Personal Finance
If you're 40 years old, you should have at least this much saved
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The average retirement savings among 35–44-year-olds is $131,950. In comparison, the average savings of people 75 or older is $357,920. The average shouldn’t be your goal. It is crucial to take into account your lifestyle, your current salary, and the future market volatility.
Retirement savings goals can feel intimidating to guess correctly. No two 40-year-olds are the same, so Edward Jones has put together a Retirement Savings goalpost for 40-year-olds, separated by current salary.
Benchmarks
According to their benchmark, assuming that you retire at the age of 65 and die at the age of 92, your pre-taxed retirement contributions are 15% of your gross income. If you make $50,000–$100,000 annually as a 40-year-old, having $120,000–$160,000 in savings for retirement will allow you to maintain your current spending comfortably. If your annual salary is $100,000–$150,000 you should already have $490,000–$620,000 in savings for retirement by the time you are 40. If your salary is $150,000–$200,000 a year, you should have $810,000-$1,005,000 saved for retirement to maintain your current spending and lifestyle.
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An Unreachable Goal
These numbers may seem daunting, considering that wages haven’t kept up with inflation prices for about as long as current 40-year-olds have been in the job market. And with inflation moderating (on October 10, it was released that the Consumer Price Index experienced a 2.4% increase over the previous 12 months), but still unreasonably high, this article might put you in a panic. If you are behind this benchmark, there are a few things you can do to increase your savings.
Decrease Spending (good luck)
The first and probably most obvious tip would be to decrease spending and increase savings. Just because this is the most obvious, this might be the hardest to implement. According to Forbes magazine, approximately 78% of Americans live paycheck to paycheck.
This means most Americans can’t afford to save any extra money once social security is taken out. Something to consider would be to consult a financial advisor, such as Edward Jones suggests, to find ways you could save more. You can also work towards Increasing your retirement savings rate.
Rule of Thumb
The rule of thumb is to save 15% of your income for retirement. If that isn’t feasible now, don’t worry. Contribute what you can (something is better than nothing, after all) and as you earn more money or pay off debts like student loans, keep your lifestyle spending the same, and put the extra money into your retirement savings until you are happy with the income percentage you are contributing.
Types of Accounts and Benefits
Because different kinds of retirement accounts have different advantages and drawbacks, it’s important to understand what type of account you have, and if it’s the most beneficial to you. Opening a retirement account is a common way to start saving. There are two types of retirement accounts: Individual Retirement Accounts (IRAs) and employer-sponsored accounts where a worker can have a portion of their paycheck automatically deposited into the account.
Depending on the company benefits, your employer might offer matches, which effectively doubles your money. You can get either a traditional or Roth account. The biggest difference is whether you prefer to use your income tax break while you are still earning income, or when you are retired.
Saving Money
Did you know that you can have multiple retirement accounts? You don’t just have to choose one. Retirement accounts have annual contribution limits. So, if you still have money available to squirrel away, you will need to open an additional account rather than just spending it. Another good strategy to save more is to make sure your retirement account deposit is automatic. Put the money in your account and forget it exists. Don’t touch it. Simply set your IRA to deposit automatically regularly.
What should you do if you are already meeting your benchmark? Maximizing your retirement savings is a good idea, no matter what tax bracket you are in. If you are easily meeting the benchmarks, try to get ahead by meeting your employer’s 401(k) plan contributions to match. Put in as much as your plan allows, so that your employer gives you all the free money available.
Catching Up
Another thing you can do is when you turn 50, you can start depositing catch-up contributions to your 401(k)s and IRAs. This means that you can exceed the annual deposit limit to boost that savings. Another boost you can make is to delay Social Security. You can begin receiving Social Security retirement benefits when you turn 62. If you delay those payments up until the age of 70, your monthly benefit will increase for each year you delay.
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