Yahoo Finance Experts: How Much You Should Have in Your Savings Account by 60 — And How To Get There
As you approach retirement age, it’s important to assess your financial situation and ensure that you’ll have enough savings to live comfortably in your golden years.
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But how much money should you have saved by the time you turn 60? The truth is there’s no one-size-fits-all number. The answer depends on a lot of factors, including your income, expenses, and retirement goals.
Figure Out How Much Is Right For You
When thinking about retirement, most people are looking for a dollar amount that leads to an ideal retirement. However, Doug Dahmer, founder and CEO of Retirement Navigator, said “the accuracy of ‘how much is enough?’ varies per individual and [cannot] be appropriately answered until one takes the time to define what their ‘OK’ looks like.”
One commonly used yardstick for retirement savings is the 4% rule, which suggests you can withdraw 4% of your retirement savings each year (adjusted for inflation) without running out of money. For example, in your first year, if you had $1 million in savings, you could safely withdraw $40,000 without jeopardizing your retirement years. The 4% rule isn’t perfect, no strategy is, but studies have shown that it would have stood up to the Great Depression, World War II, and the stagflation period that plagued the 70’s.
The question remains though – how much will you need to cover your retirement?
Dahmer continued, “For folks in their 60’s nearing retirement, …consciously taking the time to chart out the financial course of what you want to achieve in life, when you want to do it, and how big you plan to do it is absolutely essential.”
So, there really isn’t a cookie-cutter answer to the question, but experts do have some general tips based on age range that can help anyone out on their retirement journey.
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In Your 20’s
Paul Deer, the vice president at Empower, said, “For many people, the 20s are the time in their life when they are starting their professional lives and possibly a new career. Their earning potential may be somewhat limited, which might make it seem difficult to build net worth during this decade.
The key is establishing good financial habits and disciplines that will help you build net worth over the rest of your life, such as setting aside a certain percentage of pay each month to save and invest.”
Kendall Meade, Certified Financial Planner at SoFi, said, “An employer match on your 401k is free money, but roughly a quarter of employees are leaving free money on the table by not taking advantage of their match.
We see this happen much more frequently with younger workers who are not earning as much, so we urge members in their 20’s to establish good habits early and get that match.”
In Your 30’s
“One of the keys to building net worth during this life stage is continuing to prioritize saving and investing,” Deer continued. “It can be easy for higher earnings to get swallowed up in mortgage and car payments, child-rearing expenses and splurging on a few luxuries like nice vacations and fancy dinners.”
Instead, Deer said, “it’s important to maintain the saving and investing disciplines that were established in the previous decade and even increase the percentage of income saved, if possible.”
Meade added, “As you receive promotions, raises or bonuses, try to save the majority of them. It can be tempting to treat yourself, but by saving the money instead you can do two things: prevent lifestyle inflation and increase your savings for retirement.”
Lifestyle inflation happens when your spending grows as your income does. Instead, work to keep your expenses low. You may find that you need less money to maintain your lifestyle.
In Your 40’s
The older you get, the more complicated your finances can become.
“Growing financial responsibilities can make building net worth especially challenging during the 40s,” said Deer. Like Meade, Deer emphasized the importance of avoiding lifestyle inflation, otherwise known as “lifestyle creep.”
“It’s OK to enjoy the fruits of your labor but keeping expenditures… in check will go a long way toward building [your] net worth,” said Deer.
Meade advised that people focus on avoiding fees. “Fees impact every age, but as you get older your balance will start getting larger and those fees will really add up,” she said.
“Let’s face it, fees are confusing, and many average investors don’t truly understand what fees they’re paying. A fee of 1% or 2% may seem like a small number, but that is $5,000 to $10,000 a year if you have $500,000 saved up.”
In Your 50’s and 60’s
These two decades should really be focused on accumulating wealth.
Deer advised, “Given the shrinking window before retirement, the most important net worth-building step for many people in their 50’s and 60’s is to max out their retirement accounts. It’s also critical to start paying down outstanding debt.”
“…You may want to start looking at de-risking your portfolio or becoming more conservative so that your portfolio is less volatile,” recommended Meade.
“As you get close to retirement, you should have a financial plan run. This can give you the opportunity to see if you are on track or if any changes are needed before making any irreversible decisions such as leaving the workforce permanently.”
Make a Plan and Stick to It
Whether you’re almost ready to retire or in your 20’s, the most important step you can take to be sure you can retire is to have a plan. There are plenty of free and paid tools out there – or you can seek the help of a professional like a Certified Financial Planner.
No matter how you go about it, take action now and secure the best financial future you can.
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