When it comes to retirement savings, Americans have some catching up to do. A recent study paints a grim picture of the country’s savings, with 43% of respondents reporting less than $25,000 in their retirement accounts.
And women seem to be less prepared to retire comfortably than men. In fact, nearly half, or 49%, of women have saved less than $25,000, compared to 36% of men, according to a recent survey by Gold IRA Guide.
Age didn’t seem to be a major factor in retirement readiness. Some 36% of all respondents aged 45 and older reported having account balances of less than $25,000.
How much should I save for retirement?
According to financial advisors, you should aim to replace at least 80% of your final pre-retirement income if you expect to retire into a lifestyle similar to the one you had while working. The national median family income for the United States in 2021 is $79,900, according to the U.S. Department of Housing and Urban Development. So if you’re in that range, you may want to aim for a retirement savings of at least $63,920, multiplied by 30 or more, since your retirement could last 30-plus years.
However, a solid retirement savings goal would vary widely depending on your goals, financial situation and investing timeline. For example, if you plan to do a lot of traveling or other expensive leisure activities, you might want to plan to replace 100% of your working income, not 80%.
Fidelity Investments recommends you try to save at least one times your salary by age 30, three times by 40, six times by 50, eight times by 60, and 10 times by 67. But don’t panic if you’re not there yet.
The firm recommends workers save 15% of their income annually beginning at age 25 (which includes any employer match). That money should be working for you in the stock market, not sitting in a savings account earning paltry interest: Fidelity recommends investing more than 50% on average of your savings in stocks over your lifetime.
Of course, this savings rate isn’t feasible for everyone. But any little bit helps, especially if you increase your savings rate as your salary increases. Women may have harder time socking away money because of the gender pay gap. In 2020, women earned 84% of what men earned, according to a Pew Research Center analysis.
Even if you have to start small, you should aim to save as much as you can. So say you make $40,000 at age 23 and contribute 3%, or $1,200 of your annual salary. If this stays consistent and you earn the average stock market return of 10% per year, you would have saved $947,748 by age 67. At 6% of pay, you will have saved $1,895,502. With regular raises and a company match, it would be even more.
What’s the right retirement account for me?
If your employer offers a 401(k) plan, consider enrolling in it. These accounts allow you to set money aside for retirement by investing in various assets, including stocks, bonds and mutual funds. With traditional 401(k) plans, your savings grow tax free and your contributions are tax deductible.
Some employers match contributions. For instance, your company may match your contribution up to a certain limit, like 6% of your salary. So if you contribute 6% of a $40,000 salary or $2,400 each year, your company contributes just as much. In 2022, you can contribute up to $20,500 ($27,000 if you’re at least 50-years-old) to a 401(k) plan.
Some companies also offer Roth 401(k) options. These accounts take post-tax contributions and allow you to withdraw funds tax free when you turn 59½ and your account has been open for at least five years.
But don’t fret if your employer doesn’t offer you a retirement plan. You can open a traditional individual retirement account (IRA) or a Roth IRA through most banks and brokerage firms. An individual retirement account works similarly to a 401(k), but contribution limits are typically smaller. For 2022, you can contribute $6,000 ($7,000 if you’re at least 50-years-old) to a traditional or Roth IRA.
Retire with Money
Retire With Money brings the latest retirement news, insights, and advice to your inbox. Elizabeth O’Brien has covered retirement for more than 10 years.