The typical American. How much does he or she have saved up for retirement at a certain point in their life? At 20, 30, at 40 and what at 50? You will find some insights here.
|Age||Average Person has saved this much for retirement*||Ideal Retirement Savings**|
|20’s||$12,000||.75x of current annual income|
|30’s||$46,000||1x of current annual income|
|40’s||$64,000||3x to 4x of current annual income|
|50’s||$118,000||5x of current annual income|
|60’s||$175,000||6x of current annual income|
*Federally published statistics
** Consensus of retirement and financial planners
Average person aged 20’s has about $12,000 saved up for retirement
Not many in their 20’s have the financial maturity to start saving for retirement. 20’s is when most of us are just in a fledgling career, when we are looking for great growth, with retirement hardly a concern.
Actually, even $12,000 in retirement savings sounds like a decent sum, considering that young adults who have just started to earn a sizable salary want to spend their disposable income on a type of lifestyle they typically wouldn’t have been able to afford before.
Most of the $12,000 that the average person in their 20’s have saved up comes in the form of 401k retirement savings, where the employee puts in a sum, with a contributor mostly matching at least a portion of that investment. If are less than 30 years old you have more than $12,000 already saved up for your retirement, you have done really well and deserve to be proud of yourself. At the same time, it doesn’t hurt to save more.
If you have saved less than $12,000, it might be high time you signed up for a 401k or other similar retirement savings plan, preferably one that will auto-deduct from your salary before you get a chance to cash out your paycheck. With about 40 years still to go in your career, you have a lot of time to catch up. But, the more time you give your savings, the larger they will become when you retire. Time if your best friend when it comes to retirement savings. You can never be too early and it is never too late to start.
It would be an extremely poor decision to pass up on 401k savings if your employer matches your contributions, as you are simply saying no to free money towards your retirement. Max out your 401k contributions as much as you can!
Average person aged 30’s has about $46,000 saved up for retirement
If you are in your 30’s, chances are that someone knocked some sense into you and got you saving for retirement even if you missed out in the early stages of your career. Financial analysts and retirement gurus also say that you should have about the equivalent of your current yearly income saved up for retirement, when you are in your 30’s.
In other words, if you earn $70,000 a year, you must have $70,000 in retirement savings shored away already, when you are in your 30’s now.
Average person aged 40’s has about $64,000 saved up for retirement
If you have saved up more than the average 40 year old at $64,000, don’t pat yourself on the back yet. $64,000 is the average. But, it is woefully short of where it needs to be.
Retirement gurus and financial planners say that you must have the equivalent of three years’ of your yearly salary saved up as retirement. In other words, if you earned $80,000 a year now, you must have $240,000 in your retirement kitty already.
Average person aged 50’s has about $118,000 saved up for retirement
Once again, don’t prematurely celebrate if you are 50 years old and have more than $118,000 saved up towards retirement. Do your retirement savings match the equivalent of 5 times your current salary? If not, you have a lot of catching up to do, especially since retirement is just about a decade and a half away.
Average person aged 60’s has about $175,000 saved up for retirement
If the average American had $120,000 saved up for retirement in their 50’s and only have $175,000 saved up when they are 60, alarm bells should be going off somewhere.
A whole decade to rack up just $55,000 in additional savings to your retirement? Retirement gurus say that your retirement savings must be a minimum of at least 6 times what your current yearly pay package is.
Though $175,000 sound like a lot of money at 60 years of age, remember that you will most probably not have additional income. Yes, social security will give you about $1,300 a month (taking the national average). But, the $175,000 itself becomes just $975 a month when you draw it out over 15 years, between age 60 and 75.
$975 + $1,300 is $2,275 a month or $27,300 a year which may not be enough if you have a lot of medical bills, nursing home costs and so on.
If you are behind on your retirement savings, make use of catch-up provisions!
An IRA or Roth IRA allows you to increase your contributions to more than the usual contribution limits after you cross the age of 50, if your retirement kitty is lagging behind. If you do qualify, you must try to make full use of these catch up contributions to avail the corresponding tax benefits and more importantly, the opportunity to shore up more money towards your retirement.
Use the 4% formula to determine if your retirement savings are on track
Financial gurus have concluded that you have comfortably saved for retirement when just a 4% withdrawal from your retirement kitty helps you get through the first year of retirement.
So, if you had $200,000 in your retirement savings, 4% of that is $8,000. $8,000 a year is just $666 a month. Sure, the average social security payout is going to make that figure close to $2,000. But still, is $24,000 a year going to be enough when you are retired?
What if you want to travel? What if you have expensive medical bills and the need for ongoing medical care? You simply must save more.
If you have a certain annual sum that you will be comfortable with at the age of 65, plug that into the following formula and arrive at a figure that should ideally be your retirement savings.
x X .04 = What You need to get through age 65 to 66?
In other words, if you need $45,000 to get through age 65 to 66, you must have
x X .04 = $40,000
x = $40,000/.04= $1,000,000!
Yes, a million!
Now, the above formula didn’t use your social security income. We suggest you don’t include it either. Keep your social security income as a contingency fund so you aggressively plan for your retirement as if there was no help from the government. But if you insist you want to use it to calculate your ideal retirement nest egg, just subtract the money you need between age 65 and 66 ($40,000 in the above example) with the sum of 12 monthly social security payouts to arrive at your figure.
Can’t figure out how to generate additional retirement savings. It is not always about earning more when it comes to building a retirement egg. It is sometimes about saving more as well. Use this reverse engineered retirement savings calculator to see how small cutbacks on purchases like pizza, coffee and even cigarettes can easily help you build a $600,000 retirement!