How much should you have saved by age 25 through to retirement?

By Dr. Kyle O'Hagan Time of article published Oct 1, 2019

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There are performance reviews to track your progress at work. Academic grades to track your understanding of the subject matter at college. And scales to track your progress at losing weight. But, when saving money, how do you judge whether you’re on track for future financial security or veering off the side of a financial cliff?

There isn’t a simple answer to that question. There are so many variables to account for. But that doesn’t mean we shouldn’t have a rough, somewhat directional guideline, right?

Well, I’ve scoured the internet, looking at the suggestions of multiple different financial experts. And I’ve combined their advice to form a savings tracker to guide you through the decades.

Saving Money in the Tumultuous 20s

Your first paycheck after leaving college is probably one of the most exciting. You’re finally an adult, you’re the epitome of independence and you’re earning your own living. No more relying on your parents to get by.

But this is also the perfect time to start saving for your future. You have decades ahead of you to take advantage of a smaller savings rate and compounding growth.

So, how much should you be saving during those early years? Take a look at the table below:

In this guideline, the amount you should have saved increases by one fifth each year. Essentially this is an annual savings rate of 20%.

Also, for the example, I’ve increased the salary each year by the South African inflation rate of 5% (but this can be changed based on your home country). I’ve also assumed no savings in your first year of earning an income because: YOLO!

Before hitting your 30s, you’d ideally want to have saved just less than 1x your annual salary.

Saving Money in the Thirsty 30s

Enter in your thirsty 30s. This is the time in your life when you’re likely thirsting after that promotion, starting a family or building your own business from the ground up. It’s the decade where we try to follow our dreams – no matter the cost.

But this shouldn’t mean we completely sacrifice our retirement savings in the process. In fact, it should be a decade of accelerated savings for your future self. Below, I’ve continued the previous example to illustrate the ideal amount you should have saved during this period.

When the milestone age of 30 rolls around, you ideally want at least 1x your annual salary stashed away. By the time you turn 40, it should almost be 3x your annual salary at the time.

However, I hear some of you protesting in the background. I understand – this is likely the toughest decade for saving money. Not only will the kids suck your wallet dry (if you decide to expand your family tree), but it’s also a time when you’re likely paying off a bond on your house and still financing your car. Or maybe it’s a time when you’re changing careers and your salary is in a constant state of flux. Who has any extra moola to dedicate to retirement?

While these scenarios may be true for you, it then becomes even more important to get honest with yourself, ask the tough questions and cut costs in order to pay your future self first. By all means necessary, you should be living below your means and taking the necessary steps to successfully manage your money.

Saving Money in the Frightening 40s

The decade of mid-life crises. You question everything: whether you married the right person, or if having kids was the right choice for you, or whether you wasted your life in a career that you actually hate.

Or maybe you’re in crisis mode because you’re getting older and you’re not sure whether you’re financially prepared for it. Well, continuing on from the example before, the table below gives a guideline for whether you’re on track:

As you may notice, the amount you should have saved starts to increase exponentially. For the most part, if you started saving early, this increase will be attributed to compound growth of your savings and/or investments.

Saving Money in the Fearless 50s

When the mid-life crisis period is over, you start to settle into your 50s. You hopefully realize that life isn’t too bad and that you’ve built up a legacy you can be proud of.

As you get closer and closer to retirement, your long-term debts should be decreasing (or paid off) and your focus shifts to channeling that extra money into your future fund. Below are some guidelines on how much you should have saved in your 50s:

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These can be some scary numbers to look at. Say what – you need almost 10x your annual salary saved when you’re on the cusp of turning 60? Again, don’t let the numbers frighten you – most of the heavy lifting at this age should be done by compounding growth.

Saving Money in the “Slowing-Down” 60s

I’m no expert, since I’m only halfway to 60, but I get the sense that this decade is an exciting one. You’ve likely built up a large nest-egg, you’re approaching the end of your working years and you’ll finally get to benefit from years upon years of saving for this exact moment: retirement.

So, how much is enough? Take a look below:

Talk about frightening numbers! You’ll ideally want 12x your annual salary by the age of 65 when you retire. This number would be even higher if you hoped for an earlier retirement.

This underscores the importance of starting your savings journey early. Give yourself the head start you need and let compound growth do all the work in your later years.

Is This Guideline Fool-Proof?

Drum roll please… duh… of course not!

This is by no means a fool-proof way to measure whether you’re on track. First off, your salary is likely to change several times over the course of your career when you change jobs or get promoted. Secondly, life happens. There will possibly (but hopefully not) be emergencies that sink your emergency fund and also dip significantly into your savings.

Also, unless you’re rolling in the dough, this guideline is going to be highly dependent on how your investments are doing and the returns you’re receiving. Because these numbers rely on the benefits of compound growth of your money.

And these aren’t scenarios you can predict. So you need to be willing to adapt this guideline to your unique situation. If your salary increases significantly, your savings rate should match the increase. And if your investments are doing poorly, try to make up for the shortfall by increasing what you stash away.

In essence, try to find ways to meet the recommendations of this guideline as best you can.

Playing Catch-Up

Before I end off, I’d like to mention that this article is NOT supposed to be a dreadful reminder of all the financial mistakes you’ve made over the years. And it’s certainly not supposed to make you feel “less than” for not being on track. It’s a guideline for that exact reason: to guide you.

If you’re on the cusp of 50 and don’t have anything saved for retirement, I’m not here to judge you or tell you that you’re a failure or a lost cause. Your financial path has likely been very different from mine. Maybe you’ve had some mean curveballs thrown your way that have completely derailed your efforts. I want to encourage you – don’t give up, rather try catch up.

Cut all unnecessary costs where you can, live within your means, and make some drastic decisions to reduce your expenses. And continually educate yourself on ways to better manage your money. Then find a community of people who can help and support you. And just do your best.

Dr. Kyle O'Hagan is a UCT scientist and an avid personal finance blogger. With over 20 years worth of experience in the SA schooling system, he has come to appreciate the value of a proper education and feels that personal finance is an area that is often neglected, particularly at a young age.

O'Hagan is one of Personal Finance's New Voices and his finance blog is called the Saving Scientist


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