retiring

How Much Should You Have Saved for Retirement by 30? 40? 50?

Emily Guy Birken — Mon, 09 Mar 2015 13:00:07 +0000

How much money should you have put aside for retirement when you hit your milestone birthdays?

In a perfect world, financial experts could rattle off a specific number that would be true for the vast majority of workers, and no one would find themselves staring down an underfunded retirement in their later years.

Unfortunately, this is not a perfect world, and the answer to the retirement saving question is an unsatisfying "It depends." Despite the fact that no one can tell you the exact dollar amount that you will need to have set aside each decade, there are rules of thumb for determining if you are on the right track to retirement. (See also: How Cash Flow Allocation Helps Your Retirement)

Here is what you need to know about saving for retirement in your 20s, 30s, and 40s to ensure a secure (and dare we say epic?) second act.

Before You Turn 30

As a regular Wise Bread reader, you probably know exactly what you're supposed to do in your 20s to prepare for retirement.

Enroll in your company's 401(k) program on the very day you are hired at age 22.
Contribute at least up to the employer match to your 401(k) each year.
Open an IRA or Roth IRA in addition to your 401(k) and maximize your contribution, which in 2015 is $5,500 per year.
Maximize your 401(k) contribution, which in 2015 is $18,000 per year.

Just looking at the math, it's clear that a perfect 20-something who could afford to maximize retirement contributions starting at age 22 could theoretically have $188,000 set aside by their 30th birthday, not including interest. ($18,000 x 8 = $144,000 and $5,500 x 8 = $44,000.)

Sadly, just because we all know what we should be doing does not mean that we are doing it. And few of us earn enough at 22 (or heck, even 29!) to contribute the full $18,000 yearly max to a 401(k). (Full disclosure: I am the daughter of a financial planner, and I did not make a single contribution toward my retirement until I was 27.)

So, what is a reasonable goal for us mere mortals? It's a good idea to have one year's salary set aside in a 401(k) or IRA by the time you reach 30. This can be an attainable goal even if you get started late, hit some financial rough patches, or otherwise fail to be a perfect saver. In addition, having a nest egg equal to your annual salary by the time you turn 30 will give you decades of compound interest. And the earlier you get the magic of compound interest started, the more impressive its resulting growth.

How to Save One Year's Salary by Age 30

Assuming an 8% annual rate of return, annual raises of 3%, and a starting salary of $30,000 at age 22, rising to a salary of $38,000 on your 30th birthday:

If you start saving at age 22, you can set aside 10% per year to have one year's salary saved for retirement.
If you start saving at age 25, you will need to set aside 18% per year to reach this goal.
If you start saving at age 27, you will need to set aside 30% per year to reach this goal.

(Here's a compound interest calculator if you want to check my math.)

Before You Turn 40

In some ways, 30-somethings can have the worst of both financial worlds. Often, it can take a few years into your 30s to shake off bad habits, outstanding debts, and other financial problems from your 20s. But your 30s are also prime baby-having years, which means you have the financial responsibilities and challenges of parenthood piled on top of lingering money woes from the previous decade.

Taken together, that can mean that it's very tough to pay yourself first when there are student loans and daycare fees competing for your dollars.

However, between career advances and starting to get paid what you are worth, your 30s are also a time when you potentially have more income. That means it's generally a good idea to have two times your annual salary set aside for retirement by the time you hit the big 4-0.

While you will need to maintain a good savings rate in your 30s to achieve this goal, having one year's salary already saved will help you to reach your target more easily, as your interest compounds.

How to Save Two Years' Salary by Age 40

Assuming an 8% annual rate of return, 3% annual raises, and a salary of $38,000 on your 30th birthday, rising to a salary of $51,000 on your 40th birthday:

If you have one year's salary saved by age 30, you will need to set aside 5% per year to have double your salary saved by age 40. (Although it's a great idea to save more than 5%.)
If you have half of a year's salary saved by age 30, you will need to set aside 10% per year to reach this goal.
If you have not started saving as of age 30, you will need to set aside 17% ($6460) per year to reach this goal.

