Retirement Savings: Milestones to Reach by 30, 40, and Beyond
Saving early could set you up for a more comfortable retirement.
Just like any financial goal, your retirement savings are unique to your goals and living situation, both in the present and future. However, there are some general guidelines you can measure against to help you feel more in control of your savings.
We’ll dig into a few common tenets about retirement savings below to help you determine realistic savings goals.
While it’s never too late to start saving for retirement, the earlier you begin, the bigger your gains are likely to be over time, due in large part to compounded earnings.
Some of the most common tips for saving for retirement include putting away 15% of your salary and having 1X your salary saved by 30.1
Revisiting and adjusting your retirement plan throughout your life may help your savings grow.
Retirement Savings Wisdom
Let’s discuss some conventional retirement savings wisdom. These include putting away 15% of your income, meeting certain salary saving thresholds, and using compound interest to your advantage.
The 15% Rule
Many experts recommend putting 15% of your pretax earnings away each year for retirement. This percentage may put you on track to have enough savings on hand when you retire and also leave room for other financial goals. While that percentage may feel daunting, it isn’t as scary as it may seem at first.
First off, if you have a 401(k), this percentage includes your employer match for retirement savings. Many employers match a certain percentage of your 401(k) contributions as part of your compensation package. This could speed your retirement savings up quickly.
For example, if you’re contributing 5% of each paycheck to your 401(k) and your employer matches these contributions, you’re actually putting 10% of your salary into your retirement savings.
Secondly, your 401(k) contributions are deducted from your pre-tax income, which can lower your tax liability in the short term. Additionally, contributing to your 401(k) often results in more funds going into your retirement account (where it will grow over time) than the amount you would take home in your paycheck after accounting for taxes.
Finally, you don’t have to start at 15%. Instead, keep this number in mind as you continue working and have it as a goal to reach. Try to increase your contributions on a regular basis until you hit 15%.
When making decisions about how much to contribute to your retirement account, it’s always advisable to check with a tax adviser to ensure you are making the best decision for your finances.
Retirement Savings Goals by Age
A popular age-based retirement savings recommendation is to have 1X your salary saved by age 30 and then increase those savings by your salary every five years. The chart below shows how this works, assuming that one’s goal is to retire at the age of 67.2
Aim to have saved…
1x annual salary
3x annual salary
6x annual salary
8x annual salary
10x annual salary
A couple things to keep in mind with the chart above. First, it’s a general guide, not a be-all-end-all plan. It may help you determine if your retirement savings are on track and if you should be setting more money aside.
Second, your salary is going to change throughout your life. For an extreme example, if your first job out of college pays $45,000 annually, but you get a new job at 28 that pays $250,000 annually, you probably aren’t going to have $250,000 saved by the time you’re 30.
The Power of Investing and Compound Earnings
Experts advise starting your retirement savings early to give your savings more time to benefit from compound interest, typically resulting in higher earnings.
The table below shows how much a person with a $100,000 annual salary would have in their retirement savings at age 65 depending on when they start saving and how much they set aside.
This table doesn’t account for salary increases or adjustments in savings over time and assumes an average annual return of 6%.3
Savings at 65 with 5% Savings Rate
Savings at 65 with 10% Savings Rate
Savings at 65 with 15% Savings Rate
Tips for Growing Your Retirement Savings
Like most financial goals, your retirement savings shouldn’t be a set-it and forget-it situation. It’s a good idea to revisit your plan on a regular basis and make adjustments as your life changes, whether that be through salary increases, growing a family, or changing your goals.
There are a few steps you can take to keep your retirement savings on track.
Revisit Your Contributions
As your income increases over your career, so should your retirement contributions. You may be tempted to spend more as you earn more, but it’s important to balance your spending with savings too.
If you increase your savings allocations before your raise even kicks in, you might not even notice the “missing” money in your checking account. In general, increasing your contributions by 1% each year until you hit your desired contribution amount is a good way to put more away for retirement without taking a major hit to your take-home pay.
When making contributions, be sure to keep 401(k) contribution limits in mind. Going over these limits could cause you to owe additional taxes.
If you find yourself maxing out your 401(k) contributions, consider opening an Individual Retirement Account (IRA). IRAs also allow you to set aside money for retirement and take advantage of certain tax breaks.
As we’ve mentioned before, it’s best to consult with a tax professional on these matters to ensure you’re utilizing the appropriate benefits.
Adjust Your Asset Mix
If you feel that your investments aren’t growing as much as you’d like, you may want to try redistributing how your money is invested. For example, if most of your investments are in long-term, low-interest bearing bonds, you may choose to sell some of those holdings and use the money to invest in stocks, which may have higher returns.
Investments are a personal choice and different types have different levels of risk associated with them. Talk with a financial advisor about the best asset mix for your account that will help you reach your financial goals.
Use Catch-Up Contributions
Remember those contribution limits we mentioned? Well, if you’re over fifty, those limits are a little higher for you because you have access to catch-up contributions, meaning you can contribute additional money to a 401(k) or IRA plan.4
If you have the ability to do so, use these additional limits to your benefit to help you catch up on savings. The catch-up contributions for 2023 are $7,500 for 401(k)s and $1,000 for IRAs.5
The key to successful retirement saving is to start as early as possible, increase your contributions when you can, and reevaluate investment strategy on a regular basis.
Remember, your ability to save for retirement will change over time as you navigate changes in your income, expenses, and lifestyle. That’s why it's so important to periodically review your savings plan and adjust as time goes on to help make your retirement dreams a reality.