You’ve probably heard countless times that it’s never too early to start saving for retirement. It’s true, but the road to retirement can feel overwhelming. Having a general rule of thumb for retirement savings by age can help you to reach your goals.
Periodically, it’s a good idea to ask yourself: Am I saving enough? Many aren’t. In fact, 64% of Americans are expected to retire with less than $10,000 for retirement, according to a 2019 GOBankingRates survey.
But, determining how much of a nest egg you need to retire can be tricky and varies from person to person. The following questions can help you start thinking about how much you’ll need. And once you have an idea of how much you’ll need, the savings milestones outlined here can help you create a roadmap to your savings goals.
When Do You Want to Retire?
Your planned retirement age can have a significant impact on how much money you’ll need and the goals you should set leading up to the big retirement day. In general, the farther away retirement is the longer you have to save. The sooner you plan to retire, you may need to contribute more to reach your goal.
How Do You Want to Live in Retirement?
If your expenses will be the same in retirement as they are now, you’ll want to be sure you have enough saved to maintain your current lifestyle. If you’re planning to have fewer expenses in retirement because your house will be paid off or your kids will be out of college, you may be able to live on less than you are now. But, if your retirement plans include traveling the world, you’ll want to factor in those added expenses.
Do You Have a Plan for Long-term Care?
When thinking about expenses that could pop up during retirement, it’s easy to forget to factor in the possible need for long-term care. Considering most people will need care later in life, it’s important to take long-term care into consideration when you’re establishing your retirement savings. Connect with a Farm Bureau agent to learn more about long-term care insurance.
Milestones to Hit to Maximize Retirement Savings
The road to retirement can seem daunting, but identifying milestones to achieve along the way can help you to reach your goals.
Retirement Savings by Age 35: Start Your Nest Egg
Now that you’ve graduated from college and hopefully landed your first job, getting your personal finances in shape should be high on your list of priorities. Your goals might be paying off debt, saving to buy a home, establishing a college fund for your children and putting away funds for retirement.
You would be smart to start your retirement nest egg savings now, as a young adult . A good goal at this stage is to put away approximately 10% of your income for retirement, and to increase this amount if you get a raise. Investing in your 20s means your returns will compound for longer. If you put even a small amount of money into a retirement or savings account, you’ll get into the habit early and benefit from compounded interest.
A great way to start your savings is to take advantage of your employer-sponsored 401(k). You may even want to start an Individual Retirement Account (IRA). Investing now can set you on a path toward reaching your financial goals.
And, as you inch closer to 30, one goal you may want to set is having the equivalent of your salary saved. Having twice your salary is the recommended retirement savings by 35. By cutting debt like student loans while continuing to put money toward your retirement, you’ll be on your way to reaching this milestone.
Retirement Savings by Age 55: Increase Your Contribution
As your career has become more established, your income has likely increased compared to what you were earning in your 20s and 30s. When your income increases, it’s generally a good idea to put more money toward your retirement and in your savings. In your 40s, strive to increase your retirement contributions by 10-15%. This may seem like a big increase, but by cutting expenses and looking for ways to increase your income, you’ll be a few steps closer to the retirement you’ve worked hard for.
By age 55, aim to have four to five times your salary saved for retirement. To help you reach your retirement goals, you can contribute up to $6,500 per year in catch-up contributions to your 401(k) plan (over the $19,500 regular limit).
Savings tip: When looking for ways to cut expenses, you may want to consider downsizing your home. If your kids have moved out and you’re not sure what to do with the extra space, a smaller, less expensive house (maybe even a townhome or condo) might be a good move for you financially. It might also be time to trade that SUV you purchased to haul the kiddos around in for a smaller, more fuel-efficient sedan.
Retirement Savings by Age 70: Create a Retirement Budget
At this stage, your thoughts are most likely turning toward retirement, and you’re probably wondering: When should I retire? How much money do I need to retire?
If you’re planning to retire in your 60s, you’re no doubt considering when to claim your Social Security benefits. While you can currently claim retirement benefits as early as age 62, the full retirement age (FRA) today is 66 or later. If you choose to start your benefits before your full retirement age, your monthly amount will be reduced. This reduction is permanent. It will not increase once you reach full retirement age. On the flip side, if you delay claiming your Social Security benefit past your full retirement age, it will result in higher income. It will increase 8% each year after FRA, up to age 70.
To help you determine when you should retire, draw up a budget for what you spend now, and then do the same for what you anticipate spending upon retirement. Consider the expenses that you’ll no longer incur once you’re finished working, but also think about what you might want to spend more on, such as leisure activities and traveling.
Achieve Your Retirement Goals
You work hard. Retirement is your reward for years of hard work. Taking steps today to help you reach your retirement goals is a good move. Talk with your local Farm Bureau agent to discuss your goals and the ways you can achieve them.