How Much You Should Have Saved By Every Age

I get asked a lot, how much money should I have saved by age 40, age 50, age 60? It seems like this question is on everyone's mind, especially with all the advice floating around out there. One of the most popular set of guidelines comes from Fidelity Investments. Today we're going to take a closer look at what they recommend and whether these numbers should be considered universal or just one way to think about your financial journey.

So according to Fidelity, here's a quick rundown of their savings benchmarks. By age 30, you should have saved the equivalent of your annual salary. By age 40, they say three times your salary. By age 50, six times, and by age 60, eight times your salary. Finally, by the time you retire, 10 times your salary.

Let that sink in. It can be a little bit intimidating, right? Depending on your age, time could be on your side. If you're younger, you have more time to catch up. If you're a bit older, you might have to do some extra savings. But here's the big question: is this a universal rule that everyone should follow? The answer is, it depends.

As we break this down, let's talk about the downside of following these benchmarks too rigidly. They are guidelines and they can be helpful. They don't account, however, for your unique financial situation, and everyone's different. Not everyone has the same income or expenses or goals, for that matter. For instance, someone with a higher salary, they might find these targets easier to hit, while someone who's had, say, a nonlinear career path, they might find these numbers a bit discouraging.

The age you plan to retire, now that can have a huge effect on the amount that you need to save. The longer you can postpone retirement, by the way, the lower the savings factor will be. Delaying your retirement, it gives your savings a longer period to grow, you'll have fewer years in retirement, and Social Security would likely be higher. That's assuming that it's still available when you get there. Let's hope so.

So let's say Max, for example. He plans to delay retirement until age 70. He's going to need to save about eight times his final income to sustain a pre-retirement lifestyle. Amy, on the other hand, she says, I'll retire at age 67, so she will need to save 10 times her pre-retirement income. And then we have John. Now, he plans to retire at age 65. He's going to need to save at least 12 times his pre-retirement income.

Then there's another variable: how you want to live in retirement. Will your expenses go down, or will you spend as much as you do now, or during your working years? If you plan to live below average, your factor will naturally adjust down. If you plan to live above average, your factor will likely have to adjust up, or you might have to work a little longer. So it's either delay retirement or that factor is going to go a bit higher.

Also, life happens. Unexpected events like medical expenses, job loss, or even a global pandemic, gosh, we don't want to go back to that era. Those things can derail the best laid financial plans. So if you're falling short of these benchmarks, it's important that you don't panic. There's time. Your financial journey, it is your own, and these numbers, they should serve as a guide, not a rigid rule.

Let's look at the upside. These benchmarks can be incredibly useful as a general framework. They give you something to aim for, and I believe they can help you stay on track with your long-term savings goals. For those who like structure and clear targets, without a doubt, they can provide some motivation and a sense of direction.

Now, I think a better idea is developing a financial plan. Solid planning, without question, can help you determine how much to save and, very importantly, the required rate of return to reach your goals.

Now, another positive is that guidelines, they emphasize the importance of starting early, and I can never stress that enough. You've heard that the earlier the better, and that's because we have this very powerful thing called compounding. So the earlier you start saving, the more time your money has to grow, and it is a powerful thing. So even if you're behind right now, the best time to start is today. Even if it's a small amount, get started.

Max your 401K plans if you have one available. Do whatever you can to improve your savings rate. If that means not going out to dinner as much, if it means not buying that extra gadget that you wanted, whatever it takes to save more is going to be a huge part of your success down the road.

Is Fidelity's advice a universal rule? Not really. It is helpful, and I believe this guideline can be used effectively, but remember, everyone's personal picture as it relates to finances, it is, well, personal. The key is to understand your financial situation, to set realistic goals, and to make a plan that works for you.

Now, if you found this video helpful, make sure to hit that like button, subscribe for more content like this, and be sure to share it with people that you believe might benefit from this kind of information. And let me know in the comments, where are you on your savings journey? I'd love to hear. Thanks for watching, and I'll see you next time on We're Talking Money.