Personal Finance

If you're 50 and make $400k per year, you should have this much saved for retirement - are you on track?

Kristin Hitchcock

Published: December 17, 2024 2:11 pm

Retirement planning is always critical, but it tends to push towards the forefront in our 50s, especially when you have a higher household income of $400,000. When you make this much, you’ll need quite a bit of money saved up to maintain your current lifestyle.

24/7 Wall St. Key Points

• Knowing whether you’re on track for retirement or not is important. One way to do this is by checking how you’re doing based on a generalized estimate.
• Whether you’re behind or ahead, proactive planning can help you make the best of your position.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

So how much should you have saved by now, and what should you do if you’re ahead (or behind) on your goals?

How Much Should You Have Saved by Age 55?

To sustain your spending habits post-retirement, you’ll need approximately $2.35 million by age 55. This calculation assumes:

• A 15% pre-tax retirement contribution.
• A 28% effective tax rate.
• A 6% annual portfolio return before retirement and 5% after.
• Social Security benefits start at age 65.

This figure accounts for inflation and provides financial stability, even if the market is a bit volatile. Therefore, this is a bit more than the minimum, but it is the minimum we’d recommend!

Are You Behind? Here’s What to Do

If your savings are falling short, don’t panic. Here are steps to help you catch up:

• Max Out Contributions: You’ll need to increase your 401(k) and IRA contributions as much as possible. Luckily, if you’re over 50, you can leverage catch-up limits.
• Cut Back on Spending: Redirect discretionary spending towards saving instead. Small income adjustments can make a big difference.
• Delay Retirement: Consider delaying your retirement for a few more years to save more and let your investments grow a bit. However, there is little point in delaying past 70.
• Downsize: If feasible, consider selling your home and moving to a less expensive property to free up capital.
• Meet with a Financial Advisor: A professional can help optimize your investments and create a realistic catch-up strategy.

Are You Ahead? Here’s How to Stay on Track or Accelerate Further

If you’re ahead of your savings goal, congrats! But that doesn’t mean it’s time to slow down. Here’s how you can maximize your advantage:

• Diversify Investments: Look for alternative investments like real estate to broaden your portfolio.
• Revisit Risk Tolerance: You may be able to take on slightly more risk to accelerate your savings further.
• Prepay Debt: Use your surplus savings to pay off high-interest debt, which can improve cash flow in retirement.
• Consider Early Retirement: Using your financial cushion, you can look into retiring early or pursuing part-time work.
• Increase Charitable Giving: You could also consider pursuing more charitable giving since you have a larger financial buffer.