Before You Turn 50

Many workers don't even start to think about retirement until they reach their 40s. Before those gray hairs start showing up on a regular basis, it can be very difficult to take the idea of retirement seriously. You might know intellectually that you will someday retire from crime-fighting or office work, but it can be hard to wrap your head around it while you're in the midst of making the world a better place one TPS report at a time.

So, it can be very disheartening to learn that experts believe you should aim for a nest egg of four to five times your annual salary by the time you reach age 50.

Again, if you have done any saving at all prior to your 40s, saving that much by age 50 is much easier because of the power of compound interest.

How to Save Four Years' Salary by Age 50

Assuming an 8% annual rate of return, 3% annual raises, and a salary of $51,000 on your 40th birthday, rising to a salary of $68,000 on your 50th birthday:

If you have two years' salary saved by age 40 ($102,000), you will need to set aside 7% per year to reach this goal.
If you have one year's salary saved by age 40, you will need to set aside 20% per year to reach this goal.
If you have no money saved by age 40, you will need to set aside 35% per year to reach this goal.

Paying Yourself First Should Hurt a Little

You may not be able to squeeze blood from a turnip, but you can probably find more money in your budget to meet these goals. David Weliver from Money Under 30 recommends making contributions that are "just large enough to feel uncomfortable." Once you hit that sweet spot, your money will be working for you, making each decade's goal easier to reach than the last.

What are your milestone birthday retirement savings goals? Are you reaching them?

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Exciting, Affordable American Cities to Retire In

Damian Davila — Fri, 06 Mar 2015 14:00:04 +0000

Every month, more than a quarter-million Americans turn 65.

This means that either you or someone close to you is getting ready to retire in the near future. However, retiring from work doesn't mean retiring from life. You need to find a place that allows you to truly thrive in your golden years. (See also: 4 Exciting World Cities You Can Afford to Retire In)

While there are some great options abroad, there are also plenty of great domestic destinations to choose from. Here are the top four exciting (and affordable) American cities to retire in.

1. Columbus, Ohio

In 2015, Where to Retire Magazine has selected Columbus as the top domestic destination for retirement. This river city is no stranger to top retirement lists, because it topped the lists of most affordable places to retire in both 2008 and 2009.

On top of providing affordable living standards, Columbus offers a vibrant sports scene with the Columbus Blue Jackets (hockey), Columbus Clippers (baseball), and Ohio State Buckeyes (college football). With so many sports options available year round, it's not a surprise that Columbus is constantly on the top 10 of the U.S. manliest cities.

But if sports isn't your thing, don't worry. The city is also known for its many museums, theaters, performing arts venues, and 50+ fitness and recreation centers. Some of the top events are Shakespeare in Schiller Park, Red, White, and Boom! (largest fireworks display in Ohio), and Columbus Oktoberfest.

2. Santa Barbara, California

If you have done a good job building your nest egg, then why not splurge a bit during retirement in Santa Barbara? Known as the "American Riviera," the city of Santa Barbara is not only a popular tourist and resort destination, but also has been named a top retirement destination by Where to Retire Magazine. (See also: 7 Ways to Keep Your Retirement Funds From Disappearing)

This city is blessed with an ideal location along California's coast that provides warmer winters and cooler summers compared to cities farther inland. Santa Barbara is an exciting destination for beach lovers because it has four miles of beaches including East Beach, West Beach, Leadbetter, Shoreline Park, and it is bisected by the historic U.S. Route 101, which provides access to even more beautiful beaches up and down the California coast.

Foodies rejoice: Santa Barbara has an eclectic food scene, ranging from Mexican carnitas to British fish and chips. And while you're out, you may run into celebrities, such as Santa Barbara born and raised Katy Perry or TV mogul Oprah Winfrey.

3. Austin, Texas

With a motto like "Keep Austin Weird," this city in Texas is for those retirees looking for something off the beaten path. Its vibrant music, tech, and small business scenes all contributed to Kiplinger selecting Austin as the number-one best city for the next decade.

