Before we start: blooom is Finny's partner that helps thousands of people with retirement planning. They can get you a complimentary retirement account analysis at no cost to you. Think of it as a free check-up of your investments! And for $120/year (equivalent to $10/month) you can get access to one of blooom's financial advisors.
Most of us will spend an average of 20% of our lives in retirement (assuming we retire at age 65). That’s a huge chunk of time, so it’s never too early to start saving for it. When you do, you’ll have more options and the freedom to live the lifestyle you want.
Do you know the fundamentals of retirement savings? Take the quiz and find out the key things you need to know about retirement planning.
Saving for Retirement FAQs
What’s a good requirement savings calculator?
The best retirement savings calculators are those that allow you to change planning assumptions easily (e.g., annual spending in retirement) and that won’t lead you to a wrong conclusion without explaining the assumptions. Some retirement savings calculators will tell you that you don’t have enough money saved, but won’t explain the root cause or allow you to play with the assumptions.
Here are a couple of solid retirement savings calculators you should check out:
What’s the average retirement savings by age?
According to the Federal Reserve Survey of Consumer Finances (SCF) the average retirement savings by age in the US:
- Ages 18-24: $4,745
- Ages 25-29: $9,409
- Ages 30-34: $21,732
- Ages 35-39: $48,710
- Ages 40-44: $101,899
- Ages 45-49: $148,950
- Ages 50-54: $146,068
- Ages 55-59: $223,494
- Ages 60-64: $221,452
- Ages 65-69: $206,819
- Ages 70-74: $203,964
- Ages 75-79: $143,613
- Ages 80+: $128,217
The numbers above assume a strict definition of retirement savings – “retirement accounts” and any other defined benefit plans. This category includes assets like IRAs, 401(k)s, 403(b)s, and company, group, or union pensions.
What’s the recommended retirement savings by age?
There is no target amount that is right and attainable for everyone. There are a number of different factors that can affect how much you need to save, such as your target retirement age, lifestyle, travel plans, cost of living in your target retirement area and gifting plans (e.g., to your kids). Add to that variables you can’t completely control such as unexpected healthcare and emergency expenses, life span, the inflation rate, and the return on your investments!
For many people (not high-earners though), a good rule is to plan to have enough to provide 60% to 80% of your current annual income per year in order to provide the same standard of living. This income can come from a combination of many sources including retirement savings plans, pension, Social Security, part-time work, individual retirement accounts (IRAs), savings accounts and investments such as real estate or stocks.
What’s the best order of retirement savings?
There is no general order that’s right for everyone for retirement savings, but consider the following guidelines:
- Start by taking advantage of your employer’s retirement plan, such as 401k or 403b. Contribute to get the full employer contribution match at least.
- Consider funding your employer’s retirement plan up to the maximum contribution limit, but only if the plan is low-cost and has solid investment choices.
- Leverage your Health Savings Account if you have a high-deductible health plan and elect to NOT get reimbursed for expenses (if your goal is to save for retirement).
- Contribute to a Traditional or Roth IRA up to the annual contribution limit (if you qualify).
- Leverage an after-tax retirement savings plan such as Roth 401k or 403b if offered at your work.
What are the common retirement savings mistakes?
By far the most common retirement planning mistake is not saving enough for retirement. Use a retirement calculator to find out whether you’re saving enough.
Other commonly made retirement mistakes include:
- Investing more (or less) aggressively for your retirement timeline and risk preferences
- Concentration in single stocks (often employer stock)
- Investing in high-cost funds
- Paying too much for retirement advice
There are services like blooom that can help you identify your retirement planning mistakes and for a low fee, you can hire an advisor who will work with you to implement a retirement plan according to your goals and needs.
Ready to brush up on retirement planning fundamentals?
Take the quiz and learn a thing or two!