There’s no exact “right or wrong” number you should have in your investment account as it will vary based on your personal financial situation. However, if you’re looking to accumulate a certain amount by the time you retire, it’s a good idea to have checkpoints along the way so that you know you’re on the right track. The amount you should have in your investment account, therefore, is a combination of how old you are, how much you’re earning, how aggressive you are with your investments and how much you think you’ll need to fund your specific retirement lifestyle.
As it can be hard to nail down all of these variables, it’s best to work with a financial advisor. However, to get a head start on your planning, here’s a look at the amounts you might want in your investment account at various times in your life, and according to various other parameters.
How Much Should You Be Setting Aside?
When you start your savings and investment program, there are two ways to determine how much you should set aside. The first is a dollar amount and the second is a percentage of your earnings. Setting aside a dollar amount may be easier in terms of calculating your future nest egg, but choosing a percentage of your income to save may be more practical.
Imagine that you want to have $1 million in your investment account by the time you retire. Using any of a number of calculators that are available online, you can simply plug in your age and your expected rate of return to determine how much you need to put in your investment account every month. While numerous variables will affect this amount over time, it’s a good place to start.
If you use the “dollar amount” strategy, however, it may not mirror the realities of your own cash flow. If you calculate that you need to set aside $1,000 per month to reach your long-term savings goal but you only earn $2,000 per month, that’s a pretty unrealistic goal. On the other hand, if the calculator tells you that you only need to save $400 per month but you earn $10,000, you should clearly have room to beef up your savings.
Using the “percentage strategy,” most advisors suggest that you should attempt to put aside at least 10% per month into your savings and investment accounts. But some say that should be even higher. As Mark Henry, founder and CEO at Alloy Wealth Management, told Fortune magazine, “Ideally, you’ll invest somewhere around 15%-25% of your post-tax income. If you need to start smaller and work your way up to that goal, that’s fine. The important part is that you actually start.”
How Much Should You Have at Various Ages?
It’s common in the financial industry to publish tables of how much money you should have in your investment account at various ages. Fidelity is one of the most well-known providers of this type of information, and it uses a clever way to arrive at a figure that’s tailored to each individual investor.
Specifically, the experts at Fidelity recommend that you have this much money in your investment account at each age:
- Age 30: 1x your salary
- Age 40: 3x your salary
- Age 50: 6x your salary
- Age 60: 8x your salary
- Age 67 (full retirement age for most drawing Social Security): 10x your salary
These are excellent general guidelines, but you’ll have to adapt them to your specific lifestyle. For example, if your idea of retirement is around-the-world cruises and private jets, you’ll likely need more than 10x your salary by the time you retire. The opposite is also true — if you plan to hunker down and live a quiet, self-sustaining lifestyle, you may not need as much. But the general outline is solid. If you’re earning $50,000 at age 40, for example, Fidelity recommends you have $150,000 in your account. If your earnings have jumped to $75,000 by age 60, then you should have $600,000.
The Bottom Line
The amount you should save varies based on your personal financial situation. However, experts recommend using guidelines that you can tweak to meet your own needs so that you stay on track with your retirement goals. Start by estimating how much you think you might need to fund your retirement lifestyle and work backward. Constantly monitor your progress as you move through life, and work closely with a financial advisor to help you devise savings and investment strategies that can help you reach your goals.
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