A general rule of thumb is to have one times your annual income saved by age 30, three times by 40, and so on. See chart below.
The sooner you start saving for retirement, the longer you’ll have to take advantage of the power of compound interest.
Aim to save 5% to 15% of your income for retirement — or start with a percentage that’s manageable for your budget and increase by 1% each year until you reach 15%.
The thought of saving a couple million dollars by your 60s or 70s can sound daunting, we know. That’s where breaking up your retirement savings with age-based benchmarks may help. By looking at your savings in 10-year increments, it’s easier to plan financially and put actionable savings steps in place.
One popular age-based savings recommendation for retirement is that you should aim to save your total salary by age 30 and increase your savings by your annual salary every five years. Here’s how that would break down each decade, beginning at age 30.
|By age||You should aim to save ...|
|30||1x your income|
|40||3x your income|
|50||5x your income|
|60||7x your income|
|70||9x your income|
|80||11x your income|
Your planned retirement age
The kind of lifestyle you want to have in retirement
For example, if you want to retire at age 62 and travel the world, you might need more savings than if you plan to retire at 70.
So, how do you begin to work toward these goals? One way is to start by investing 5% to 15% of your paychecks in a tax-advantaged retirement account until retirement. You can also work with a financial professional who can help you implement tools and solutions based on your lifestyle and income.
The power of investing
Your retirement savings rate can have a big impact on your total return. See below how much could be stashed away with consistent saving. The following example is based on the U.S. median household annual income of $67,521 in 2020 (according to 2021 U.S. Census Bureau data) and assumes an average annual return of 6%.
|Starting at Age||Annual Retirement Savings Rate||By Age 65 You'd Have ...|
Dedicating 5% to 15% of your pre-tax income to retirement isn’t always possible. You may be starting a new career, paying back student loans, or have other financial obligations and aren’t able to save that much of your salary all at once. And that’s okay, because saving for retirement isn’t all or nothing. If that is the case, start with a percentage you’re comfortable with and increase your savings rate gradually by 1% each year until you reach the 15% mark. If you’re getting a 1% annual raise at the same time, you might not even miss the extra money from your paychecks.
Don’t panic if you’re currently paying back loans or other debts. If you have room to save for retirement at the same time, that’s great — aim to put away what you can while sticking to your loan repayment schedule. Once you’ve paid off a debt (like a car loan, student payments, credit card debt, etc.) consider transferring that monthly payment amount toward retirement instead.
No matter your age, tax-advantaged savings and investment accounts, such 401(k)s and Roth or traditional IRAs (Individual Retirement Account), can be used to start saving toward your goals.
If you’ve been saving for a while, make sure to give your retirement accounts regular checkups to make sure you’re on track for your goals.
Expert Tip: You can increase your contributions to your 401(k) by saving enough to qualify for your employer’s full match (if one is available). For example, if you set aside 5% of your annual paycheck in your 401(k) and your employer matches 100% of your contributions up to 5%, the annual contribution to your retirement fund will be 10% of your yearly salary. Employer-sponsored retirement programs differ, so check with your employer for eligibility.
Smart tools and strategies for savers of all ages
Smart savings tools like Ally Bank’s Buckets , a feature of our Online Savings Account, let you easily set goals, organize your savings and keep track of your priorities.
Microsaving can help you reach your savings targets even faster.
When in doubt, consider automating your savings with recurring transfers or direct deposits.
Use budgeting templates to help keep track of your spending each month.
Prioritizing and staying organized can keep you from stressing over not saving enough for all the things you want to do with your money. If you’ve got a plan for saving for multiple goals, it reduces the chance that something slips through the cracks.
For example, say you want to adopt a dog a year from now and purchase a home three years after that. You can afford to save $800 a month toward both items. In this instance, you might sock away $100 each month for puppy preparation and $700 for the down payment on a house. After you adopt your new fur-ever friend, you can redirect that $100 over to your home savings fund.
The buckets tool in the Ally Bank Online Savings Account helps you organize your savings into separate digital envelopes and set specific goals for each, eliminating the need to open multiple savings accounts to track your progress.
To make saving go even smoother, consider going on autopilot. By automatically diverting a portion of your paycheck, initiating recurring transfers into your respective savings accounts, or using the Surprise Savings booster in the Ally Bank Online Savings Account, you can ease some of the stress of reaching your goals.
Finally, remember that when you’re saving money, every little bit counts. If you aren’t able to stash larger chunks of cash at once, that doesn’t mean saving is out of the question. By using microsaving strategies (or putting aside small amounts of money, usually less than $2 at a time), you can consistently add to your savings without the pressure of large dollar amounts.
Expert tip: Set yourself up for financial success by finding the budgeting style that works for you and using our easy-to-use budget templates .
You’ve got this
When mapping out your financial future, age may act as milestones on the path to financial freedom – something that will be different for every individual. These milestones can help remind you of why you’re saving and visualize what today’s savings can look like later on. And remember, you’re never too young or too old to save for the goals that matter to you.
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