If you’re counting on Social Security to fund your retirement, you might want to think again. According to MarketWatch, the two funds that pay Social Security’s benefits — the Old-Age and Survivors Insurance and the Disability Insurance trust funds — will run out of money in 2035 if Congress does nothing to fix the program. While Social Security benefits won’t disappear if this happens, the funds will come only from taxes and therefore payouts will be lower. With less help from the government, it’s important to start saving now to protect yourself and your loved ones during your golden years.
There are numerous studies and theories about how much you should have saved for retirement, emergencies, necessities and other expenditures. For example, studies by Fidelity and T. Rowe Price show the retirement savings benchmarks for where you need to be, starting at age 25. Both studies stress the need to save early, maintain a significant level of contributions throughout life and maintain an age-appropriate allocation to equities throughout.
Don’t wait for retirement to sneak up on you. Here are some expert tips for getting your retirement fund in order before you leave the working world behind and how to progressively grow your emergency fund.
Last updated August 2, 2019.
How To Calculate Projected Expenses
When it comes to setting aside money for necessities, splurges and big expenditures, consider circumstances before age. Note that your circumstances are likely to change throughout the decades, however.
“To figure out how much you need, use an online budgeting resource such as Mint, break out your monthly bills and figure out an overall amount,” said David Bakke, an author with the personal finance website Money Crashers. “If you’re falling short, try using coupons for groceries, or go without cable TV, as there are plenty of alternatives.”
As for other expenditures, it’s important to budget and save for those, as well. “To me, splurges and big expenditures should be saved for on a case-by-case basis, and there’s really no one amount that can be determined according to one’s age,” said Bakke. “In order to avoid falling into credit card debt, only put a splurge on a credit card if you can pay the bill off in full by the time it comes in.”
Whether you’re focused on saving for retirement, emergencies or splurges, it’s helpful to have a framework so you can cover your financial bases.
How Much You Should Save for Retirement in Your 20s
In your 20s, the only way you can be behind in saving for retirement is by not contributing. The Fidelity study recommends setting aside 15% of your salary for retirement. If you’re struggling with student loans or credit card debt, or simply can’t afford to contribute that much, start smaller and work your way up to that goal amount.
Where To Put Your Savings in Your 20s
Contribute to your company’s retirement plan if one is offered.
“It’s best to make sure you are at least contributing up to what your employer is matching,” said Kristine Batch, senior vice president and senior regional delivery manager at UMB Bank. “You don’t want to miss out on free money. The small amount of money being taken out of your account now will add up, growing over decades and help you reach your financial goals.”
As your salary increases, ramp up the percentage of your income that you are contributing to the plan. The benefits for savers in their 20s are huge. There is no bigger ally on the road to successfully saving for retirement than the gift of time and the benefits of compounding interest.
You should also be saving for an emergency fund in your 20s. You might be able to get away with saving a little less since unexpected medical expenses and job losses might not be as catastrophic as they would be for someone older, said Bakke.
“So a good guide would be to start with, say, $5,000 when you’re young. And as you age, keep setting more and more aside, as you really can never have enough saved for emergencies,” he said.
How To Save in Your 20s: Focus On Budgeting
“Learning how to make a budget in your 20s will help provide critical insight into short- and long-term spending,” said Batch. “It will help you determine financial priorities and create an effective savings plan.”
As you budget, continue to keep an eye on spending requirements for necessities. If you’re falling short, find ways to adjust other expenditures and cut costs so that you can meet those needs. Also, have a plan in place to set some money aside for splurges — whether it’s a general fund, or for something specific.
Once you figure out how much you have leftover to save — if any — have this amount automatically contributed to your retirement fund or emergency fund.
“It’s best to automate [saving] through a monthly bank pull or a direct deposit from your paycheck,” said Michelle Young, CFP, a financial advisor at Ameriprise.
What To Do If You're Behind With Savings in Your 20s
“To catch up, reduce your monthly expenses as much as possible, and devote the surplus to your emergency fund,” said Bakke.
Check Out: Is a Self-Directed IRA Right for You?
How Much You Should Save for Retirement in Your 30s
In your 30s, it’s time to ramp up the percentage of your income that you are contributing to your company’s 401(k) or similar retirement plan. You still have a long time to let your money compound and grow prior to your retirement. If you’re just beginning to save for retirement in your 30s, Fidelity recommends saving 18% of your income if you start at 30 or 23% of your income if you start at 35. Many people still have student loans and other debt that might make meeting these goals impossible and it’s OK if you can’t. Just remember that contributing something — however little — is better than contributing nothing at all.
Here’s what T. Rowe Price recommends you have saved for retirement in your 30s if you earn $75,000 a year:
- 1/2 times your salary by age 30, or $37,500
- 1 times your salary by age 35, or $75,000
Where To Put Your Savings in Your 30s
In addition to contributing to your 401(k), you should continue to build up your emergency fund. Financial advisor Joseph Carbone recommends having 12 months’ salary saved.
You might also consider opening college savings plans at this time.
“If you’ve had children, open 529 plans so that educational costs don’t derail your retirement,” said Jody D’Agostini, CFP, an advisor at AXA Equitable.
How To Save in Your 30s: Avoid Overspending
Carbone offered the savings tips he usually gives to his 30-something clients, but his advice is sound for people of any age who are trying to build an emergency fund.
“One simple trick I often recommend: Instead of purchasing the brand-new car model in the showroom, look to purchase a pre-owned or demo model,” he said. “You would be amazed at how much money you can save on your monthly payment, and start saving the difference.”
If you’re having trouble affording necessities, find ways to reduce those costs and make sure you’re not overspending on unnecessary items.
