35 yrs old and retirement savings

[mom2febgirls]

I'm curious what you financial smarties think is an acceptable (not perfect) amount to have in retirement (401K/IRA/Other) savings at 35?

 

[NY Disney fan]

I think its acceptable to have 2-3X your annual Gross salary.

 

[jspahn]

I think its acceptable to have 2-3X your annual Gross salary.

holy cow.
then i have to do a LOT of saving the next 4 years.
I am 31 and only have HALF my salary saved between my 401k and savings account.

And I know for a fact I have more saved than either of my parents - and they are in thier mid 50s. So what does that say about them??

 

[budbeerlady]

I would go with as much as possible. I am just 30 and have almost a years salary in there, I had to start really small with a new house and new baby at the time. But now I am up to 15% of my gross per year. I just got into the habit that everytime I get a raise I up my amount!

 

[Stein]

I just did an off the cuff calculation a couple of months ago. If one has 100k in retirement at 32, chances are they have saved over half the money they will have at retirement. In other words, if you have 100k in account a at 32 and then stop putting money in account a and open a new account b where you save all retirement money, chances are account b will never catch up with account a.

I made several financial blunders, but saving money from day 1 of my professional career has certainly been a good idea.

 

[StitchandPooh'sMom]

From the May issue of Money magazine:

To retire at age 65 with 80% of your pre-retirement income (after deducting the percentage you save for retirement, since you don't need to save for retirement in retirement):

Age 30 salary of $40K, need to save 10% annually, can reduce that amount by 0.8% for each $10K you have already saved
Age 30 salary of $80K, need to save 14%, can reduce that amount by 0.4% for each $10K already saved

Age 40 salary of 60K, need to save 18%, can reduce by 0.6% for each $10K already saved
Age 40, salary of 100K, need to save 21%, can reduce by 0.4% for each $10K already saved

So if you make $80K at age 30 and have already saved $100K for retirement, you can continue to save 10% per year and make your goal, assuming "reasonable rates of return".

That's a roundabout answer to your short question, but if you are 35 and have a target retirement income in mind, this shows how much (minimum) you should save to get there, plus takes into account any you have saved already. This makes a lot of assumptions about return rates, availability of Social Security, inflation, etc., but it is a little more accommodating for those who may have saved a lot and those who haven't started yet. The source is the Journal of Financial Planning. Since you can't change what you have saved already, it is more useful to determine if you are on track and figure out how to meet your goals.

There are also retirement planning calculators online where you can put in what you have saved and what your target is to see how to get there.

 

[disneysteve]

If one has 100k in retirement at 32, chances are they have saved over half the money they will have at retirement.

How did you come up with that? Maybe I misunderstood. Are you saying that a 32 year old with 100K saved will have less than 200K at retirement? That doesn't make any sense.

If I have 100K at age 32 and don't save another penny, assuming an 8% growth rate, that account will be worth $1,389,096 when I'm 65. Of course, if you continue to save for those 33 years, you'll end up with far more.

 

[goofyforlife]

Those people who write for Money Magazine must not have children and daycare and live in a high cost of living area.

I am 35 and I've always been able to put 5% in to my 401 at least but almost 20% Holy cow...I'd have to give up one of our cars.

My current job is different in that the pension plan is mandatory and I'm not really sure what % they take.

As for what we have in our accounts....DH has roughly $30,000 spread out over three accounts. i have less because up until 5 yrs ago i made much less. i only have around $12,000 + whatever they've taken into my pension since last July.

 

[mickeyfan2]

Honestly there is not set amount. You need to make a plan and see what you need to do to reach that plan.

 

[disneysteve]

Those people who write for Money Magazine must not have children and daycare and live in a high cost of living area.

almost 20% Holy cow...I'd have to give up one of our cars.

If you are 40 and have not yet started saving for retirement, you would need to save 20% to have enough at age 65. The later you start, the higher the percentage of income you need to put away because you lose the incredible value of compounding that happens over time.

Chances are that a lot of folks are going to reach their 60's and discover that they haven't saved nearly enough money to retire. The result is going to be a combination of working longer and cutting back the lifestyle to something more manageable.

I'm 42 and we do currently save about 18-20% of income. It was 26% until February when my wife stopped working. She may actually be getting a new PT job so our savings rate will go up again. We currently have savings of about 3.4 times my annual income.

 

[Stein]

How did you come up with that? Maybe I misunderstood. Are you saying that a 32 year old with 100K saved will have less than 200K at retirement? That doesn't make any sense.

If I have 100K at age 32 and don't save another penny, assuming an 8% growth rate, that account will be worth $1,389,096 when I'm 65. Of course, if you continue to save for those 33 years, you'll end up with far more.

Perhaps I didn't phrase it correctly as I certainly hope for more than 200k. I am saying that the 100k already there, compounded for another 20-30 years, will account for over half of my final nest egg.

If that amount grows to 1.4M as you calculated, I expect to have maybe 2.5M total when I retire. Thus, the money I have already saved (100k which will grow for many years to 1.4M) will account for over half the money I will have, 2.5M.

Another way to phrase it is when I retire, more of my nest egg will be a result of my first 8 years of saving then the last 25-30 years combined.

Clear as mud?

I expect a bit more than 8%, and I hope to retire earlier than 65, so my numbers are a bit different, but the point remains that the first 10 years of your career are absolutely crucial.

 

[Budshark]

I'm curious what you financial smarties think is an acceptable (not perfect) amount to have in retirement (401K/IRA/Other) savings at 35?

