Saving for retirement is an important financial goal, and ideally, your savings will maintain a steady upward trend over time. But how much do Americans save for old age and emergencies?
Whether you’re in your 20s or 40s, saving for crises like retirement and unemployment should be a priority. It can be helpful and important to have benchmarks to track your savings progress.
Key Takeaways
Before you think about saving for retirement, your first goal should be to have at least three months of emergency savings to cover living expenses.
Fidelity says that by age 30, you should have one year’s worth of your salary saved in retirement savings.
The average retirement savings for those ages 38 to 43 was just under $62,000 and increased by about $100,000 for those ages 56 to 61.
Experts recommend you should have $1 million set aside before retirement, but the average for people in their 50s is much lower.
Retirement vs. Emergencies—Which Comes First?
Experts recommend setting aside at least three months of living expenses before you start saving for retirement. Six months’ worth is even better. Add up what you spend on rent or mortgage, utilities, transportation, insurance premiums, uninsured health care expenses, groceries and debt service. Then multiply that number by three to six, depending on your goals.
Set this money aside so it’s available if a catastrophic event occurs that prevents you from generating income for an extended period of time. Consider placing your funds in an interest-bearing account that is easy to access, such as a high-interest savings account or a money market account.
Retirement Savings
- Knowing how much money you’ll need for retirement is an educated guess, especially if you’re young because you don’t yet know how long you’ll live on your savings.
- You’ll also need to forecast your financial needs and estimate your budget for the next few years.
- Experts recommend saving at least your current annual salary before the age of 30.
- Experts recommend saving three times your current annual salary by your 40s.
Emergency Savings
- Experts recommend having at least three months’ worth of living expenses saved in an emergency fund, but preferably six months’ worth of living expenses. This amount is calculated by multiplying your budget by the corresponding number of months.
- You can cut some luxuries from your monthly budget to reach this number, leaving only the bills that need to be paid.
- The average working-class person in their 30s spends $3,400 a month on living expenses.
- An earner in their 40s can budget about $4,300 per month.
Average Retirement Savings by Age
Average savings of 20-year-olds
With stagnant wages and high student loan debt, Millennials face some of the biggest challenges when it comes to saving for retirement. However, a Bankrate survey shows that they actually lead the way when it comes to proactively contributing to retirement plans.
The Pan American Retirement Research Center estimates that the average retirement savings for Millennials is about $23,000. According to Fidelity, the typical saver should have a year’s salary saved by age 30. A 25-year-old should aim to own 25 to 50 percent of this amount.
According to the U.S. Bureau of Labor Statistics (BLS), the average annual salary for a 25-year-old is $51,168. A 20-year-old with an average savings of $31,000 is likely to have his annual income saved by age 30.
Average savings at age 30
As you enter your 30s, your financial situation is likely to undergo some changes. You may make more money, but life changes such as getting married or having a baby may increase your expenses. Higher expenses can make saving for retirement more difficult, and emergency savings still need to be considered.
In 2018, this group’s average monthly spending was just over $3,400. A minimum of $20,400 is required for six months of living expenses and a minimum of $10,200 for three months of living expenses.
The average retirement savings for Americans ages 32 to 37 was $32,602 in 2016, according to the Economic Policy Institute. Ideally, it should be closer to $67,000. This figure rises sharply for savers in their late 30s and early 40s. At this age, average retirement savings increases to $61,933. It’s a significant leap, but can anyone over 30 keep up? According to the U.S. Department of Labor, the average annual salary for people ages 35 to 39 is $50,752. 7 Fidelity recommends that people aim to earn at least one year’s worth of income by age 30 and save three years’ worth of income by age 40. 4 Thirty – However, according to the EPI data, something is wrong.
Average savings for 40-year-olds
You may be in your peak earning years and have less debt by age 40, but having to pay for your children’s college education a few years later may impact your ability to save for retirement and create stress.
According to EPI, the median income for Americans in their early 40s is just over $67,000. The average amount saved by people ages 44 to 49 is $113,370. Money has started to add up, but savers in their 40s still have a lot of work to do.
Total annual expenses for senior households average $49,279. Their spending dropped from $56,267 in the 55-64 age group to $36,673 in the 75 and older age group8. On top of that, they should also set aside an emergency fund of $12,900 to $25,800.
Average savings for 50-year-olds
By age 50, you’ll likely have a sizable capital buffer to cover retirement and emergencies, but PPI data suggests those in their 50s and 60s still have a long way to go.