A major draw for retirees is the University of Texas at Austin. Retirees enjoy the opportunity to take courses or extend their professional learning through the university's continuing education programs. The university also offers several cultural offerings, such as art exhibitions, open air markets, and live performances. Plus, attending classes at an university is a way for single seniors to meet new people and make friends faster. (See also: Want to Be More Attractive? Work These 5 Magic Words (and Phrases) Into Your Vocabulary)

Austin has two strong economic draws for retirees. First, the city (like all others in Texas) has no state income taxes. Second, Austin's mortgage delinquency is only 1.3%, which is lower than the national average, 6.4%. This shows a healthy housing market and overall strong economic climate.

4. Jacksonville, Florida

If you talk about retirement, you have to talk about the Sunshine State. There are three strong reasons why retirees flock to Florida:

No state income tax;
No estate tax; and
No inheritance tax.

Jacksonville stands out from other cities in Florida because it offers the same comfortable winters at much more affordable prices. U.S. News includes Jacksonville as one of the 10 best places to retire on Social Security alone, and for good reason: Retirees age 65 and older pay a median monthly rent of only $861.

From the TaxSlayer Bowl in January, to the Jacksonville Jazz Festival in May, and the Holiday at St. James at City Hall in December, there is always something exciting happening in Jacksonville. You can get plenty of fresh air in the city's 57,373 acres of parks or 22 miles of sandy beaches.

The city's main landmark is the St. John's River. Along the river you'll find the ever-expanding Northbank Riverwalk, a popular attraction in downtown Jacksonville, and the Riverside Arts Market, a popular event in the Riverside Avondale Historic District.

Choosing a city to retire in is no easy task — and you can't just pick based on pure economic reasons. After all, you're going to have a lot of extra time available, so your city needs to offer enough exciting activities to keep you comfortably busy. These four American cities provide the right mix.

Where are you planning to retire — and why?

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Things People Who Retire Early Do

Mikey Rox — Mon, 16 Feb 2015 14:00:08 +0000

We all dream of retiring early (at least I do), but for most of us that's all it is — a dream. It doesn't necessarily have to be, however, and you don't need to strike it rich to start enjoying the finer things in life well before age 67. (Yep, that's the government-acknowledged age for full retirement — and it stinks.) To provide some much-needed motivation to kick your hustle into high gear, here are nine things people who retire early do — and you should, too.

1. Live Relatively Modestly and Save, Save, Save

If you weren't born into one of those famous family dynasties that provided you a trust fund at birth or otherwise have won some sort of lottery, you've got to work hard for your money. If you want to retire early, live modestly and save like your life depends on it. The truth is your life does depend on it — at least the one you want, anyway.

"I'm not retired myself yet, but I do know a couple who managed to retire early," says Mike Collins, owner of the personal finance blog Wealthy Turtle. "The secret to their success was saving and investing as much as possible when they were young. They worked lots of extra hours and also built up a side income so they could invest more and more. They kept their expenses low and just increased their saving rate whenever they got a raise. Over time their wealth grew and they were both able to retire young."

2. Build Financial Roadmaps

When we're traveling, we use a map to get where we're going — and the same principle applies to our professional paths. It's never a bad idea to plan your route so you can achieve your goals with minimal blocks and detours.

Elle Kaplan, founder/CEO of LexION Capital, agrees.

"People who retire early build financial roadmaps. They have a step-by-step plan in place that details the route to their financial goals," she says. "They know what a safe spending level would be given their portfolio and any other income they have coming in, from real estate holdings to Social Security. They know what major expenses or windfalls they anticipate, whether that's travel or income from the sale of a home as they downsize or relocate. And they have extra room built in for the bumps in the road that they can't anticipate, taking into account very conservative assumptions: living to 100, and having a plan to address unexpected costs."

3. Earn Passive Income

You don't have to have an ungodly amount of money in the bank to retire early, but you should absolutely have a continued source of income, if that's not the case.

Passive income is an excellent way to continue earning money, even after you slow down or retire. Great sources of passive income include rental properties, a product that people will buy for years to come (could be a book or maybe a new invention), or a brick-and-mortar or online business that you can afford to pay other people to manage for you. The latter comes with a warning, however: It's hard to find help that will treat your business with the level of care and professionalism that you would, so it's wise to prepare accordingly.

