birthdays

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:

Only Celebrate A Few Select Birthdays

Paul Michael — Mon, 08 Feb 2010 14:00:02 +0000

What if we suddenly stopped celebrating every single birthday in our lives, and instead concentrated on just the important ones? Would you care? Would you support it? I’ll tell you one thing…we’d all save a bunch of money.

The idea comes from one of my favorite comedians, Patton Oswalt. If you don’t know the name, you’ll certainly know the voice; he played Remy in Ratatouille. He was also Spence Olchrin in The King Of Queens, and he’s an exceptional comedian.

On his CD Werewolves And Lollipops he outlines a plan to stop the celebration of most birthdays, saying that there’s nothing special about most of them. And, he’s right. What’s so special about hitting 36 (my next birthday)? Or 42? Or even 14? They’re not landmark dates in your existence. They’re just another year.

The full list is printed below, and you can also listen to Patton (be warned, Patton uses language that is NSFW).

Birthdays you can and cannot celebrate.

1 thru 9 — YES. You’re a little kid, and kids should get to celebrate birthdays.

10 — YES. You’ve entered the double digits. Something different has happened, you get a birthday.

11-12 — NO. Nothing special about those years.

13 — YES. Now you’re a teenager, and that’s worth celebrating.

14-15 — NO. Again, nothing special here.

16 — YES. The laws have changed. Now you can drive, that’s worth celebrating.

17 — NO. What’s special about being 17? Exactly.

18 — YES. Awesome birthday. You can vote and own a gun. This is all worth celebrating (and if you’re in other countries including England, you can drink alcohol). Now that is worth a party.

19 — YES. It’s your last year as a teenager.

20 — YES. You’ve entered your twenties.

21 — YES. Awesome birthday, you’re as adult as you can get. Hit the bars.

And then…only one birthday every 10 years (30, 40, 50, 60 and so on) until you hit 90. After 90, you get a birthday every year because one law no longer applies to you!

Now, as 90 is a rare age for most of us to reach, I’d say most of us are in for 22-23 birthday celebrations in our lifetime. That’s a lot less than 70-80. And think of all the money that we wouldn’t have to spend. At Hallmark, they’d see their profits go down the toilet, but personally I wouldn’t shed a tear. Charging an average of $5 for a piece of card you read once and throw away is something of an extravagance anyway. And think of all the trees and resources we’d save!

Not only that, but once you reach the adult years, you usually don’t want for that much anyway. As a kid, you have no income. Your birthdays are what you rely on for toys, clothes, games, and candy. But as a 36 year old, I’ll be getting stuff for my birthday that I could afford anyway. I usually have to search my brain for days to come with ideas for people. And they’re the same. My dad’s birthday is in a few weeks. He had no idea what he wanted, so I bought him some DVDs. He’s probably seen them, he may even have them, and who knows if he even wants them.

Now I’m not saying we should treat the day like any other. By all means, go have a few drinks after work or take a trip to the movies. Have a good meal. But do we really need to continue spending all of this money on each other, buying junk we don’t need for people who don’t want anything, just because we’ve reached the grand old age of 27 or 43? Many people in this world would be thankful for a healthy meal and sanitary water every day, and the money we throw at each other on gifts, cards, and endless wrapping could more than pay for that.

This idea may have started as a joke, but I think it’s far from just a bit of comic relief. Think it over.

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

Regifting: A Simple How-To Guide

Paul Michael — Fri, 29 Aug 2008 15:07:25 +0000

We’ve all been there. You open a present with giddy anticipation, ripping the gift wrap away like a 10 year old on a sugar high. And then, as you open the box and peek inside, your brain searches for a way to act really happy…because the gift you have received is just, well, awful. And when the dust settles and the event is over, it’s time to start thinking about regifting. But be careful…there are rules to follow. (See also: How to Deal With Unwanted Gifts)

Some people see a big stigma attached to regifting. Personally, I think it’s fine if you follow a few simple guidelines. You don’t want to hurt the feelings of the person who gave you the gift, or the person who gets the regifted item. But look at the alternatives; you can just let the offending item rot in your basement or garage; you can give it to charity; or you can put it out with the trash. So if you know someone who would really like the gift that just didn’t do it for you, where’s the harm?

I’ve combined my own rules with some research I did online and at my local library (yes, there are books and news stories on this…I kid you not). Generally, there seem to be some major guidelines that regifters follow to ensure everyone is happy. Here’s what I have uncovered. (See also: How to Avoid Awkward Moments at White Elephant Parties)

1. Mum's the Word

It’s amazing how often people have made it quite clear that I was receiving a gift that was from their reject pile. Sure, they dressed it up nice enough, with language like “I just would never have used this cool gadget but I know how much you need one.” It still makes you feel like you’re getting crappy old hand-me-downs. Of course, if someone’s giving me a brand new, state-of-the-art laptop or cool pair of sunglasses, my hurt feelings fly out of the window. But if it’s a nasty crystal picture frame or a hideous painting, I’d rather not know you hated it as well. Ignorance is bliss.

