Here’s How Much You Should Be Saving for Retirement Every Year in Your 30s
No matter how old you are, it never hurts to start planning — and saving — for retirement. But while your 20s are generally a time to finish your schooling, maybe take a gap year and start your career, your 30s are likely when you start getting serious about the future.
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For some, this means starting a family. For others, it means getting a head start on investing and saving for retirement — and possibly building generational wealth. Of course, for many, it’s a combination of these things and more.
But how much money should you ideally be saving for retirement each year in your 30s? Here are some guidelines, according to the experts.
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There’s No One-Size-Fits-All Answer
Everyone’s financial situation and retirement goals are different, so how much you should be saving depends on, well, you. The first thing you should do is figure out your goals and start saving as much as you can.
“If someone gives you a specific number, without running detailed analysis — RUN! The question of how much one should save in their 30s is a good one, but unfortunately, it doesn’t have a one-size-fits-all answer. Instead, it requires consideration of several more detailed questions,” said Ashley Russo, female-first wealth manager and founder of Russo Wealth Management.
So, how do you do this? Start by asking yourself when you want to be able to retire — not necessarily that you will, but simply that you can.
“Let’s be clear, most people don’t want to stop working and just watch paint dry. The real question is, when do you want to be in a position to work because you want to, not because you have to,” Russo said. “Everyone’s answer will be different! In my work with clients, I hear goals ranging from ages 45 to 75. Understanding when you want to retire is crucial, though this number can change over time.”
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Once you’ve got a general idea, the next step is to ask yourself where you want to be once you retire.
“Understanding location and expectation of housing will play a major role in everything from tax to maintenance cost,” said Russo. “Factors to consider are, do you want to retire in the same city or state? Are you staying in your 5-bedroom home or do you plan to downsize? Are you staying in the United States?”
Last but not least, come up with a lifestyle vision.
“Many people don’t realize that in retirement, every day can feel like a Friday, not just a regular Tuesday. With proper planning, you can enjoy the ability to spend more and live comfortably,” said Russo.
As you start fleshing out your vision, you’ll see how much money you need to achieve it. Just remember to account for inflation, taxes, healthcare and so on. These types of expenses tend to increase over time, so whatever your estimated costs will be in retirement, add some extra to accommodate that.
“For instance, if you currently spend $5,000 a month, you might need an additional $500 to $1,500 per month for healthcare,” said Russo. “For women, we must also account for longevity and higher costs of care. Plus, you may want to travel more. That $5,000 per month could quickly become $6,500 or more. Understanding your vision for what we like to call a 40-year vacation — your retirement — is essential.”
Save 15% to 20% of Your Annual Income
If you are looking for a more specific number, a general rule of thumb is to save between 15% and 20% of your annual income for your retirement years.
“During your 30s, it’s advisable to aim for saving 15-20% of your annual income for retirement,” said Dennis Shirshikov, finance professor at the City University of New York.
According to the U.S. Census Bureau, the most recently reported real median household income is $74,580. Following the 15% to 20% rule, someone earning that much should be saving between $11,187 and $14,916 every year.
If you earn more or less than that, adjust your savings accordingly — but still follow the percentage guidelines. As your income increases, continue to save more money.
And if you’re wondering just how to save this much money when you’re juggling other financial responsibilities — like family expenses or a mortgage — you’ve got options.
“Maximize your 401(k) contributions and explore backdoor Roth IRAs if your income exceeds the Roth IRA limits,” said Justin Godur, financial advisor and CEO at Capital Max. “Diversify your investments by including a mix of stocks, bonds, and real estate to balance growth and risk. Review your retirement plan annually to adjust for changes in income and life goals.”
And don’t underestimate the power of compound interest. The sooner you start saving, the more your money will grow.
“Saving earlier will simply make it easier to compound your dollar, but get with a financial professional to understand your number [and] how much you need to save today to create the lifestyle you expect in retirement!” said Russo.
Follow the 1X Rule
According to Fidelity, you should aim to have at least one times your current annual salary saved up by the time you reach 30. If you haven’t gotten there yet, you may want to save more aggressively to catch up. And if you want to retire earlier than 67, you may need more than that set aside.
Fidelity also provided some other key retirement savings milestones to help you figure out whether you’re on the right track or if you need to start prioritizing saving. By the age of 40, you should have three times your annual income. By 50, you should have double that. And by 67 — assuming that’s when you plan to retire — you should have 10 times your annual income in savings and investments.
But remember, these are just general guidelines. Your retirement age, lifestyle needs in retirement, and decision to work or not after retiring should all factor into your savings goals — throughout your 30s and beyond.
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This article originally appeared on GOBankingRates.com: Here’s How Much You Should Be Saving for Retirement Every Year in Your 30s