4. Make New Investments

If you're able to retire early, chances are you've made some wise investments up to this point — and you probably have enough dough saved to make some more in the near future. That's how you'll build your passive-income portfolio, and, frankly, if you have excess money in the bank that's not being invested, it's going to waste, anyhow.

Consider this anecdote from Ken Barret, owner of K-Bar Inc., a company he founded after retiring early.

"I retired from the auto industry in 2009 when I took a buyout and decided I didn't want to work in the corporate world anymore," he recalls. "I moved to the United States from Canada and purchased three laundromats in seven months. I always considered retirement as being able to do what you want, and that's what I'm doing. Two of my laundromats are unattended and open 24 hours a day, so I can stop by on my own schedule. The other laundromat has three employees and is partially attended. It requires more attention, but still it's my decision when and how much."

5. Go Back to School and Continue Education

Chances are, you won't be retired for long if you use your newfound freedom to whoop it up like some Hollywood hotshot — you'll drain your retirement fund eventually and find yourself forced back to the workforce before you know it. One way to prevent that fate is by making constructive use of your free time, such as continued education.

Learning should never stop, and if you plan your courses strategically, you can learn new skills that will only improve your business savvy. And if you're not retired yet, additional education can mean a path to increased income, more savings, and an earlier retirement date.The website RetiredBrains has excellent resources for retirees — young and old — on how to navigate the prospect of going back to class.

6. Focus on Relationships With Friends and Family

One of the more personal benefits of having ample time on your hands is that you get to spend more time with family and friends. Use this very rare opportunity — not many people get to focus on the important people in their lives with minimal distractions, after all — to build stronger relationships that will not only enrich your life, but also theirs. And if you're still working toward an early retirement, spending more time with loved ones is not only a terrific way to enhance your wellbeing, but also an essential strategy for saving money.

7. Spend Time Pursuing New Goals and Passions

If you've retired early, it's a safe bet to assume that you've accomplished many of your goals. But that's no reason to stop. In fact there's no better time — since you now have much more time — to set new goals and concentrate on pursuing your passions. And if you've yet to retire, these new goals can help motivate you to find new ways of increasing your income and exiting the corporate world sooner.

"I retired about two years ago after 30-plus years of corporate life," says Judy Freedman, author of the blog, A Boomer's Life After 50. "I decided to take early retirement at age 55 to slow down and pursue my passions. After losing my husband when I turned 50 and emptying out my nest when my last child graduated college, I decided that it was time to change up my life and have more time to do things that I only dreamed of doing when I was younger and busy raising and supporting a family. In addition to my writing and blogging, I am pursuing my studies to become a yoga instructor. I'm also doing more traveling to places that I've always wanted to go to, most recently to France and Spain."

8. Allotting Time to Volunteer or Give to Charity

For 25 years, Stan Goldberg was a professor at San Francisco University. He says his life revolved around academia, but when he was forced to retire at age 57 because of a health issue, he thought his contributions to society had ended. Instead, they had just begun.

"Since retiring, I served as a bedside hospice volunteer for eight years, counseled caregivers, wrote two internationally award-winning books, and I currently have a series of books on the sharper points of life under review by mainstream publishers," boasts Goldberg. "Since retiring my life has become fuller and my contributions to society have increased beyond my wildest dreams."

9. Travel for Life-Enriching Experiences

It's almost a given that you'll want to travel when you retire early — who doesn't, right? — but it'll cost you. At least that's the theory, anyway. In reality, you can travel the world very inexpensively if you're resourceful. There are plenty of volunteer programs abroad that will subsidize your trip (this guy pulled off the ultimate coup of paying zero dollars to trek the globe), and there are programs that will let you take house-sitting gigs in the destinations of your choice for the paltry fee of $96 a year.

Rachel Martin, co-founder of TrustedHousesitters.com, explains how you can take advantage of the latter by caring for pets in exchange for lodging in over 130 countries. If you've yet to retire, this can be a cost-effective way of seeing the world (or of making some extra dollars).

