Here's How Much Money You Should Have Saved By Age

Many of us don't think about retirement in our youth, but if you haven't already begun saving and planning, it's never too late to start. Having a guide that breaks down ideal savings by age can be a great way to start setting some goals or to see if your current savings plan is on track.

Wondering how much you should have saved at this stage in your life? Find out what your saving options are moving forward.

How Much Money Should You Have Saved for Retirement?

There are no set dollar amounts for retirement savings by age, because several factors impact how much you'll need when you're at that stage of your life. The cost of living in your area, outstanding loans and activities you plan to enjoy once you're finished with work can all affect your savings goals. For this reason, there is no hard-and-fast rule about how much money you should have saved by age 30, for example. However, you can still calculate a dollar amount that works for you.

To figure out your ideal savings amount, start by determining what yearly salary you would need after retirement to live comfortably and still afford the things you want to do. You'll need to decide how your spending will change once you are no longer working. Will you still have a mortgage payment? Do you plan to downsize? Start with your current income and make adjustments where necessary. Once you have a yearly amount in mind, you can see your goals in multiples of that number.

It's important to remember that there is no agreed-upon standard for retirement savings. These guidelines can serve as casual benchmarks, but you'll find different values depending on the source. The figures below were pulled from Fidelity Investments, based on multiples of the annual retirement salary you set for yourself.

• Age 30: Annual salary
• Age 35: 2 times the annual salary
• Age 40: 3 times the annual salary
• Age 45: 4 times the annual salary
• Age 50: 6 times the annual salary
• Age 55: 7 times the annual salary
• Age 60: 8 times the annual salary
• Age 67: 10 times the annual salary

Although these amounts aren't definitive, they can give you an idea if you're on the right track or need to adjust your savings plan to catch up.

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Where Should My Retirement Money Be Saved?

Figuring out how much you should have saved by this age is only the first have of planning for retirement. It's also important to decide where that money is going to go to give you the best return on your investment. There are many savings options available for retirement, each with its own benefits and risks.

Personal Savings Account

A savings account can be the most convenient and flexible way to save for retirement, but it offers no tax advantages. It may be tempting to dip into a savings account for unexpected expenses. Interest rates on these accounts are typically much lower and provide little opportunity for growth.

401(k)

A 401(k) plan is often offered through your employer, who will sometimes match a portion of your contributions once certain employment conditions are met. If your company provides this incentive, it's a good idea to take advantage of the free money being offered. If not, a 401(k) still offers several benefits. Contributions are often taken directly from your paycheck, tax-free, and any gains are tax-deferred as long as they remain in the account. The annual investment limits are also significantly higher than those that apply to IRAs.

Investment options for 401(k)s are limited to what is chosen by the plan administrator, and retirement distributions are taxed as regular income. These types of accounts also often come with administrative fees that can diminish some of your returns.

Those who are self-employed may set up a Solo 401(k) plan. There is also a Roth 401(k) option if your income falls below the set limit. For Roth 401(k)s, retirement distributions are not taxed, and only the earnings are taxed for early withdrawals.

IRAs

Individual Retirement Accounts offer a significantly larger investment selection, but they come with lower annual contribution limits. You have the option to set up an IRA on your own through a financial institution of your choice.

Standard IRAs are available to anyone, and contributions can be tax-deductible. Once you reach retirement age, distributions are taxed as regular income, and early withdrawals are subject to additional penalties beyond the standard taxation rate.

Roth IRAs are available for those who fall below a set income limit and allow for some withdrawals to be tax-free after retirement. Contributions offer no tax benefits but can be withdrawn without penalty. Any earnings withdrawn from the account before retirement, unless you meet an exception, will be subject to income tax rates and penalties.

Index Funds

These are mutual funds and are purchased as bundled stocks. This lets you invest in hundreds of companies at once, diversifying your stocks to offer some level of protection against loss. If some of those companies fail, it will only affect a small portion of your investment, leaving the rest untouched. Index funds are typically made up of well-known companies that have stood the test of time on the stock market.

Index funds can be a cost-effective way to start making your money work for you, but they are designed to grow slowly. This might be a good option if you start saving early but may not offer the gains you need if you require more aggressive growth.