If you intend to retire at 67, Fidelity Investments, a company that provides retirement plans, suggests that the general rule of thumb is to save ten times your annual salary. You must adjust this amount if you intend to retire earlier or later. Those who want to retire at 62, which is the earliest age at which they are eligible to receive Social Security benefits, will have to put away extra money to make up for an additional five years without an income. Those who retire at 70 are likely to find that they do not require the complete sum equivalent to 10 times their salary since they will have worked for an additional three years before their retirement and will likely have fewer years remaining in which to spend their savings.
The Fidelity guideline is a significant objective, but it will be much easier to achieve if you get a head start and give yourself a significant amount of time. Instead of intending to downsize or spend more in retirement, Fidelity proposes the following age-based savings milestones, which would provide adequate income for you to retain your current lifestyle in retirement rather than planning to spend more.
According to several sources, the following is the recommended amount of money that you should have hidden away at each age:
Savings by age 30 should equal your yearly income saved; for example, if you make $55,000 per year, you should have $55,000 saved by the time you are 30.
- At age 40, you should have saved three times your annual salary.
- At age 50, one should have saved six times your annual salary.
- At age 60, one should have saved by eight times your annual salary.
- At age 67, one should have saved ten times your annual salary.
The aforementioned standards for savings encompass whatever you have in a retirement account, such as a 401(k) or Roth IRA, as well as any corporate matching and any investments you have made in things like index funds or through robo-advisors. These checkpoints can help you keep on track with your personal savings goals or get you moving in the right direction if you're still far from them.
An Individualized Method of Cost Reduction
If you want to take a more individualized approach, you will need to be thoroughly aware of where you are currently and where you want to go in the future. Brian Walsh, the Certified Financial Planner and Senior Manager of Financial Planning at SoFi, suggests a strategy with six steps.
1. Have a firm grasp of your assets, liabilities, and spending: Note all of your assets, such as your checking and savings accounts, investment accounts, retirement plans, real estate, etc.; liabilities, such as your school loans, credit cards, personal loans, and mortgages; and cash inflows, such as your paychecks and other forms of income.
2. Determine your objectives, issues, and personal preferences: Create savings objectives for the short, the medium, and the long term, then prioritize them. Putting money aside in the event of an unexpected expense may be considered a short-term goal, purchasing a home could be considered a mid-term goal, and saving for retirement could be considered a long-term objective.
3. Plot your course: Create a route that will take you from point A to point B. Determine if you are in a good, okay, or awful situation about your goals.
4. Determine what the next best move is for you to take: Consider how you can spend the next dollar most effectively. You may save $200 monthly to pay off your credit card within the allotted time, $300 to retire as you want, or $150 to build up an emergency fund.
5. Concentrate your efforts on taking that step during the following 30, 60, or 90 days: Once you have determined the step that would be most beneficial to do next, devote your attention to that step for the subsequent 30, 60, or 90 days.
6. Start over and do it again: Review your strategy, make any necessary changes, and decide on another best action for the next 30, 60, or 90 days.
If you use Walsh's approach to saving, you may tailor your savings to meet your specific needs and goals, which might evolve over time. Although this approach requires more effort than just setting aside 20% of one's salary, it paves the way to more defined savings goals.
Knowing that retirement is possible at age 67 might be a powerful incentive to save your life. The most important thing to remember is that it's always early enough to start saving. The first step is to have a strategy and set away as much money as you can right now.