"From a month in the South Pacific to a couple of weeks in a lodge in Breckenridge, Colorado, it's a simple premise (providing a real win-win: free pet care for free accommodations) and one which is growing in its popularity among retirees who may have time on their hands and are looking for adventure in their 'fun years,'" she says.

Would you like to retire early? What are some of the things you'd do?

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Thoughts Everyone Has Their First Day of Retirement

Linsey Knerl — Wed, 08 Oct 2014 13:00:04 +0000

It's a major milestone in anyone's life: retirement. You spend so many hours dreaming about just what you'll do with the time, that when it happens, you often aren't prepared for the reality of it. Retirement isn't always the answer to the unfulfilled life that many expect it to be, however, and some even struggle with the new way of life. (See also: 12 Things You Don't Know About Retirement)

Getting a handle on the new feelings can take time. Here are a few of the initial reactions to the new season, along with some tips for keeping everything in perspective.

1. What Will I Do With All the Time?

Going from a full-time career to no job at all can be a jarring experience, one that can even feel like a loss to some. In addition, "Many new retirees are concerned about how they will fill up their new found free time after retiring," says Hank Coleman, publisher of the popular site, Money Q&A. "It can be beneficial for new retirees to take retirement for a test drive. You may want to consider a mini-retirement for a few months before you take the plunge full-time. Maybe you have a hobby or a side business that you want to pursue. Use some of your vacation days before retiring to try out what you'll be doing when you finally cut the work cord for good."

2. How Can I Stay On Track With My Nest Egg?

Outliving your retirement savings is a legitimate concern for many, and it's one that shouldn't be overlooked. Even if you've done the math and are confident that you can make your savings last, it's best to continue using a budget and assess your progress at least every six months. Check in with your accounts at the end of each year, and see how tax changes, new Medicare laws, or other legislation could positively or negatively affect your monthly living expenses. Make adjustments as needed.

3. Should I Stay or Should I Go?

If your retirement plans included getting away, or possibly even moving, it may be tempting to do so right away. Like any expensive or life-changing decision, however, it's always good to go into it informed. And while plenty of websites are always stating their opinions on the top locations to retire, the logistics of uprooting your home in your retirement years can be stressful. Things to consider — in addition to cost of living or climate — should include proximity to the family that may care for you in your older years. (See also: 5 Incredible Places to Retire Abroad That Anyone Can Afford)

4. Who Am I Now?

If you took pride in your career, or simply identified with your occupation for so long that you don't have a world outside of it, it may be tempting to consider yourself as "just a retiree." It's not necessary to consider yourself so closely tied to your profession — or lack of. Start to take inventory of your gifts, skills, and character traits outside of your 9-to-5; you may be surprised to find that you can have an identity built on the kind of person you are, despite having just considered yourself the sum of our working years.

5. How Will This Affect My Relationships?

"When a man retires, his wife gets twice the husband but only half the income." — Chi Chi Rodriguez"

This vintage joke never gets old, and it couldn't be truer. One of the toughest adjustments to retirement happens when couples find they instantly have more hours in their day to spend together. For the entrepreneur or couple who works with their significant other already, it's not as dramatic as the office worker who now gets to see their partner for an additional 50 or 60 hours a week. Don't feel that you have to spend it all together, however; many couples find that having separate hobbies well into their retirement is the key to a happy rest of their lives together.

6. Is This It?

Retirement should be celebrated, but for many, it also gets them thinking about death. The final years of life — whether they be just a few, or more than 30 — can be met with anxiety and uncertainty. (See also: Don't Let Poor Health Kill Your Retirement Fund)

One way to combat the tensions and worry that some new retirees face is to made a proactive plan toward preventative health care and finding hobbies that can prolong life. Activities around exercise, healthy foods, or relieving stress can be enjoyable well into old age, and they are just the sort of things that can help make the later years vibrant, too. Look for other retirees to share these experiences with; signing up for a seniors cooking class, for example, can give life skills for meeting upcoming health challenges and can introduce you to new faces to spend those work-free days with.

Are you retired? What did you think on your first days of retirement?

This article is from Linsey Knerl of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: