Socking away a portion of your money for savings can be a challenge at any age. For many, there’s never a “good time” to make that happen.
When you’re young, earning an entry-level salary and still paying off student loans, your budget can feel so squeaky tight that saving seems impossible. When you get older and have a family, the daily demands on your wallet may still seem overwhelming. And into middle age, you may feel compelled to help your grown children as they struggle with financial challenges.
If you’re struggling to establish any savings at all, you’re far from alone. A report this year found six in 10 Americans are so behind in savings they’d be unable to cover an unexpected bill of $500 to $1,000. Another found only a third of working Americans are saving for retirement via an employer-sponsored or tax-deferred retirement account.
The problem is, waiting to stash away savings until the time feels right is not a good strategy. Not only will you lose out on accrued returns, but you’re highly unlikely to save enough for a secure retirement if you don’t force yourself to set money aside early on.
“Saving for the future has always been a problem for Americans, but it’s beginning to catch up with them now as life expectancy increases and savings may have to last a lot longer,” writes Alessandra Malito in Marketwatch. “Many experts urge millennials to take note and begin saving as soon as possible, though many have trouble putting money away for such a distant goal and struggle to envision themselves as retirees.”
As a general rule, it’s best to establish enough financial discipline to follow the 50-30-20 rule as early in life as possible, allotting 50 cents of every dollar you earn for basic survival (housing, utilities, groceries, health, etc.), 30 cents for optional expenses and 20 cents for emergencies and/or retirement.
A basic guideline for savings to aim for at different stages of life:
- Age 20: Any amount this early in life is gravy. You’re ahead if you can stash money from part-time jobs, gifts or other sources, especially if it goes into a Roth IRA that’s taxed upon deposit, not later when your tax bracket will likely go up.
- Age 25: You’ll want at least one-quarter of your annual take-home socked away. Since the average salary in the U.S. is $27,456 for 20- to 24-year-olds and $39,416 for 25- to 34-year-olds, a nest egg of $7,000 to $10,000 is a reasonable minimum. That said, as of last year 33 percent of Americans 25 to 34 had no savings and 67 percent had less than $1,000; only 15 percent had more than $10,000.
- Age 30: Analysts recommend aiming for a year’s salary in savings.
- Age 35: In a perfect world, your salary should be ramping up and double your annual salary should be put away. The average 35- to 44-year-old American is earning $49,400 per year, meaning the average savings should near $100,000.
- Age 40: By now, many Americans are within $1,000 of the top salaries they’ll garner in their lifetimes. Aim for triple your salary, somewhere in the ball park of $150,000. Forty-somethings may also want to consult with a financial planner on sharpening investment plans to better meet retirement goals.
- Age 45: The traditional savings target is four times your annual salary, which on average would be some $200,000 for Americans. As most of us are unlikely to see significant salary boosts after this point, we need to pay close attention to how realistically our savings are aligning with our retirement plans.
- Older than 45: When you retire, you should ultimately have on reserve eight to 10 times your annual salary, not counting anticipated Social Security benefits. Depending on your anticipated retirement age and lifestyle, you may wish to accrue as much as $1 million to $2 million. An adage known as "The 4 Percent Rule” dictates that you plan to withdraw 4 percent of your savings to live on in your first year of retirement, slightly adjusting that amount for inflation each year thereafter. If all goes well, that should allow you a decent (or better) standard of living for the next 30 years.
Saving money may be a challenge, but your diligence will hopefully pay off through years of rest and relaxation later in life.
As financial guru Dave Ramsey puts it: “Live like no one else now so later you can live like no one else.”