at 30 is to have about 1X your salary saved for retirement. If you have student debt or credit card debt, make it a priority to pay it down and save money on interest. Working with a financial advisor at this point can help you to develop an overall financial strategy, providing tips on savings, taxes, and alternative investment income (such as rental property).
Retirement planning in your 40s
Along with turning 40 might come additional expenses, such as the needs of your children. Now not only should you be contributing to your retirement accounts, but you should also consider your children’s education savings through a 529 plan or similar savings option. Do keep in mind, there is no financial aid or scholarships in retirement, so keep your retirement as a top priority. By the time you’re 40, the goal for retirement savings should be about 2X to 4X your annual salary. If you’re not yet where you want to be, you still have time on your side. Work with a financial advisor to come up with a manageable plan as soon as possible.
Approaching retirement in your 50s
When you reach the big 50 celebration, you’re nearing the retirement home stretch. If your retirement savings are looking healthy (near the goal of 6X your salary) it might be an ideal time to check on other savings and debt. Before you reach retirement, try paying down (or paying off) your mortgage, along with any other debt to reduce expenses during retirement. Now is also the time to speak with your advisor about adjusting your exposure to risk.
Continuing to prepare for retirement in your 60s
Stay the course, and don’t slow down just yet. Continue to contribute as much as possible to your retirement accounts during your final years in the workforce. By age 67, your savings goal is 10X your annual salary. If you’re planning to continue working, be sure to have a conversation with a financial advisor to understand how this will affect your Social Security and retirement income. Prior to retirement, take a look at all expenses to see what could be reduced or eliminated to avoid eating up retirement funds.
While you should always be prepared to protect those you love, many people also get serious about estate planning at this time.
Aside from starting as early as possible, the key to retirement savings is having a trusted financial advisor on your side. Navigating allowable contributions, retirement savings options, strategy, and what to actually do when you get to retirement can be overwhelming. A financial advisor has the expertise to navigate these waters, ensuring you get the most out of your retirement years. Whether you’re in your 20s, halfway there, or in the home stretch, we’re here to help. Send us a message to schedule a consultation. A new year is a great time to get started!