If you’re searching for guidance on how much you should have saved, chances are you’re trying to confirm some suspicions: Either that you’re nailing things, or you’re … not.
Research about retirement savings tells us that for most people, the latter is much more likely.
How much to have saved by 30
You’ll find that one retirement-savings benchmark gets the most airtime: It comes from Fidelity Investments and says you should have an amount equal to your annual salary saved by age 30.
Don’t leave, we’re not done.
Fidelity’s advice is countered by lesser-known but slightly more digestible guidance from T. Rowe Price, another broker known for its retirement products. It suggests having half your annual salary saved at age 30, shifting more responsibility to your later years.
Both benchmarks feel big and intimidating if you haven’t met them. In an ideal world, we’d all start saving for retirement right out of college — but student loans alone prove the world is not ideal. So let’s focus on catching up.
Understand how these benchmarks work
Fidelity, T. Rowe Price and every other publisher of retirement benchmarks have good intentions: They’re trying to take big numbers and break them down into smaller, incremental goals.
The problem is that for many people, even those smaller goals seem unattainable. When looking at retirement savings advice, it’s important to remember two things:
- Recommendations on the internet are just recommendations — they are not personalized to you, your life expectancy, your retirement spending plans or your investing strategy.
No. 2 is especially key. Benchmarks are a good, quick way to check your progress. But they incorporate general assumptions — about life expectancy, retirement age and retirement spending — that may or may not apply to you. In no way are they hard rules.
Set your own goal, then make a plan for reaching it
Outside of working with a financial advisor, the best way to find out how much you should have invested is not by following a benchmark, but by using a retirement calculator, which will take your information and return much more personalized guidance.
Don’t misunderstand: It might still feel like that guidance is laughing in your face. That’s when you employ strategies like the ones below to help you build some momentum.
» Learn more: Our full guide for how to save for retirement
Set monthly or weekly targets
The median annual wage for workers age 25 to 34 was $40,196 in 2017. Someone who starts saving at 25 would have to invest about $580 a month to have $40,000 banked by 30, assuming a relatively conservative 6% average annual investment return. Under T. Rowe Price’s approach, that monthly investment drops to $300.
That’s still no small amount of money. But looking at it weekly, it gets a little better: $133 a week under Fidelity’s model; $70 under T. Rowe Price. Break your goal down into small pieces like this and you might find it’s something you can at least work your way up to.
» Check your potential returns: Investment calculator
Don’t forget to collect — and count — employer contributions
If you have a 401(k) at work and your employer matches your contributions, those dollars could bridge the gap between what you’re currently saving and what you should be saving. A common match is 50% of up to 6% of your salary. Based on the average wage of $40,196, that’s worth about $1,200 a year.
Use automatic transfers to keep yourself honest
Money you contribute to a 401(k) comes right out of your paycheck, which blunts the temptation to spend it.
But not everyone has a 401(k) or other employer plan. If you don’t, ask your employer to send a portion of your paycheck directly to an individual retirement account — many payroll departments are happy to split your check a few ways.
Understand how tax breaks cut the cost of saving
You’ll earn a tax deduction for money you put into a 401(k) or a traditional IRA — that means $580 might go into the account each month, but after the tax deduction, the contribution could only reduce your monthly income by $500, since you’ll effectively get the remainder of that outlay back at tax time. And if your income is low enough, you might also qualify for an additional saver’s credit come tax time.
Put your money toward the right things
Lots of 20- and 30-somethings feel pressure to knock out student loans or build a fat emergency cushion. Those are noble goals, but they might not be the best places for your money right now.
If your student loan interest rate is lower than the return you can expect to earn by investing, you’re better off paying the loan off slowly and putting extra money into your retirement accounts.
Same goes for an emergency fund: Yes, it’s important. But not so important that you should put off saving for retirement. Pull together an emergency cushion of $500 or so, then focus on retirement until you’re on track.
To expedite the process, consider building your emergency fund with a high-yield online savings account. They come with annual percentage yields, or APYs, of around 2%. That’s about 20 times higher than the national average. These accounts also tend to do away with monthly maintenance fees and minimum deposit requirements, and they’re FDIC insured.
For some of the best options, check out NerdWallet’s favorite high-yield online savings accounts.
Don’t just save — invest
Although you can’t control how the market performs, you can control the investments you choose. At 30, you should have a retirement portfolio that is almost entirely allocated to stocks.
Why? Because you have 30 or 40 years before you retire, and that time means near-term market fluctuations don’t matter to you. What does matter to you is long-term growth, and that’s what you get in the stock market.
» Need more details? Here’s how to invest in stocks
If you’re not invested appropriately, you have to save much more to build the same size nest egg. Take two people, both 30: Investor No. 1 is invested in a conservative portfolio that is mostly bond funds; Investor No. 2 almost entirely in stock index funds.
Investor No. 1 earns an average of 4% annually; Investor No. 2 earns 10%, the historical annual average market return. They both invest $500 a month over the next 35 years. The first investor would end up with about $440,000 at the end. The second? Over $1.6 million.
That’s not to say you’ll always earn 10% in the stock market, or that you should remain 100% invested in stocks your entire life. But it does illustrate the significance of choosing appropriate investments. When you’re young, you can take more risk, and that pays off long-term.
» Learn more: What to invest in