Retirement Savings By Age: How Much You Should Have at 25, 30, 40, 50 and 65

See where your retirement savings should stand at 25, 30, 40, 50 and 65 and how much you should be putting aside to keep your retirement savings on track.
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They say misery loves company, and that could be an ominous sign for retirement saving in the United States.

According to the Employee Benefit Research Institute, most American workers have less than $50,000 in savings and investments.

That’s fine if you are still early in your career, but ultimately that level of savings is nowhere near what it would take to afford a comfortable retirement.

Since the average American is well behind in saving for retirement, it would be wise not to look to your peer group for a sense of how well your retirement savings are doing. Instead, plan to do considerably more than the average American worker when it comes to retirement saving.

To help you get an idea of where you should stand, calculated a series of age-based benchmarks for retirement saving. Your needs may be greater or smaller than the spending target given in the example, depending on your lifestyle and the size of your family. You can adjust the benchmarks accordingly, but the figures below can give you some insight into roughly where your retirement savings should stand given your age.

Retirement Savings Assumptions

Retirement saving is based on a host of assumptions, and some traditional assumptions may not be appropriate for today’s savers. For the purpose of this analysis, here are three of the primary assumptions:

Spending, Not Income, Is the Right Target

You might see rules of thumb that base the retirement income you’ll need on some percentage of your income while working, but this is a flawed approach.

Income tends to be very uneven over the course of a career, and people may spend different portions of their income. Instead, retirement targets should be based on projected spending needs, with appropriate adjustments for inflation.

A Low Interest Rate Environment May Dampen Investment Returns

Assuming your savings program uses a mix of stocks, bonds and cash, this analysis uses a blended annual return assumption of 5.6 percent.

This may seem low compared to some historical return figures, but keep in mind that the national averages of savings account rates and many CD rates are below 1 percent these days, and bond yields are not much higher. This makes it prudent to assume lower returns in the future than have been experienced in the past.

Taxes Are Not Included in These Benchmark Targets

Savings can have different tax statuses – they could be after-tax savings, pre-tax savings like 401(k) and traditional IRA balances, or something in between like Roth IRA balances which use after-tax contributions but shelter investment earnings from taxes.

To create a uniform standard, the figures below will be given on an after-tax basis. So, if you have pre-tax savings, you may want to adjust those balances downward by your tax rate for comparison purposes.

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Methodology – How We Determine Retirement Savings Targets

According to the Bureau of Labor Statistics, the average person aged 65 or older spends $35,387 per year. That figure is used as the target for retirement spending in this analysis.

Partially offsetting that is the $17,606 of income the average retiree gets annually from social security, according to the Social Security Administration. That leaves $17,781 a year to be funded from retirement savings.

To measure where your retirement savings should be at various ages to put you on track to fund that $17,781 per year, the benchmarks below adjust $17,781 for inflation at 3 percent a year and assume retirement at 65 with a further 30 years of life. That is longer than the current average life expectancy of a 65-year-old, but the higher figure was used both to anticipate the continued lengthening of life expectancy and to reduce the risk of outliving your money.

How Much Retirement Savings You Should Have at Age 25, 30, 40, 50 and 65

Using the methodology above, here are the benchmarks for where your retirement savings should stand at various points in your life:

Retirement savings at age 25

It’s difficult to accumulate much in the way of retirement savings before this point in your life; but as you move into your late 20s, it’s time to begin putting some money aside regularly. An annual savings goal of $2,500 a year is a good starting point.

Retirement savings at age 30

After just a few years of retirement saving, your accumulated balance is likely to be modest. Having around $12,500 is enough to be on track if at this point you step your annual savings up to around $3,500 a year.

Retirement savings at age 40

As you enter your peak-earning years, you should pick up the pace of retirement savings. You should have over $50,000 saved by now, with another $6,500 a year going toward retirement.

Retirement savings at age 50

This is the home stretch, so you need to really kick it in. Having around $140,000 in accumulated savings and $9,500 in new annual savings are reasonable targets.

Retirement savings at age 65

Given the assumptions described above, it would take the equivalent of about $370,000 in today’s dollars at retirement age to make your money last. If you are not there yet, you might want to consider working a little longer.

Bear in mind that these benchmarks are as of today. As time moves along, all of these numbers will grow larger with inflation – so you should adjust your future goals accordingly.

When it comes to retirement, there are many variables pertaining to both your personal situation and economic conditions, so the reality is that no two situations are alike. However, the above analysis should give you a general feel for whether you are ahead or behind in funding your retirement.

Frequently Asked Questions

Q: How much of my retirement money should put into conservative things like savings accounts?

A: As you approach retirement, it makes sense to gradually transfer more of your retirement savings into conservative vehicles. However, don’t completely turn your back on stocks.

