All About Average Retirement Savings by Age

Oct 12, 2022 By Susan Kelly

Your current age is a good starting point for determining how much you need to save for retirement. A common rule of thumb is ten times one's annual income. According to a study by Fidelity, keeping your present standard of living in retirement requires ten times your annual salary.

Standard Deviation of Retirement Funds by Age There is also a generational divide regarding the typical amount saved by each individual. The newest SCF data shows that in 2019, the typical family had a $41,600 balance in their transaction accounts. However, average balances in checking and savings accounts vary with age:

Despite this, there are intricate generational shifts at work. For instance, compared to Baby Boomers (those born between 1946 and 1964), Millennials (those born between 1981 and 1996) spend more of their income on housing. Gen Xers (those born between 1965 and 1980) have the highest median household income and are the most likely to make large purchases. Across the board, all three generations are notorious for failing to save as much as they should.

When to Retire and How Much Money You'll Need

The national average and median retirement savings by age are helpful for comparison, but they don't capture where you are in your own savings path. There is no single answer to the question of how much money one needs to save for retirement, and there are many alternative approaches to making this determination. To determine the precise sum of money you'll need for retirement; you need to think about the following:

Some experts recommend saving up 10–15% of your annual salary in your twenties. That's on top of savings for things like a new car or unexpected expenses.

This percentage, however, is dependent on your present finances. How much could you put away each month if you were to start saving for retirement? Someone in their twenties just starting in the workforce and paying off student loans may only have 3-5% of their gross income for investment. A person in their 40s without significant financial obligations would be better positioned to save and invest up to 25% of their income.

When do you hope to retire, ideally?

Your retirement goal is the year you hope to have left your working life behind, typically after you turn 65. How much you need to save and how you invest for retirement are affected by when you plan to stop working. So, if you want to retire at 55 or younger, you need to start saving more aggressively earlier in life than someone who wants to retire at 65.

To determine when you can retire, add your current year of retirement to your birth year. If you planned to retire at age 65 and were born in 1977, you should plan to do so by 2042. Knowing when you want to retire can better estimate how much money you need to save each month.

How much do you plan on spending?

Rather than staying put, do you intend to jet-set throughout the world? How long till you own your home outright, if ever, or if you're stuck renting? Will you settle down in a posh city, or will you prefer to make do with less in the country? The amount you need to put away for retirement mostly depends on your projected living cost in old age.

Find out how much money you'll need to keep up with your present lifestyle. The following are some of the best practices that specialists have advised in the field:

Experts often refer to the "80 per cent rule" of retirement planning, which indicates that retirees should budget to spend no more than 80 per cent of their pre-retirement income. So if your current salary is $100,000 a year, your target retirement income should be around $80,000 yearly.

Some financial advisors advocate adhering to the "25X spending rule," which states that you should set aside 25 times the amount you want to withdraw annually from your investment portfolio. If you want to spend $60,000 a year in retirement, you'll need a portfolio worth at least $1,500,000.

Also, plan out your ideal retirement lifestyle. Financial needs may vary according to a person's specific goals, such as early retirement, purchasing a second house, establishing a legacy, or managing health problems. A retiree with extravagant intentions, such as a multi-year tour worldwide, may need more savings than someone who intends to spend their golden years close to home.

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