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The average amount of retirement savings you should have varies by your age and your income. One guideline developed by investment firm Fidelity suggests saving the equivalent of your current salary for retirement by age 30 and 10 times your final salary by age 67, with several milestones in between.
You can't plan precisely how much you'll earn at each stage. But these goalposts give you a way to check in on your retirement readiness. Here's how to develop your own retirement savings goals and how to set aside money strategically along the way.
What Is the Average Retirement Savings by Age?
Average retirement savings in 2019 ranged from $30,170 for those under 35 to $426,070 for 65- to 74-year-olds, according to the Federal Reserve. But looking at average savings isn't necessarily the most useful way to compare your retirement readiness to others.
While the average retirement savings incorporates all data the Federal Reserve collected for that age range—the median is typically the more practical number when looking at data like this. The median is the middle number in any given set of data, and referring to it helps reduce the influence of those with unusually large retirement savings. Below are the average and median total retirement savings accounts by age.
|Retirement Savings by Age
|Average Retirement Savings
|Median Retirement Savings
|75 or older
Source: The Federal Reserve, Survey of Consumer Finances 2019
Retirement Savings by Age Guidelines
There are many schools of thought on how much you should save for retirement across your lifespan. Fidelity's recommendations base savings on your income, rather than a fixed numerical goal:
- By age 30: Have the equivalent of your current annual salary saved. If you earn $50,000, you should have $50,000 saved for retirement at this age.
- By age 40: Have three times your annual salary saved. If you now earn $60,000, you're on track if you have $180,000 saved for retirement by 40.
- By age 45: Have four times your annual salary saved.
- By age 50: Have six times your annual salary saved.
- By age 55: Have seven times your annual salary saved.
- By age 60: Have eight times your annual salary saved.
- By age 67: Have 10 times your annual salary saved.
How did these recommendations come about? Fidelity calculates that it's best to save enough to cover 45% of your gross preretirement income per year, since the rest of your income in retirement will likely come from Social Security. Many elements can affect this goal, including the age you plan to retire and the kind of lifestyle you want after your working years.
It's also important to note that you likely won't hit every one of these savings-by-year recommendations; life happens, and your ability to save will fluctuate. But a guideline gives you a point of comparison when you check in with your savings throughout your life.
Savings by Age Example
Say you are a 30-year-old carpenter with a mean annual wage of $58,210, according to the U.S. Bureau of Labor Statistics. Using a mix of the retirement accounts we'll discuss in detail below, ideally, you'll have $58,210 saved by age 30. If by age 50 your income has risen to $70,000 per year, your goal will be to have $420,000 set aside by that time.
Maybe at age 52 you get sick and lose out on some income, and you won't hit your ideal savings goal at age 55. But if you save extra, downsize your home or experience a windfall like an inheritance, you can recover the savings and reach your goal of 10 times your final salary saved at age 67.
How to Save for Retirement
Fidelity's guidelines assume that an individual has saved 15% of their annual income every year since age 25 and that they invest more than 50% of their retirement savings in stocks. Saving as early as possible is ideal to take advantage of compounding interest.
So how to get started? There are many types of accounts where you can save and invest money for retirement. It's likely easiest to start with an account connected to your employer—especially if your company offers matching retirement funds. But anyone can, and should, save for retirement, no matter their employment arrangement. Here are your options:
401(k) or 403(b)
A 401(k) is a retirement account sponsored by an employer that allows you to contribute directly from your paycheck. If you work at a nonprofit or a public school, for example, it's called a 403(b). Since contributions are made before they're taxed, traditional 401(k)s require you to pay income tax when you make withdrawals in retirement. With a Roth 401(k), however, you make contributions with money that's already been taxed, and can then withdraw it tax-free.
Many companies offer to match employee contributions to a 401(k) up to a percentage of your annual earnings. Small businesses can offer their own version, called a SIMPLE 401(k) plan, and self-employed people can open a solo 401(k). You can start taking 401(k) withdrawals penalty-free at age 59½, or at age 55 under certain circumstances.
If you don't have access to a 401(k), or you want to save extra for retirement, you can open an individual retirement account (IRA). These also come in traditional and Roth versions, and the income qualifications and tax treatment differ between the plan types. Traditional IRAs are taxed upon withdrawal. A Simplified Employee Pension (SEP IRA) is available to freelancers, the self-employed and sole proprietors, and a SIMPLE IRA is available to small businesses.
Like Roth 401(k)s, Roth IRAs are funded with post-tax income. You may decide to diversify your savings' tax treatment and open a traditional 401(k) and a Roth IRA, or vice versa. An accountant can help you decide which type of IRA is best for your situation.
Once you're working toward saving for retirement with a 401(k) or IRA, you can also invest in a brokerage account—potentially with a robo-advisor or the help of a financial planning firm. Compared with dedicated retirement accounts, investing in a non-retirement brokerage account can let you skip certain restrictions on how much you can contribute and when you can withdraw money for retirement. Your money is still subject tax treatment by the IRS, including capital gains tax.
Social Security won't be enough to allow for a lavish lifestyle after retirement, but it can still be a major contributor to your income. Use the Social Security Administration's Quick Calculator to estimate how much you're entitled to based on your projected retirement date. A worker born on May 1, 1985, earning $60,000, for example, will receive $2,208 per month in benefits if they start collecting Social Security at age 67.
The Bottom Line
The most important element of retirement saving is making and following your plan as early as possible. Over the years, your needs, priorities and preferences will shift. But setting a solid foundation and sticking closely to experts' guidelines will give you the security of knowing you're on pace for a retirement you can look forward to.
As you take action to plan out your future, it's also important to keep an eye on your credit. Flush savings will open up opportunities for you in retirement, and robust credit can help you attain goals throughout your life.