Many Americans may be unsure if their retirement savings are on the right track, especially since there is likely some uncertainty about what exactly “the right track” is. For example, T. Rowe Price estimated that by age 30 a hypothetical adult should have at least half of his or her annual income set aside for retirement. That jumps to around two times yearly earnings by age 40, five times by age 55, and eight times by age 65.
However, these are the more conservative estimates from a wide range of potential savings targets, and much larger multiples of annual income could be needed depending on one’s tax bracket, marital status, and other unique variables. Moreover, these are really just rough calculations meant to help people quickly compare their current savings to what retirement experts believe a “typical” American should aim for at various life stages. Since financial situations and retirement goals can vary significantly from person to person, some people may benefit greatly from the bespoke savings plans available by working with a professional advisor.
As for those interested in a simpler strategy, a good rule of thumb is to set aside as much money as possible each year, and the sooner you can start the better. Encouragingly, an earlier Bankrate poll that asked U.S. adults to list important financial milestones found that 22 is perceived as the best age to start saving for retirement. That is not too surprising since 22 is around the same age many people will likely plan on graduating from college and entering the workforce. However, things do not always go according to plan, and financial obligations such as medical bills and student loan payments have become savings hurdles for many Americans.
In fact, a recent Transamerica survey found that the median worker “waited” until age 26 to begin setting money aside for retirement. Millennials started saving at a much younger age (age 24) compared to Gen-X (age 30) and Baby Boomers (age 35), but in general it appears that many Americans from all generations had a hard time setting money aside for retirement as soon as they would have liked. Although an early start will definitely make it a lot easier to achieve an ideal old-age lifestyle, individuals that had to wait should not be discouraged from striving for their dream retirement.
Indeed, a great way to help make up for a late start is to begin maxing out the contributions to 401(k)s and other tax-advantaged savings vehicles each year, especially later in life when the annual limits are raised. Other highly effective strategies include delaying retirement, which we learned in May can provide a significant boost to one’s Social Security benefit. Additional assistance as usual is available by working with a professional financial advisor who can assist you in identifying the course corrections that are needed to truly get your retirement finances on the right track.
Sources: T. Rowe Price, Bankrate, TCRS, Investor’s Business Daily