How Much Money You Should Have Saved at Every Age

I’m 32, and my wife and I are just really starting to take hold of my finances. We recently paid off our student loans and credit cards and now are actively trying to save the same money — and then some — that we put toward those monthly bills. I’ve seen a lot of different approaches laid out about saving but, frankly, they just give me indigestion. In your opinion, how much money should I have saved at every age? Help, please. — Frank D., Raleigh, NC

One of the consequences of moving away from a pension-based retirement system is that most of us now have to be our own actuary. There are a lot of parents out there who couldn’t pass a high school algebra exam if they had to (no judgement) and now their retirement rests on getting a complex math problem just right.

Thankfully, there are some handy rules of thumb that help you gauge where you’re at in the savings department. I particularly like the one that Fidelity Investments created because it puts your target nest egg in relationship to your current salary.

For example, you’d want an amount equal to your annual wages by the time you turn 30 and investments that are two times your salary by age 35 – all the way until you reach age 67, when you should have ten times your salary. Those amounts, by the way, include all your investments combined, whether they come from a 401(k), IRA, pension or any other source. Piece of cake, right?

If you fit the mold of the “average” investor — that is, you retire at 67 and lead a typical lifestyle in retirement — you can hit those benchmarks if you squirrel away 15 percent of your salary each year (including employer contributions), starting at age 25.

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Fidelity leans on several basic assumptions to arrive at those numbers. Its model is built around someone who has roughly the same asset mix as their target-date funds (they lean heavily on stocks in the beginning, but slowly gravitate toward bonds over time) and who generates returns that are in line with long-term historical trends.

The fund company also projects that younger workers, like the generation before them, will have the ability to supplement their income with Social Security. I know what you’re thinking: Isn’t that going to be bankrupt by the time I retire?

Well, no. Even if Social Security burns through its trust fund reserves by 2034, as is now thought, its overseers say it’ll still have enough to pay 79 percent of expected benefits thereafter. So you don’t have to be an optimist to figure the program into your long-term plans.

Of course, there are limits to any rules of thumb like this. No two investors are exactly alike, so the amount they save isn’t going to be the same. The biggest variables are retirement age and retirement lifestyle, says Eliza Badeau, Fidelity’s Director of Workplace Thought Leadership. In other words, somebody who retires at age 50 to trot around the globe is going to need more money saved up than someone who works into his 80s. So, by all means, tweak those multipliers accordingly.

Useful as these guidelines are, it’s easy to get depressed if you see that you’re falling well short of the mark. Don’t let it put you in a mental haze — as you get older, there are opportunities to make up for lost time. “The math will still hold true, but how you get there can vary,” says Badeau.

Keep in mind that a lot of folks will be making a substantially higher salary in the years preceding retirement, which makes building your nest egg a little easier than it was as a young adult still paying off student loans.

What’s more, the IRS offers a catch-up provision that allows middle-aged workers to divert more of their money into tax-advantaged retirement plans. Investors aged 50 and older can put an extra $6,000 per year into their 401(k)-style plan and an additional $1,000 into their IRA. If you’ve fallen behind, it behooves you to take advantage.

So take heart if your investment accounts aren’t exactly throwing your friends into a jealous rage. Every little bit you can put in now helps. “The important thing is to start early,” says Badeau. “You’ll have time to adjust as you go throughout your career.”

Hopefully this simple measuring stick gives you a broad sense of how you’re doing, at least. No complex math required.