How Much Do You Need To Have Saved For Retirement?
Before starting, let’s understand one thing–the amount you have in your retirement fund right now has nothing to do with how much will be there when you retire. Just because you are making poor quality contributions right now means nothing, you may become very rich next year and start topping up your 401K like a member of the Hollywood elite.
You may add a minimal amount until the age of 60, whereupon you make some smart investments outside of your 401K and increases your savings by tenfold so that you do not need your retirement fund anymore. Do not limit your investing and your future wealth building to your retirement plans.
Save, Invest, Work Hard And Earn
In addition, while saving in your 401K, you should also be saving, working hard and investing so that you do not have to rely on it when you retire. Think of it more as a backup account for if your current wealth building methods do not pan out. With that said, here is how much you need to have saved in your 401K for your retirement.
What About The Old “One Size Doesn’t Fit All” Saying
I have read many articles that say the amount you save for retirement depends on X, Y and Z. They all say that one size doesn’t fit all, but we are not saying that. In this article, you will see solid numbers and you will see usable percentages that you can apply right now to your 401K savings plans.
What Is Your 401K Fund All About
A 401(k) is a retirement savings fund that your employer sponsors. A percentage of an employee’s paycheck is removed and saved before the wage is taxed. You get to decide how much of your wage is removed and your employer removes it for you.
Why Are Workers Worried?
There are a number of reasons why people may be worried. There was as global economic downturn that wiped millions upon millions off of people’s retirement investments around the world. Plus, there is the growing worry that people may have to work for longer because their 401k is insufficient to cover their longer life expectancy.
Some people are worried because they are not sure how much they should be saving in their 401K. Some feel that they should be saving around 30% of their salary, and the fact that they are not is worrying to them, even though 10% is often suitable for a US citizen with a national average wage. Plus, nobody said that all of the 10% of your salary should go into your 401K.
Other people are worried because they do not know how much they should have saved in their 401K by now, and how much they should have saved by the age of 30, 40, 50 and so on.
There Are Four Levels To Retirement Saving
They involve your 401K, which is the backed up with your emergency savings. Your Roth IRA then comes into play, and finally we go back to your 401K. Below are the four levels of retirement investing, where you should start at number one and work your way up as you become wealthier. To put it in perspective, here is a decision flow chart that shows you what you need to do next.
Level One – Max Out Your Employer Match In Your 401(k)
Some employers will match all or part of your 401K contributions. They don’t have to, but an employer contributing to a 401K helps to entice workers to a company, especially if the wages are not that great.
For example, some companies will say they will match your contributions up to $9000, so maxing out your employer match in your 401K is easy. Sadly, some companies make it difficult to understand how much is being matched and what the limit is.
For example, some will say they will match 50% of whatever percentage of your salary that you contribute. If you invest 10% of your yearly salary to your 401K, then they will invest the amount of 5% of your yearly salary (not from your salary obviously) into your 401K.
In the second case with the percentages, it is difficult to see where the limit is, after all, you cannot exactly max it out by investing 100% of your wages. In that case, you have to use your best judgment and ask yourself if you should contribute more than 10%, especially if there are other investments you could be trying outside of your 401K.
Level Two – Create emergency savings and keep them
Your emergency fund contains enough savings to last six months. Put it in a flexible saver that allows you retrieve it quicker than other savings accounts, and that will not charge you a penalty fee for taking it out.
Max out this money because it is there to protect your retirement fund. Six months is long enough for most people to find another job if they lose one, and six months of living expenses should help stop you dipping into your retirement fund when things go badly.
Level Three – Max Out Your Roth IRA Up To Its Annual Cap
A Roth IRA is your independent individual retirement account. It is set up with an investment firm. Your money is invested and the interest you earn on it is not taxed unless you withdraw the money. As a side note, the way it works is true as per our research, but please check yourself before taking our word for it because things change.
When you get to the right age (currently 59.5 years old), you are able to withdraw your deposit and your investment gains tax free, and it is penalty-free if you use the money as a deposit on a house or for your child’s education.
Max out your Roth IRA up to its annual cap. In 2016, the annual cap was $5,500 per year, but that number often changes, so check online to see what the cap is before you start maxing it out.
Level Four – Max Out Your 401(k) To Your Total Contributions Limit
It is unclear what the upper income limit is for contributions to your 401(k), but if you wish to contribute yourself outside of your salary, then you may only contribute $18,000 per year.
How Did We Come Up With The Numbers Below?
There are actually quite a few studies, theories and financial-company reports on the subject of how much you should have saved by your age, so we had quite a difficult time arguing over which had the best and most realistic numbers. We finally settled on the numbers printed in the JPMorgan Asset Management 2016 Guide to Retirement.
I strongly suggest that you give their free book a read. We extrapolated the numbers below based on the information that they provided. The numbers we came up with seemed the most realistic, and the arguments that JPMorgan made helped convince us that their answers were the most correct and logical.
Here Is How Much You Should Have In Your Retirement Fund By Age 30
On the left are the amounts you earn per year before taxes and on the right are the amounts you should have saved in your retirement fund. Your retirement fund includes your 401K, your Roth IRA, your emergency fund, and any other investments you do not wish to liquefy / reclaim / cash-out until you retire.
Earn $50,000 / Saved $20,000
Earn $75,000 / Saved $82,500
Earn $100,000 / Saved $130,000
Earn $150,000 / Saved $270,000
Earn $200,000 / Saved $420,000
Your Retirement Fund Should Have This Much In By The Time You Are 40?
Earn $30,000 / Saved $18,000
Earn $50,000 / Saved $60,000
Earn $75,000 / Saved $165,000
Earn $100,000 / Saved $260,000
Earn $150,000 / Saved $480,000
Earn $200,000 / Saved $740,000
Here Is How Much You Should Have In Your Retirement Fund By Age 50
Earn $30,000 / Saved $45,000
Earn $50,000 / Saved $125,000
Earn $75,000 / Saved $292,500
Earn $100,000 / Saved $450,000
Earn $150,000 / Saved $810,000
Earn $200,000 / Saved $1,240,000
Here Is How Much You Should Have In Your Retirement Fund By Age 60
Earn $30,000 / Saved $87,000
Earn $50,000 / Saved $215,000
Earn $75,000 / Saved $487,500
Earn $100,000 / Saved $730,000
Earn $150,000 / Saved $1,320,000
Earn $200,000 / Saved $1,980,000
Here Is How Much You Should Have To Enjoy At Age 65
Earn $30,000 / Saved $117,000
Earn $50,000 / Saved $280,000
Earn $75,000 / Saved $630,500
Earn $100,000 / Saved $940,000
Earn $150,000 / Saved $1,695,000
Earn $200,000 / Saved $2,540,000
Conclusion – The Opinion Of eCheck.org
Saving for your retirement is very important because it is your safety net. If all your other investments go wrong, and you lose your job to a robot, and all your savings and investments are wiped out, at least you can spend your retirement years living comfortably.
With that said, we would be saddened if your only method of investing was saving for your retirement. Our website is crammed with ways you may earn more cash, invest wisely, save money, build wealth, and manage your money. We offer all this information for free at our own expense, so please take advantage of it while we are still on the Internet and while we are still a subscription-free service.