Saving for a financially secure retirement is a long-term project with a sometimes unclear end goal, especially when people are just starting out in their careers. Retirement is far in the future at that point, and key concerns like career earnings, investment returns, and post-retirement living expenses seem distant. A rule of thumb is that by age 30 people should have about a year’s salary in a 401(k) or other retirement account. Other benchmarks suggest that more or less may be appropriate. If you want help with retirement planning, you can find a financial advisor serving your area with our free online matching tool.
One of the most common retirement savings vehicles is a 401(k) plan. These plans offer tax advantages and flexibility in investment options. Employees contribute to these plans through payroll deductions. And many employers will match savers’ contributions. Combined with tax-deferred investment gains, these features allow 401(k) owners to build substantial balances over time.
Whether a given balance will be sufficient depends on a number of factors, including age at retirement, annual income, local cost of living, health care needs, and projected retirement expenses. To learn more about how a 401(k) will perform over time, you can use the SmartAsset 401(k) calculator.
What do 30-year-olds really save?
One way to see how much money a 30-year-old should have saved for retirement is to look at actual averages. Vanguard reported that in 2021 the average person aged 25 to 34 had $33,272 in a 401(k). The median account balance was $13,265.
Vanguard drew its data from 4.7 million people who work in a wide range of industries and participate in retirement savings plans that are part of the recordkeeping business. While these workers may not be representative of all people, a 30-year-old retirement saver with about $33,000 in a retirement plan can at least be confident that he’s close to what many others at the same stage in their careers are.
Retirement Savings Benchmarks
A widely cited benchmark states that by age 30, you should have saved roughly the same amount as your annual salary. According to the Bureau of Labor Statistics, the average American aged 25 to 34 earned $49,960 in 2021. With that in mind, the typical 30-year-old should have about $50,000 in a retirement savings account, such as a 401(k).
JP Morgan takes a somewhat more detailed approach with its analysis of retirement savings checkpoints. It crosses age with household income and gives a recommended percentage of annual income. Using this technique, a 30-year-old earning $100,000 per year should have 80% of annual earnings or $80,000 saved for retirement. As income increases, so does the recommended savings rate. JP Morgan’s model assumes that an employee will save 10% of total salary and receive a 5.75% annual return on investments before retirement.
A 30-year-old earning $125,000 would ideally have 100% of annual earnings or $125,000 in a 401(k) or similar. At the top, a $300,000 earner should have 2.1x or $630,000 in retirement savings by age 30.
T. Rowe Price has a significantly less aggressive savings target in its recommendations. The company says a 30-year-old should have about half of their annual gross earnings to retire at that age. For its benchmark, T. Rowe Price used a couple earning $150,000 or a single person earning $75,000. Its recommendations represent a middle ground, meaning some savers may be well served by saving more, while some could need additional savings
Additional retirement savings information
While recommended account balances vary widely, retirement planners are generally united in recommending saving similar percentages of annual earnings. In most cases, planners recommend saving 10% to 15% of your annual salary for retirement.
While companies that maintain their investment management business models will naturally suggest more savings, there is such a thing as saving too much for retirement. 401(k) plans and other tax-advantaged retirement vehicles are not meant to replace short-term savings or emergency funds.
These accounts generally have penalties for withdrawing funds before a certain age. For example, 401(k) plan participants typically pay a 10% penalty for withdrawing money from their accounts before age 59.5.
Finally, recent data shows that many people overestimate how much retirement costs. BlackRock, for example, reported that research shows that most retirees retain 80% of their pre-retirement assets even 20 years after retirement. In this case, rather than advocating less savings, the company suggested that retirees consider spending more of their nest eggs after leaving the workforce. However, BlackRock also noted that longer life expectancy, fewer company pensions, expectations of lower investment returns and the possibility of reduced Social Security benefits ensure that retirement planning will remain uncertain.
Age 30 is the first milestone many planners use to assess financial readiness for retirement. A benchmark suggests that workers have saved a year’s salary in a 401(k) or other tax-advantaged retirement account by that age. Other recommendations range from six months’ salary to more than twice annual earnings, depending on the source, the employee’s income and other factors.
Tips for saving for retirement
A financial advisor can help you assess your needs and resources when planning for a secure retirement. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to decide who is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Social Security is an important part of retirement financial security for most retirees. You can estimate how much your monthly benefit will be using the SmartAsset Social Security calculator.
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