What To Do If You're Behind With Savings in Your 30s
If you feel that you are behind, try to increase the percentage that you contribute to your 401(k) each year, and consider funding an IRA account as well.
How Much You Should Save for Retirement in Your 40s
In your 40s, you should be nearing your peak earning years — and striving to max out your contributions to your 401(k). This is when college also creeps up on parents with kids. If the choice is between saving for your retirement and saving for college, focus on the former. There are other ways to pay for college, including having your children pay a portion. There are no second chances to save for retirement.
Here are T. Rowe Price’s guidelines for how much to have saved for retirement in your 40s if you earn $75,000 a year:
- 2 times your salary by age 40, or $150,000
- 3 times your salary by age 45, or 225,000
Where To Put Your Savings in Your 40s
Saving into your retirement fund is essential, but you should also continue to put some savings toward your emergency fund. Restock your emergency fund to keep it at three to 12 months of your salary. Periodically review your budget to ensure you’re covering the necessities like utilities, housing and other costs.
“No matter your current health, you should also consider contributing to a health savings account to help offset medical costs in the future,” said Batch. “This account may also be used as a retirement account in the future.”
Additionally, individuals in their 40s should boost their potential savings by focusing on investments.
How To Save in Your 40s: Cut Out the Nonessentials
You can save money by eliminating nonessentials like landlines and cable from your monthly budget. Cutting the cord on cable can net you an extra $100 a month for your retirement fund.
What To Do If You're Behind With Savings in Your 40s
“You want to do everything you can to improve your income,” said Batch. “You can consider everything from negotiating for a raise to applying for a promotion. You may also decide to start a second job or side business or move to another company.”
How Much You Should Save for Retirement in Your 50s
Your 50s are your peak earning years, and you should still be striving to max out your contributions to your 401(k) or similar retirement plan. Ideally, you are doing other saving and investing for retirement, too. If you have kids, you’re probably also facing college costs in your 50s.
Take a serious look at your retirement plan in your 50s. If you find yourself behind, you might need to cut spending or plan on working a bit longer.
Here are T. Rowe Price’s recommendations for how much to have saved in a retirement fund in your 50s if you earn $75,000 a year:
- 5 times your salary by age 50, or $375,000
- 7 times your salary by age 55, or $525,000
Where To Put Your Savings in Your 50s
This is also a time when you should continue to keep your emergency fund at three to 12 months of your salary. Periodically revisit your budget to ensure you’re meeting the costs of necessary expenses, and not overspending and going into debt.
“Consider re-balancing your investments to reflect your current needs,” said Judith Corprew, executive vice president at Patriot Bank, N.A., based in Stamford, Connecticut. “If you already have substantial savings, you can shift money toward more conservative investments like bonds and indexed mutual funds.”
Additionally, individuals in their 50s often find themselves trapped in the sandwich role, giving money to both adult children and aging parents. In fact, 12% of American adults are providing financial support to both kids and parents, according to Pew Research data. If you want to keep your retirement fund healthy, resist the urge to give to others before you take care of yourself and your spouse.
How To Save in Your 50s: Consider Moving
“With home values up sharply in many regions, now could be a good time to consider making a move,” said Shobin Uralil, COO and co-founder of Lively, an HSA provider. “Not only might you walk away with a chunk of profit you can tuck away for retirement, [but you might also be able to lower] your monthly housing costs. If you’ve got a large empty nest, making a move in your 50s could give you hundreds of dollars of monthly savings to use for other financial goals. If you’re intent on staying put in your current home, make it a priority to be mortgage-free before you retire.”
What To Do If You're Behind With Savings in Your 50s
“If you are behind on your goals, it’s never too late to save,” said Young. “You are in your peak earning years so try putting away as much as you can and it still will have time to grow. Remember once you are 50, you can also [make] catch-up contributions to your IRAs and employer-sponsored retirement plans.”
How Much You Should Save for Retirement in Your 60s
Even into your 60s, it’s not too late to salvage your retirement if you are behind. Saving in your 60s might entail working a bit longer or even part time into your retirement.
This is not the time to cut back on your contributions to your retirement plans, either. It’s also important to carefully time when you claim Social Security.
Here’s how much you should have saved in your retirement accounts in your 60s, according to T. Rowe Price, if you earn $75,000 a year:
- 9 times your salary by age 60, or $675,000
- 11 times your salary by age 65, or 825,000
Where To Put Your Savings in Your 60s
You should continue to set money aside for emergencies, ensure that you’re still meeting your necessary costs and earmark funds for splurges, based on your circumstances.
“A strong mix of savings and investing is vital, so speak with your financial advisor about strategizing for continued investment,” said Batch. “Lifetime income helps you live comfortably, so be sure to maintain an active investment strategy.”
How To Save in Your 60s: Reevaluate Your Lifestyle
If you didn’t already downsize your home or relocate to a less expensive area, consider doing this now to save on living costs. Find other ways to spend less and save more, whether this means cutting down on dining out and/or working more hours to get overtime pay during your last years of work.
What To Do If You're Behind With Savings in Your 60s
If your retirement savings have stagnated, consider delaying retirement by a few years or picking up a side gig you can work after leaving the 9-to-5. Teaching, crafting and leading tour groups in your city are just a few of the many jobs that can keep you active — and earning — in retirement.
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Gabrielle Olya contributed to the reporting for this article.
Last updated August 2, 2019.
About the Author
Roger is an experienced financial writer and financial advisor who uses his experience to explain complex financial topics in an easy to understand format. Roger contributes to his own popular finance blog, The Chicago Financial Planner where he writes about issues concerning financial planning, investments and retirement plans. His work has been featured on Investopedia, US News & World Report, Yahoo! Finance, Equifax Finance Blog and other sites.