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


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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Guest's picture

Start saving/investing early in life and be consistent (save with every paycheck). Taking advantage of a matching 401k plan should be a no brainer. The power of compounding is lost on many people. Also maxing out contributions when possible, eliminating debt, avoiding risks with your nest egg, planning for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.) and making catch up contributions once you reach 50 should all be part of everyone's plan. And work at staying healthy to reduce illness, injuries and medical costs. I recently found the site Retirement And Good Living which provides information on all these issues as well as many other retirement topics and also has several retirement and health calculators.

Guest's picture

As soon as my kids get jobs in their teen years, I plan to open a Roth IRA for them. It's never too early to start!

We shared this post on 1099 Mom.

Guest's picture

I had the same thought, but you'd be surprised at how unwilling most institutions are to open custodial IRAs. In the end my daughter had to wait until she turned 18, but she contributes to a Roth IRA every month, and while it isn't much now with 50 years of compounding it should make the little sacrifice well worthwhile.

Guest's picture

I don't think this is a really realistic goal for those of us who didn't start working at age 22. Lets take another (probably more common) situation.... You are 26 when you get your first job after graduate school and you owe $100k in student loans (usually means about $1k for monthly payments). Should we mention that although, yes, theoretically you will be likely more than some of your counterparties that did not go to graduate school - you have student loans AND you pay more taxes.... It wouldn't even be possible for me to save about 30% or even 25% of my salary... I don't own a car, I don't take fancy vacations, I cook almost every meal....

I think that some of these authors put so much pressure on you to be saving THIRTY PERCENT. that is insane. so basically, you work hard to get a good paying job in which, even though it is good paying, you have to save SO HARD that you cannot even enjoy your life.... Pretty Skewed system.

Might I also add the elephant - those recommending us to save 30% are also the ones that make money when we save money (the management fees thing)....

Guest's picture
Leslie Van Zee

These guideposts come from a study done by Fidelity back in 2012, and are based on a lot of assumptions that are important to note:
- The end goal was to have enough saved to be able to replace 85% of your income once you enter retirement, INCLUDING social security
- Retirement age of 67
- Saving 6% of salary beginning at age 25 and increasing 1% each year to eventually 12% deferrals
- 3% annual employer contribution
- No breaks in service or contributions, no loans and no withdrawals
- 5.5% annual rate of return on investments
- 1.5% annual salary increase
- Life expectancy of 92 (ie, retirement lasts 25 years).

So, like any other rules of thumb, your mileage may vary.

Guest's picture

Hi, I am 31.5 yrs old. I don't have any children at the moment and may not get any until 35. I earn $4,000 per month from my job and my stocks provide me about $450 per month in dividends. My expenses normally are in the range of $1,600 -$1,800 per month. Recently paid off all my debts. I have $45,000 in a retirement account and stocks worth $205,000 in an index fund. How am I doing compared to others in my age group & income level? Please advise.