Apparently, the Americans are not ready to retire. According to the Northwestern Mutual study, every third person has retirement savings less than $5,000, and every fifth has no savings whatsoever.
What saving amount can be considered reasonable? What saving goals do we need to achieve at every stage of life?
Consulting companies give different recommendations on this issue. For example, Fidelity says that in order to retire by the age of 67, it is necessary to save the amount tenfold the current annual salary. The company claims this rule applies to people with a wide range of income from $50,000 to $300,000 a year.
T. Rowe Price says you need to save at least 15% of your income annually in order to achieve intermediate savings goals for each age threshold. However, according to Roger Young, senior financial planner at T. Rowe Price, a more typical option is when people start to save 6% at the age of 20, and then increase their savings to 15% after 30 years (and until the end of life).
But there are those who call these rules conditional. Haleh Moddasser, the senior vice president and partner at Stearns Financial Group, says that these guidelines are hard to rely on, as everyone has a different situation. “Today, when technology is replacing people, the most important thing you can do is invest in yourself, she says - If, in order to continue your education, you have to stop saving money for an individual retirement account, I would say that you should do so.”
It is important to keep in mind that these guidelines are not suitable for everyone. The most important thing is to make sure that you critically evaluate your financial situation, plan your future and make the necessary adjustments at every stage of life.
By the age of 30
Fidelity: At this age, you need an amount equal to one of your salaries. Megan Murphy, the Vice President of Fidelity, believes that by the age of thirty, ideally even earlier, you can achieve this through contributions by your employer.
T. Rowe Price: At 30, you need an amount equal to half of your salary, and at 35 you need an amount equal to one salary. “These are not some inviolable rules,” Young says. - If at 35 you have not reached this goal, you still have time. But it is good to understand that you are behind the plan and need to seriously think about savings.”
Others: Moddasser claims that financial recommendations "neglect the fact that you can spend your time more efficiently." She believes that at 30 your priority should be the debt settlement.
Besides, she advises making a financial plan for 10 years in order to understand how you can manage to do this and provide for mortgage payments or investments in your career (such as obtaining additional certificates or diplomas).
Wade Pfau, a college professor on pension coverage at American College, who studies safe rates of retirement savings, says that if you start saving at 35, you will have to save 16% of your income each year to retire at 65.
By 40
Fidelity: By this age, you need to accumulate an amount equal to your three annual salaries.
T. Rowe Price: At 40, you need aт amount equal to your two annual salaries, and at 45 - three.
Others: According to Moddasser, on reaching forty you should focus on your income and try to earn as much as possible. If you have children, at this age you need to think about how to pay for their college fees.
According to Lucienne Hinger Hubiak, the financial adviser at Mint, an excellent basic rule is the 70-20-10 expense formula. Living expenses should be about 70% of your monthly income, debt payments (if you have any) should be about 20% of your monthly income, and savings (for long-term and short-term goals) should be the remaining 10% of your monthly income.
By 50
Fidelity: At this age, you need to accumulate an amount equal to six of your annual salaries.
T. Rowe Price: At 50 you need an amount equal to five of your salaries, and at 55, seven.
Others: According to the Vanguard study, for people aged 45-54, the 401 (k) plan balance (the most popular retirement plan in the US) was $129,051 in average, and for people aged 55 to 64 it was $190,505. Ideally, according to Vanguard, you need to save 12-15%. By 50, you should be close to your goal.
According to J.P. Morgan, all these “intermediate goals” depend on your family income. At the age of 50 with your family income of $75,000 you should aim to accumulate 3.9 times the amount of your income if you want to retire at 65. However, if you are 50 years old and your family annual income is $150,000, you should save up to 5.4 times your income.
By 60
Fidelity: At the age of 60 you need an amount equal to eight of your annual salaries, so that by 67 years (retirement age) you accumulate an amount equal to ten of your salaries.
T. Rowe Price: By 60 you need to accumulate nine of your annual salaries, by 65 - 11.
Others: “At this stage of life, you should save as much as possible to maintain your current lifestyle after retirement. This decade, presumably the period when you earn the most, will determine your lifestyle for the rest of your days,” says Moddasser.
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