It depends as others have said on income, expected % to be replaced at retirement, sources of income (pension, social security, real estate profit from downsizing, etc).

But all those things aside, if you aren't contributing at LEAST 10% to your 401k (or the maximum of 15,000/yr) you need to come up with a plan to get there ASAP. For example, if you are at 5% now and get an annual raise of 3-4%, plan on adding 2% to your withholding for the next 3 years. After 3 years you'll hit 10-11%.

Also, once you hit that threshold, move to an IRA. That diversifies you and gets you some tax advantages in retirement. Once you max that out, go back to your 401k and max it out if you haven't already.

Basically 20% is reasonable if you want to 'live' during retirement and not just hang out at home. But don't think you have to go straight to 20%. Start where you are now and contribute at least half your raise to retirement until you get to that level. The important thing is to start increasing your savings - and I've always found that half the raise is reasonable.

Chris

 

[JamesMom]

Well, don't I feel waaaay behind, lol!. Dh is 38 and we have approximately 55% of his annual income in retirement, lol! But his salary has doubled in the last 4 years! We are socking away 10% of his annual salary in a 401(k) and hopefully that will be enough. We can't afford any more than that w/house & 2 kids (and no car or debt payments).

 

[Joel110]

A good target is to save 10% of your salary. At the LEAST, save up to your employer match (if offered) which is usually up to 6% of your salary and increase when possible (I.e. raises). Unfortunately, but in reality, an extremely small percentage of mid-30 year-olds have even saved 1 x their annual salary.

It is true that a dollar saved now has far more impact on your retirement than a dollar saved even a few years down the road. Someone starting at age 21 saving $200/month until age 65 who averaged 8% return would have almost $888,000. Waiting until age 35 and saving $200/month with the same 8% interest rate would provide that same person $282,000, a $606,000 difference.

So starting 14 years earlier x $2,400 year ($200 month) = $33,600 invested plus interest would be equal to about $62,000 at age 35. An 8% return would double this amount every 9 years. So, $62,000 would grow to $124,000 at age 44, $248,000 at age 53, $496,000 at age 62, and an additional $110,000 growth from ages 62-65 to get to $606,000.

The other thing is, don't be too conservative. With long-term, you can be more aggressive (not reckless) with equity investing. Then your money can work harder for you. For example, if you earn 9% versus 8%, your money doubles every 8 years. So $62,000 at age 35 grows to $124,000 by age 43, $248,000 by age 51, $496,000 by age 59 and $913,000 by age 65. Over $300,000 more for an extra percentage return.

A lot of people save blindly though, not knowing how much they should save or what their goal should be. I think the conservative approach would be have enough saved that you could withdraw about 4% annually and be fine. So, if today you felt that you would need $40,000 per year in income from your 401k/IRA. Then $40,000/4% = $1,000,000 in today's dollars as a savings goal. However, if inflation averages 3% over the next 30 years, you would actually need $2,457,000 to have the same buying power. Sounds like a lot huh? But 30 years ago, $1,000,000 sounded like a lot more than it does today.

 

[mom2febgirls]

Thanks everyone. I actually feel pretty good about where we are, but we started saving late and I was wondering if I was being unrealistic.

I do put 20% into my 401K at work and my employer matches 5%. I'm not really good at maxing my 401K, but I'm working on it.

 

[disneysteve]

I am saying that the 100k already there, compounded for another 20-30 years, will account for over half of my final nest egg.

If that amount grows to 1.4M as you calculated, I expect to have maybe 2.5M total when I retire. Thus, the money I have already saved (100k which will grow for many years to 1.4M) will account for over half the money I will have, 2.5M.

Another way to phrase it is when I retire, more of my nest egg will be a result of my first 8 years of saving then the last 25-30 years combined.

Got it. I thought that might be what you were saying. You're absolutely right. There is no replacement for early savings and compounding over time. You can never catch up with that no matter how hard you may try.

Look at it this way.
$1 saved at age 25 grows to over $24 at age 65.
$1 saved at age 40 grows to just $7 at age 65.

You would need to save $3.30 at age 40 to end up with that same $24.

So if you are saving 10% of income at 25, you'd need to save 33% of income if you didn't start until age 40 to end up with the same amount.

 

[jodi16s]

Gosh I don't know! I am 25 and currently put back 6% of my income. My husband doesn't have a retirement plan yet but needs to!!!!! Thought of getting older and not having money to retire on scares the dickens out of me.

 

[msmayor]

Retirement saving has always been a priority for my DH and I and despite me becoming a SAHM 15 years ago and raising two children, we have been able to sock away 6X my DH's current salary. He puts the maximum allowed every year (which actually results in a little 'raise' around Christmas...since he can't put anymore $$ in the 401(k) that portion shows up in his check!)

The one mistake many people make is sacrificing retirement savings to put money in college funds for their children. Remember...you can always get loans and grants to pay for education...but no one is going to loan you money for living in retirement. Save for retirement FIRST.

 

[disneysteve]

The one mistake many people make is sacrificing retirement savings to put money in college funds for their children. Remember...you can always get loans and grants to pay for education...but no one is going to loan you money for living in retirement. Save for retirement FIRST.

This is worth repeating. RETIREMENT COMES FIRST! Only once you are fully funding your own (and your spouse's) retirement should you even consider putting money away for college.

 

[maryann16]

Wow I really need to start saving more. I only put 7% of my salary away and my company matches 6%. But I don't have a years salary yet. Maybe half!!