How Do Your Retirement Savings Compare?
Goals to consider for retirement savings by age
Having a retirement savings account seems like a no brainer but how much are people actually saving? To get an idea of how you are doing, compare your retirement fund with the goals and check out the recommendations in this article “How Much You Should Have in Your Retirement Fund at Ages 30, 40, 50 and 60” from the Yahoo Finance page.
Age 20 Goal – Start Saving for Retirement
- Opening a 401(k) can provide a boost if you have employer matching funds, or simply appreciate the ease of automatic contributions.
- No 401(k)? It may be time to discuss other options, such as IRAs, for retirement savings with your retirement team.
Age 30 Goal – 1 Time Your Salary
- Commit to saving 20% of your salary per year from the start of your career.
- Growing your savings may trump aggressively paying off debt, depending on your situation. Consult with your retirement team to build the best strategy for you.
"An example will help illustrate how investing a raise can help build true long-term wealth. Suppose one receives a $5,000 annual raise early in one's career. If you simply invest that $5,000 annually into an investment account growing at a 10% annual rate, you will have accumulated over $822,000 in 30 years." said Dr. Robert R. Johnson, a professor of finance in the Heider College of Business at Creighton University.
Age 40 Goal – 3 Times Your Salary
- Time to take a serious look at your savings strategy. Ask yourself these two questions:
- Are you meeting your goals?
- Are your savings growing?
- The power of growth over time is slipping away. At this stage, having a retirement team that you trust is critical to help you strategize, understand your options, and demystify the market.
Age 50 Goal – 5 to 6 Times Your Salary
- Use catch-up contributions to hit your goals.
- Tax-deferred limit for 2021 is $6,500 per person (as set by the IRS)
- Post-tax money can be invested in any amount
- Consider cutting costs to be able to add to savings. Cutting costs early has the added benefit of making the transition to a fixed retirement income easier when the time comes.
Age 60 Goal – 7 to 8 Times Your Salary
- Push to pay off debt
- Protect your retirement income by minimizing loan payments.
- Work to increase your credit score to enable refinancing your home at a lower rate.
- Time to lower the risk of your investments – at this age, there’s no time to make up for losses.
As Dr. Johnson pointed out, "A large downturn in the market immediately preceding retirement can have devastating effects on an individual's standard of living in retirement. The exact time a person retires can have an enormous impact on the quality of their retirement if their assets are focused in the equity markets," he said. "Take, for example, someone who retired at the end of 2008. If they were invested in the S&P 500, they would have seen their assets fall by 37% in one year. The five years prior to retirement can be considered the 'retirement red zone.' And, just as a football team can't afford to turn the ball over and fail to score points when inside the opponent's 20-yard line, the retirement investor can't afford a big downturn in the retirement red zone."
Next Steps:
When considering your retirement savings plan, keep in mind that you can choose from a number of different strategies to keep your savings in the green at every age. Being aware that you need a plan is the first step to success. Set a time with us for guidance with the next step – getting a clear picture of where you stand.
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