Fidelity recommends the following age-based savings based on staying on the path to be able to retire from your job at 67. [1] Where recommendations weren’t given I made my own estimates based on their parameters and other research of average net worth and savings by age groups.

These savings estimates are based on your annual income at that age. So if you are making $50,000 a year at the age of 30 you should have already saved $50,000 into your retirement account. By age 35 you should then have $100,000 saved up. This is to stay on track for retirement.

The only way to achieve these goals is to save 20% of your income a year. A 401k match program at your employer can make this much easier to do. If they match up to 5% of your income in 401k contributions then you would only need to save 15% a year of your income to hit 20% total saved.

In a tax deferred 401k you will also not pay income tax on that portion of your salary and lower your taxes and make it easier to save as you keep all your money before taxes. Depending on your tax bracket this makes using pretax dollars a faster way to save. If you’re in a high tax bracket of 25% to 33% and use pretax dollars along with a 5% company match it may be more like you saving 10% of your income.

Tax deferred retirement accounts have you save taxes now but pay them later. Roth retirement accounts have you pay taxes now but not pay them later. Which one is best for you depends on what your tax bracket is now and what it will be when you retire and withdraw the funds. Roth 401ks are best for lower income brackets now that will be higher at retirement. Tax deferred retirement accounts are better for tax breaks now on high income that will be lower income at retirement.

Also be aware that you must convert your saved money to capital by investing in stocks or bonds inside your retirement account to keep pace with inflation.

There are two parts of saving money.

  • Playing defense: Being frugal and focusing on what you will not buy and how you can save money on what you do buy. 
  • Playing offense: Focusing on increasing your income with higher pay per hour, a higher salary, working more hours, overtime, or a second job/side hustle. 

Doing both of these make saving much faster than doing only one. If you cut your expenses in half and double your income then your saving is four times easier.

The best way to save faster is to increase your income. The best way to increase your income is to get a promotion or find a new job that pays you more for your experience.

Saving enough money for your age group isn’t easy. Saving the right amount to stay of track for retirement requires discipline. You must have discipline both in your career to increase your pay to keep up with inflation and also self control in your personal finances to not spend more than your make. A journey worth making for the financial peace and freedom it brings.

Image created by Holly Burns

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