Older millennials have already turned forty, while the more senior members of Generation X are in their late fifties and age 60 is not that far off. Regardless of your generation, you should be asking, “How much should I have saved” (at various ages). Many millennials are already on the retirement-saving bandwagon. The same could be said for a small portion of Generation X. The remainder likely need to make some major financial changes to get on track to reach financial freedom before they hit retirement age.
To put this in perspective, here are some numbers from TheStreet.
Age 45 – 55
Average retirement account: $215,800
Median retirement account: $82,600
Age 55 – 64
Average retirement account: $374,000
Median retirement account: $120,000
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The large gap between the mean and median savings can be explained by more significant balances from fantastic savers and wealthy individuals like Oprah, Bill Gates, and Mark Zuckerberg. Their savings can offset a lot of accounts with balances of little to zero. Compare that to the median number, which has 50% of the people below it and 50% above it. In this case, a billionaire will only balance out one person who has saved nothing for retirement.
How much should a 30-year-old have saved?
Younger millennials have not yet reached the age of 30, but they should already be saving for the future. How much you should have saved is related to how much you have earned. By age 30, the goal would be to have at least one year of salary saved.
What should you have socked away at various ages?
Keep in mind these are just basic rules of thumb for net worth levels. If you want to retire early or head off onto a second career, you may need to be saving even more and saving earlier. The scenario discussed here refers only to retirement and does not take into consideration other financial goals such as college funds or the down payment for a home.
Factors such as your lifestyle and at what age you want to retire should also be pondered because they will also affect the amount you should have saved.
Here are some net worth benchmarks to shoot for.
Strive to accumulate 25% of your overall gross pay during your twenties. This can be a combination of savings, investments, and retirement accounts. This number may be lower if you are paying down staggering student loan debt.
Have at least one year of salary saved by the time you turn 30. If you make $200,000 per year, try to have $200,000 saved. If you make $30,000 per year, try to have $30,000 saved.
For those just starting, invest 10% of your gross salary. To make this a little easier, you can include money you are using to pay down debt in this percentage. In terms of net worth, you can include money you put down on a house purchase. I wouldn’t count home equity unless you own rental properties or a second home.
Having double your annual salary saved should be the goal for 35-year-olds. Four times your yearly salary is the target for people who reach the ripe old age of 40. If you’re 45, try to have at least five times your salary saved.
You get the idea. The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will have $1 million at 67 by saving just $35 per month. That’s assuming a 10% return. If you start at 40, you’ll need to save $608 per month. That’s still manageable, but that means more than 17 times as much money out of pocket each month to get to the same end net worth result.
How Much Should You Have Saved by Age 50? By Age 60?
Generation X should have at least seven times their annual incomes saved by the time they are 50 years old. That jumps to 11 times their annual salaries at 60.
Again, these are just benchmarks. How much you will need to retire will depend on your lifestyle and if you have debt. Those who have paid off their mortgages and/or those who have pensions will need to generate less income from their other retirement assets for a secure retirement. On the other hand, if you love leasing a new car every two years and are renting your apartment, none of those expenses are likely to drop much once you leave the workforce. They will likely continue to rise over time. That means you will need more money to maintain your standard of living in retirement.
Gen X Can Live the Good Life in Retirement
For those of you who want to keep your full pre-retirement lifestyle (which should be the goal if you can swing it), you will want to have about 17 times your annual salary at retirement age. The multiples get much bigger as you approach the day when work becomes just an option instead of a requirement. The good news is that as your portfolio grows, the more it can grow without your contributions driving the growth.
For example, if you have $2 million in your 401(k) and contribute the maximum allowed amount of $19,500 per year, your contributions don’t change the account value all that much. (But still, make the contributions!) However, if the market goes up, say 10%, you earned $200,000 of growth in a single year. The following year, that $200,000 of growth will also be investing and potentially grow another 10%. The magic of compounding interest in all its glory. That amount is well above what the average American makes in a year. Then again, average Americans do not have anywhere near $2 million in their 401(k)s. The lesson of the day is not to follow the lead of the average American retirement saver. Be an above-average saver to have an above-average retirement.
All this talk of retirement is likely making you cringe. Even the oldest of Generation X and the geriatric millennials are still young and healthy. I assure you, getting on track for financial freedom and a financially secure retirement is easier to accomplish than it sounds. With a little help from employer contribution matches and tax deductions, you will be on your way to financial independence before you know it.
The important thing is to get started if for no other reason than to lower your tax bill by opening a retirement account. Be sure to get every penny of your employer’s matching contribution. This is like free money.