Notes
You can also increase your savings when you reach age 50, as you can begin making catch-up contributions to your employer’s 401(k) account or an Individual Retirement Account (IRA).
Research shows the average amount of retirement savings for people in their 50s in 2013 was $124,831. For those ages 56 to 61, the figure is $163,577.
Those numbers are well below the $1 million retirement savings goal recommended by many experts. Social Security can supplement existing retirement savings, but the average monthly pension of $1,471 in 2019 may not be enough to fill the gap.The almost good news is that while the monthly cost of living for this group has not declined, it has at least remained steady at around $4,300 per month.
Average savings for 60-year-olds
You are now slowly approaching retirement. As of 2018, people in this age group earned about $80,500 per year. Your retirement savings at this point should be about eight times that amount, or about $644,000.
However, your living expenses are likely to drop slightly during this age, so you won’t have much trouble setting up an emergency account if you don’t already have one. As of 2018, this group of people lived on approximately $38,000 per year.
According to the Government Accountability Office (GAO), about half of households age 55 and older have no retirement savings (such as a 401(k) plan or IRA).
Some Savings Tips
These numbers may seem scary, but keep in mind that most contributions to retirement savings are not taxed until you withdraw the funds. This can happen when you are in a lower tax bracket.
Some experts recommend setting up automatic deposits into your savings to ensure investment consistency. In theory, you won’t miss out on money you can’t see. As you get used to living off the remaining balance in your account, your savings will grow.
Focus On Average Savings
The average retirement savings across all ages is $95,776, according to EPI. Overall, the data shows that Americans simply are not saving enough for retirement, regardless of age.
Notes
As you evaluate your own plans, don’t let average retirement savings by age distract you from your goals.
Comparing your savings to those of your peers can be informative, but the more important question is whether the amount you save now will enable you to retire the one you want.
If your savings are below average for your age, it’s time to rethink your plans and find out what you can do to get back on track. If you don’t have enough savings in your employer plan to get the full matching contribution, you might consider increasing your voluntary salary deferrals, or if you don’t have access to a 401(k), you might consider using an IRA to increase your savings.
It’s also important to be realistic about your retirement plans. If your savings are less than you’d like, you may want to consider continuing to work full-time in retirement or working part-time to make up the shortfall. Calculating how much money you need for retirement, looking at how much you’ve saved, and determining how much money you need to reach your goals can help you make your plan more effective.
Frequently Asked Questions (FAQs)
How long will my retirement savings last?
Your retirement savings horizon depends on how much you have saved, your other sources of income in retirement, how much you withdraw each year, and how the market performs during the period you withdraw the amounts from your account. A financial advisor can help you combine these factors to estimate how long your planned savings will last.
How much retirement savings is enough?
The amount you need to save for retirement depends on the standard of living you want to achieve during retirement, whether you want to work, and other sources of income you may have, such as: B. Social Security. A simple way to estimate this is to multiply 80% of your current annual income by your projected retirement years. There are several other ways to estimate your retirement needs, and you should discuss your goals with a financial advisor.
Where is the best place to keep your emergency savings?
Keep your emergency savings in an account that you can withdraw quickly and pay a reasonable return so you lose little or nothing to inflation. Your best options may include a high-interest savings account, money market account, certificate of deposit, stocks or mutual funds.
SOURCES
Tiny Tips uses only high-quality sources, including peer-reviewed research, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and ensure our content is accurate, reliable and trustworthy.
- Vanguard. “What’s the Right Emergency Fund Amount?“
- Bankrate. “Not Much of a Retirement Saver? This Is Why You’re Feeling Fomo.”
- Transamerica Center for Retirement Studies.”19th Annual Transamerica Retirement Survey a Compendium of Findings About U.S. Workers,” Page 50.
- Fidelity. “How Much Do I Need to Retire?“
- Bureau of Labor Statistics. “Economic News Release.”
- Economic Policy Institute. “The State of American Retirement Savings.”
- U.S. Department of Labor. “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,” Page 112.
- U.S. Bureau of Labor. Statistics.”A Closer Look at Spending Patterns of Older Americans.”
- Economic Policy Institute. “The State of American Retirement.”
- Social Security Administration. “Fact Sheet Social Security,” Page 1.
- U.S. Government Accountability Office. “Retirement Security: Most Households Approaching Retirement Have Low Savings.”
- Economic Policy Institute.”The State of American Retirement: How 401(k)s Have Failed Most American Workers.”