2. Beware the Previously Regifted Gift

Sometimes you’ll receive a gift that doesn’t quite feel right. Your Spidey Sense will tingle and you’ll realize, perhaps after some investigation, that this gift has already been through the regifting process. Now you’ve got problems. The last thing you want is for the gift to end up back in the hands of the person who originally gave it; not only will you look embarrassed, so will the person who gave it to you. And we don’t want friendships strained. My best advice…if in doubt, regifting is out. (See also: Why Making Friends Is Good for You)

3. Keep Records

When you receive a gift that is destined to be a gift once again, label it as soon as you can with the name of the person who gave it to you, and when they gave it to you. This is a simple habit to get into, but an essential one for regifting. Log items in the same way you would to make thank you cards for wedding presents and baby shower gifts.

4. Keep Original Packaging

A dead giveaway for a regift are opened packaging or missing pieces. Even if you’ve never used it, a coffee machine or spanky new DVD player is less impressive when something's rattling around inside the box (because you couldn't put stuff back in just right). Generally, if the packaging has gone bye-bye, so has your chance of regifting the item.

5. Some Gifts Cannot Be Regifted

Beware of the following gifts you're considering regifting: books that have no tie to the person you’re giving it to; CDs or DVDs that are equally random, obscure or awful; clothing without the tags; shoes or sneakers (unless they’re spot on for both size AND style); useless appliances (come on, who really wants a “Clapper?”) If you feel a little uncomfortable or guilty about regifting any item, probably best not to do it. Of course, if you really don’t like the person you’re giving it to, but have to give a gift (like those Secret Santa deals) I’ll look the other way as you pass on a crappy DVD movie with a random autobiography taped to it.

6. Used Items Are Out

Sorry, but a sweater you’ve only worn a few times is not a regifter, even if you do have all the tags and the original gift box. Same goes for all other clothing, most appliances, anything in fact that you can get actual "mileage" out of. Gift cards are also included here. It doesn’t matter if you only used $5 of a $30 card, that’s just tacky.

7. Don't Wait Too Long

Time may be a great healer, but it doesn’t really do the regifter any favors. The older the brand new item becomes, the more obvious it becomes that this is a regift. If you can no longer find the product in the stores, if the packaging has been updated or if the company that made it went out of business ages ago, you’re stuck with that item. By all means try to sell it or give it to charity, but as a regift it stinks of “here’s an old thing I found in my basement, but hey, it’s never been used!”

8. There’s Always Craigslist or eBay.

The web has opened up a world of choices to regifters. Now, if an item does go beyond its ‘”regift date” or has been gently used, there’s the option of the free classified ads on Craigslist, or the wider reach of eBay. In some instances the item you have for sale could now be a collectors item and you could get back more money for it than it was originally worth. This is also a great way to attack the idea of regifting if you’re just against it in principle. Simply sell an unwanted gift to raise money for a brand new gift for that special someone in your life. You’re happy, they’re happy, and the person who originally gave you that gift…well, what they don’t know won’t hurt them, right? (See also: Secrets of Successful Craigslist Sellers)

To sum up, regifting is a great way to pass on a gift if you’re watching your budget or want to see an unwanted gift go to someone who could genuinely use it. And as my mum and dad always told me, it’s the thought that counts anyway. As long as it’s done with someone else in mind, I don’t see the harm. Better to do that than throw it away or mindlessly chuck it in the spring-cleaning bag for Goodwill.

What other regifting rules would you add to this list?

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

Make 5 cheap ‘greeting cards’ that blow Hallmark away.

Paul Michael — Mon, 02 Apr 2007 16:52:24 +0000

Before I share with you my 5 great ways to make outstanding greeting cards, I'd like to rant about the four issues I have with store-bought greeting cards, like those produced by Hallmark in the millions.

The first is the price. On average, $4-$5 for a folded piece of card with a stock photo and a humdrum message seems just a little overpriced to me.

Second, the messages themselves are so generically impersonal, I have a hard time believing you couldn’t write something better yourself that’s really from the heart. That’s why, if I am absolutely in a rush and have no time, I’ll buy a blank card and write the verse myself.

Third, the printing of the price on the back of the card. I know, I’m cheap. But it’s the first thing people look at when they’re shopping around for cards. It’s kind of a “yes, I like that person…but not enough to buy this $5 card.” Then, the reverse happens. That person casually glances at the back of the card you do buy and says “hmm, they like me…but only enough to buy a $2.99 card. I’ll be moving them down my speed dial list.” It’s like Hallmark is guilting us into buying the more expensive ones.

