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One of the biggest financial decisions you’ll make is how you save for retirement. It can also be one of the trickiest. The good news? By following some simple retirement savings milestones, staying on track is simple!
Savings Milestones by Age
Most people save a part of their income for retirement. If you’re young and just starting to save, typically 10 – 15% is ideal. But how do you know if you’re on track for reaching your savings goals?
You can see if you’re where you want to be by looking at age-based savings milestones. Your savings goal can be broken down using your current salary as a basis for how much to have saved up by certain ages.
Below is a recommended savings guideline for a secure retirement. Keep in mind that this is just a guideline and your specific circumstances will vary:
- 30 – 1x your annual salary
- 35 – 2x your annual salary
- 40 – 3x your annual salary
- 50 – 6x your annual salary
- 55 – 7x your annual salary
- 67 – 8x – 10x your annual salary
Milestones before Retirement
- Starting your 401K
If you have a 401K plan option in your workplace, take advantage of it! You’ll start getting tax-free compound interest working for you.
- Age 50+
If you haven’t been able to save up as much as you’d like to have in your 401K plan, this is the time where you can catch-up. You can increase how much you contribute to your retirement plan and even add an extra $5500 to your contribution limit.
- Age 59 1/2+
You can begin withdrawing from your 401K retirement plan penalty-free. If you withdraw early, you will pay a 10 percent penalty. You’ll also have to pay income tax on the money you take out.
- Age 70+
At this age, the government requires you to start taking your IRA and Social Security disbursements. You can withdraw money from your 401K plan and begin living the life you’ve always dreamed about!
The Power of Compounding
For effective retirement saving, the key is to begin early to allow your money over time to earn money by itself. The earlier you invest, the more time you’ll have to make your money work for you.
Compounded interest allows you to save more earlier and reap the rewards later. In earlier decades, your savings will double slowly at first. In later years, your money will then begin to grow faster since you will now be doubling higher dollar amounts after you have been investing for a while.
For example: if you invest your dollars wisely, it will earn a potential seven percent. At seven percent, within 10 years, a single dollar will double. In an additional 10 years the $2 will now double to $4. Ten years more and you are up to $8 and so forth.
With these savings guidelines in mind, you’ll be set for your route to retirement!
If you’re looking for a safe place to grow your savings, we’re ready to help! Click here to learn more about our individual retirement account (IRA) savings and certificate accounts. Plus – your funds will be federally insured up to $250,000!