The first question in itself is triggering and the next question causes you to pause and take a good, hard look at your money. How old are you and how much money should you have at each stage is an important question if you want to ensure that you stay ahead of your finances. Catching up sucks as you can see in this post I did on saving up for retirement.
The general guidelines of how much you should save at each stage of life are listed below:
- 30s you should have saved you annual salary/income.
- 40s you should have three times your annual salary/income.
- 50s, six times your annual salary/income.
- 60s, eight times your annual salary/income.
- By retirement you should have ten times your annual salary/income.
To get a general idea of how to calculate how much money you should have by age we use the median income as of 2019. According to the Census Bureau it was $68,703. See below for how this looks in real life.
- At 30 the recommended amount in your savings should be at least $68,703. Remember this includes your retirement accounts.
- In your 40s – $206,109
- At 50 – $412,218
- At 60 – $549,624
- When you get ready to retire – $687,030
The numbers above are staggering aren’t they? But hold on before you close out of this post. Savings in this context is the total amount you have out away. This includes your savings account, CDs, money market accounts and retirement accounts. If you have stocks and they are projected to have a good return count this as well.
This may seem unreachable but read on below on an example of how saving for retirement works because of the power of compounding interest.
Importance of Saving Early
Clearly the question how old are you and how much money should you have can get daunting if you don’t start saving early. If you are just starting out on your career and your job offers a retirement plan as a benefit sign up and contribute even at a minimum to ensure you get the company match.
I have included the chart below from JP Morgan to show the importance of saving early. Chris who is represented by the blue line started saving for retirement when he was 25 and didn’t stop until 65 when he was retiring. By 65 given the projections they have Chris should have over $1M in this retirement account. This should be motivation to save early!!!
You can discuss your goals with a financial planner and they can provide guidance on the best investments to pick given your age and risk preferences. For example if you are in your 20s you are probably more likely to pick investments that have a higher risk verses if you are older and are more risk averse.
What should you do if you didn’t start saving for retirement early or haven’t started? One you can sign up for your company’s retirement plan now and save the maximum allowed by the IRS. The current maximum is $19,500 and and additional $6,500 if you are over 50. Second you can create a plan to actively save more money every month. Here is a challenge to get you started.
How Much Money Should You Have?
So now what we have the general age guidelines the next question is how much money should you have? I didn’t want to generalize this response because we have different lives. We don’t make the same amount of money or have similar expenses. As a general rule of thumb you should always aim to have at least 6 months worth of your expenses saved. This is what we call an emergency fund.
Expenses in this instance would be housing, food, health insurance, utilities, transportation and monthly expenses that cannot be eliminated such as car notes and student loans. At any point in time your goal should always be to have enough to cover six months of these expenses. That means if anything should happen that impacts your ability to make money you have six months to get back on track before your bills start to go into default.
Next is to start putting away money for your retirement. As mentioned above if you work for a company that offers this benefit please sign up for it and get the company match. It’s what I like to call free money. If your company doesn’t provide this benefit there are various ways to invest in an IRA. You could do it through your bank or investment firms that provide such accounts.
Next Steps
If you are panicking and thinking there’s no way you are ready for retirement or there’s no way you can catch up, stop. There are some actionable steps you can take.
- Prioritize saving. If you are single or a couple make savings a goal for yourself. For couples you can take a drastic step and save one of your incomes. This can either be in a savings account or you can contribute the maximum IRS amount towards your 401K. Alternatively you can create a plan for yourself that you can track. Perhaps you need to save for an emergency fund to begin with.
- Automate saving. Plan that your money goes to your savings account without you having to think about it. Set up your paycheck to be split between your checking and savings account. This means that you are paying yourself first by ensuring that you never spend what you should be saving.
- Find ways to save money. Cut back on expenses that aren’t necessities. Do you need the latest trends of any consumer goods? I would guess no. Are you upgrading your car every 3 years and is it necessary? Do you really need a new iPhone? These are opportunities to save money.
- Make more money. There are various ways to supplement your income and I have provided them in the link above. Think of ways that you can earn more money to put away in your savings.
The goal of this post is not to scare anyone but its to encourage anyone who wants to retire early or work later to start saving money. Be more proactive with your money. Spend intentionally and safeguard your future as well.