Finally, it’s the occasions now available. “Congratulations on taking the toll road this morning” or “Sorry to hear your ex-wife got remarried.” If you can think of it, there’s a card for it. Argh. Sorry, rant over.

Anyway, I’ve always tried to make my own cards. My wife, my folks, my nieces, they’ve all received them and they all love them to pieces. And guess what. They’re cheaper, more original and way more impressive than anything you can get in the card aisle. So here are 5 cards you can make quickly and easily, with very little talent required. And I guarantee, you will be in that person’s good books for months. (By the way, I’m assuming everyone has things like scissors, glue, and the usual office supplies.)

Number 1 – The message in a bottle. $2.15 - $3.15

Shopping list -
1 glass bottle with cork - $2 (I got mine from Michaels, try any craft store)
1 piece of scrapbooking paper – 15 cents (choose a theme appropriate to the message)
A few small shells from the beach – FREE (or, get a bag for $1 from a craft store)

Instructions -
Do I have to spell it out? Ok. Take the cork out of the bottle, write a lovely message on the paper, put a few shells in the bottom of the bottle, roll up the paper, pop it inside and put the cork back on. Really simple. Do it on Valentine’s Day or an anniversary, or a message to friends/relatives overseas. Trust me, it’s a winner.

Number 2 – The Sweetheart Note. $1.65 - $2.00

Shopping list -
1 box of sweethearts candy – 50 cents
1 piece of scrapbooking paper – 15 cents (choose a theme appropriate to the message)
1 large envelope – Around $1
Glue

Instructions -
This one takes a little creative thinking, but c’mon, you can do it. Take a box of sweethearts candy, tip them out onto the kitchen table and find the ones most appropriate to your message. Then, simply write your message on the paper, and replace certain words/phrases with candy sweethearts. For instance….you have always been my love and I will give you 2000 hugs every day…etc, etc.

You have to glue the candy onto the paper, so it’s inedible (unless you use sugar paste) but the message and the delivery is great. Just pop the finished masterpiece into your envelope and wait for the reaction. It’s really only for couples, but any occasion between two lovers is fine…a marriage proposal, anniversary, Valentine…anything.

3 – Photographic Memory - $1.00

Shopping list -
1 photograph of something special – 20 cents
1 piece of card – 30 cents
1 envelope – Around 50 cents
Glue

Instructions -
It’s the thought that counts on this one.
Find a photograph of something very special between yourself and the recipient. Maybe it’s a photograph of the bench where you had your first kiss. Maybe it’s you as a young child. It’s really anything that has sentimental value.

Just glue that to the front of a folded piece of card, with a headline underneath like REMEMBER WHEN…
With a touching message inside, you’ll hit a home run every single time. It’s personal, it’s from the heart, and it’s about 4 times cheaper than your average greeting card.

4 – Origami 101 – 95 cents

Shopping list -
3 sheets of scrapbooking paper – 45 cents
1 envelope – Around 50 cents
Origami pattern (free on the Internet or from your local library)

Instructions -
Ok, you’ll need a few practice runs at this one, which is why I’ve included 3 sheets of paper in the budget. Scrapbooking paper is perfect because it’s square, and almost all origami patterns start with a square sheet of paper.
Find a pattern appropriate to your occasion (there are thousands of patterns out there), and also your skill level. Be realistic. I’ve included a link to get you started here .
Practice on your two sheets of paper. You want to get this right. Then, write your message on the 3rd sheet of paper, fold it into your Origami shape and pop it into your envelope. The words on the paper will be visible but the message won’t be readable until the recipient opens up the folded paper. It’s a nice surprise.

5 – The Candy Bar Wrapper - $1 – whatever you want to spend!

Shopping list -
1 sheet of scrapbooking paper – 15 cents
1 candy bar – Anywhere from 30 cents to as expensive as you want to go
Pens, pencils, markers (or use a desktop printer)
Scissors, glue.

Instructions -
This one requires the most skill if you want it to look authentic. I happen to have training in Photoshop and Illustrator so I’m good to go. But that really doesn’t matter. As far as I’m concerned, anything that takes your thought and your time will be looked upon wonderfully by your loved one, even childish scrawl.
So, pick your candy bar. Probably something the shape of a Hershey Bar to make life easy, but if you want to attack a Toblerone be my guest. Measure and cut your piece of paper to size, then write a nice message with a catchy headline.

A few ideas –
A Giant Hershey’s Kiss – COULD I GIVE YOU A KISS?
Any candy bar – I’M SWEET ON YOU

Those ones just popped into my head, they are lame. And they are based around Valentine’s Day, but this could work for a birthday or any other occasion. So, there you have it. 5 great cards, cheap as can be and full of thought and personality. I guarantee any one of these will make you look like a superstar. Have fun with them!

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