When it comes to saving for retirement, many people just make their best guess. New retirement savings guidelines offer workers a clearer picture of what it takes to retire comfortably. Financial experts offer age-based targets so that workers can check to see if they are on track to meet their retirement savings goals. By the time people retire, they typically need eight times their salary to be able to enjoy the same lifestyle. Depending on a person’s age, he or she can play catch-up with their retirement savings.
Meeting the first benchmark at age 35
Employees should have saved their annual income by age 35. For a person who has a salary of $40,000, he or she should have a total of $40,000 saved. The money could be saved in a Roth IRA, a 401(k) or combination of different retirement accounts. In order to get up to speed at age 35, a worker can take advantage of any company match offered in a company-sponsored retirement plan. They can also participate in an annual percentage increase to the 401(k) plan.
Doubling the figure by age 40
By age 40, an employee should ideally have twice their annual salary saved. In this scenario, a person who makes $40,000 would have $80,000 in retirement investment accounts. If the money in a retirement account is growing too slowly, it may be time to do an asset reallocation, which might involve investing more money in stocks.
Staying on pace by age 50
To stay on pace by age 50, an employee would want to have four times their salary. For a person earning $40,000, they would have $160,000 saved for retirement. People who are in their fifties are in the midst of their most important working years. Most people have a higher salary by the time they enter their fifties. However, job layoffs and downsizing can derail retirement savings plans. People who become self-employed should max out the Roth IRA in their fifties.
Closing in on retirement at age 55
By age 60, the age-based saving target for an employee is six times their salary. With a $40,000 salary, the target amount for retirement would be $240,000. People who are behind at this stage of the game may be able to take advantage of retirement catch-up provisions, which allow older people to contribute more toward retirement.
Most financial experts say workers need about 85 percent of their salary to make it in retirement. However, the Generation X and members of the younger generations often say they can’t count on Social Security income when they are older. It’s always better to save too much as opposed to too little.