  • Savings accounts won’t earn you much more than 1% these days–and those are the best savings accounts. Money market accounts are at a similar level, and you won’t get a whole lot more for locking into a long-term CD. The question you have to ask yourself is whether you can meet your retirement goals with virtually no investment earnings.
  • Another problem with those low CD, savings, and money market rates is that they are below the rate of inflation. Without some growth component to your portfolio, you’d be looking at a steadily deteriorating standard of living in retirement if you can’t keep up with inflation.
  • Remember that retirement is not a finish line. With any luck, you’ll live for 20 or 30 years after retirement. So, if you are 10 years away from retirement now, that means you actually have a total time frame of 30 years or more. That gives you more time to ride out the market’s current volatility.

The bottom line is, don’t exacerbate the market’s volatility by making extreme moves yourself.

Q: How much savings should an 83 year old have?

A: So much discussion about retirement planning focuses on calculating savings for retirement, but it is just as important to manage your resources carefully after you stop working full time.

Unfortunately, a lot of retirement commentary tends to give one-size-fits all or formulaic responses to questions about how much retirement savings a person should have at a given age, but the truth is that the right answer depends very much on each individual’s needs and circumstances.

How to determine your retirement savings needs

To determine your retirement savings needs, the first step is to identify the factors that can impact how much you money you’ll need. Then you can decide whether you feel comfortable calculating the extent to which your retirement savings are sufficient to meet these needs, or if you need to consult a financial planning professional to help you.

1. Determine current and future spending

First, work out your current rate of spending. You can eliminate items that are unlikely to reoccur; but other than that, figure out how much you are generally spending each year.

Once you have that figure, think ahead to anything that might meaningfully change your annual spending. This might include a vacation or a significant purchase that you are planning, or it might include a lifestyle change such as downsizing or moving to a senior living facility.

2. Identify income and assets beyond retirement savings

On the other side of the ledger are any income or assets that are not included in your retirement savings.

For example, you probably have social security income that offsets some of your expenses; and if you have a defined benefit pension or still earn employment income, these could further offset your spending. The net of your expenses minus any regular income is the figure you’ll need to finance from retirement savings and other assets or investments tailored to retirement.

As for other assets, a common example is if you own a house. A trade-off that may happen later in retirement is potentially selling your home to move into an adult living facility. While your monthly expenses would probably rise in that event, you may also have the net proceeds from the house sale to help finance those expenses.

3. Factor in projected life span and other retirement-planning considerations

Once you know the net amount of expenses you have each year over and above income, you can start to figure out how much retirement savings would be necessary to cover that amount in the years ahead. The tricky part is that there is no way to know how many years of net expenses you need to cover.

According to the U.S. Centers for Disease Control and Prevention, the average 83-year-old can expect to live for another 7.6 years (slightly more for women and less for men).

At minimum, you could multiply your annual net expenses by 7.6 and say that’s how much retirement savings you should have at your age. Remember though, you may live longer than average, so it may be best to tack a few years onto this calculation as a safety cushion.

Another consideration is if you would like to leave anything behind to your heirs, charity or other causes. If so, you should add that additional amount to how much retirement savings you should have at this point, to increase the chances that there will be something left over after all your needs are met.

Finally, if you have not done so already you might consider setting up a burial trust. This can help ensure there is sufficient money set aside to cover your final arrangements.

Q: I’m retired and have my savings in a traditional IRA. I’m thinking of taking my savings and going into business myself. I’m over 59 1/2, so I can take out the money without a tax penalty, and I’m healthy enough to keep working for the foreseeable future. 

A: Well, your frustration with the lack of viable options in the current investment environment is understandable, but don’t let that frustration prod you into doing something dangerous.

Here are some reasons why plowing your retirement savings into your own business might not be a good idea:

  1. You would give up some tax benefit by not keeping the money in your IRA longer. You correctly point out that because you are over 59 1/2, you would not incur the 10% penalty for early withdrawals. However, you would pay ordinary taxes on the amount withdrawn, and doing it all at once could kick you into a higher tax bracket. Also, your earnings on this money would no longer be able to compound on a tax-deferred basis.
  2. New businesses tend to be a drain on cash flow. You are concerned that your IRA investments are not producing enough income, but you need to think long and hard about how long it might be before a new business could do better. Start-ups tend to have negative rather than positive cash flow, so you could effectively go from low income to negative income.
  3. You would be putting all your nest eggs in one basket. Putting all your money in one venture would essentially leave you with a risky and non-diversified investment portfolio.
  4. There is no telling if you would be able to cash out when you are ready to retire for good. You say you are healthy enough to keep working, but eventually you are going to want or need to retire permanently. Private companies cannot just be cashed in on demand, the way publicly traded securities or savings accounts can.

Remember, while savings accounts and other insured deposits like CDs and money market accounts don’t offer much in the way of interest these days, they do offer two things that are very important to retirees: security and liquidity. Keep that in mind before you opt for a riskier alternative.

Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).