Trying to figure out what you should have saved by the time you turn 30 is a bit like trying to smash a … pumpkin with … a second pumpkin. OK! I’m not very good at metaphors. But trying to figure out what you should have saved by the time you turn 30 really sucks. It really, really sucks. And chances are, if you are like the majority of Americans, you are terrified of this number. But finding out what the standard accepted benchmark is can be illuminating, and it can also give you that shock needed to get to saving. Without further ado, here is where popular (professional) opinion stands on this issue:
Your annual salary … or half
Yes, I know I just gave you a non-answer answer, but that is because there are two main answers to this question. One comes from Fidelity Investments. Fidelity Investments says that, by 30 years of age, you should have saved, as in money-in-the-bank saved not I’m pretty-sure-if-I-rob-this-bank saved, roughly one year’s annual salary. That number might sound daunting (or it might not. I don’t know your finances. Maybe you are positively nailing it right now), but that’s what Fidelity Investments is saying. If that number does happen to sound a bit intimidating, there is a second estimation from T. Rowe Price (known for its retirement products) that may be slightly more palatable to you. T. Rowe Price recommends that you have half of your annual salary saved by age 30. See? Doesn’t that just feel better? Kind of.
Where do these figures come from anyway?
Remember these are just ballpark recommendations. Not personalized ones, either. Just benchmarks. For all we know, you’re living the minimalist life like Thoreau at Walden Pond. Chopping wood, hunting wild bears and fashioning clothing out of dead squirrels. That would mean you would need not to save the amount of your annual salary … or half of it even … but only to keep living near bears and squirrel carcasses. Eccentric as it may sound, my point is that these are just estimations. So don’t have a panic attack just yet! Having said that, these benchmarks are based on generally observed insights about life expectancy, retirement age and retirement spending.
Set your own goals! Jeez!
If you don’t want my advice, fine. I’m going home. But actually, no, I’m not kidding. You should set your own goals and not become entranced by more-or-less irrelevant benchmarks. Benchmarks are a good jumping off point, yes, but they are not the final destination. To calculate the final destination, you need to put in a little bit of legwork yourself. Try using a retirement calculator (or make the investment and hire a financial advisor!). But if you’re not ready for that, a retirement calculator will give you more personalized guidance based on the information that you yourself put in.
How to meet the goals you set
Break it up. Piecemeal. And by piecemeal I mean break your meals up into cube sized pieces … No. Not that. Break up your goals into manageable monthly and/or weekly targets. Here’s a fun fact brought to us from NerdWallet: “The median annual wage for workers age 25 to 34 was $40,196 in 2017.” Now, how do you use that? Well, to do the math, if you begin investing at 25, then you’d need to save about $600 monthly to reach that $40,000 benchmark by the time you reach 30 (assuming a 6 percent annual investment return). And, of course, with the T. Rowe Price approach, the number you need to save monthly would drop to $300. If you break those numbers down from monthly goals to weekly goals, the numbers seem more manageable, too. And if you break it down to hourly goals … OK, that might be overwhelming! However, weekly goals could be more digestible to you than monthly goals. Especially, if you tend to slack. That way you keep yourself on a shorter leash.
Oh, and remember about your 401(k) contributions from your employer (if you have them). Those dollars could bridge the gap between meeting your year-30 goalpost and missing it. NerdWallet notes that “a common match is 50 percent of up to 6 percent of your salary. Based on the average wage of $40,196, that’s worth about $1,200 a year.”
Don’t trust yourself to put in money week after week (after week)? Then you should definitely be setting up automatic transfers that take the decisions right out of your hands. When you get your grubby little hands (no offense) on that money, you might be tempted to go buy shoes, but automatic transfer says “nope, you’re saving a couple hundred dollars, and it’s for your own good!”
Yes, emergency funds for the apocalypse (and, you know, other things), and paying off your student loans are lofty and important goals, but they may not be your priority, believe it or not. According to NerdWallet: “If your student loan interest rate is lower than the return you can expect to earn by investing, you’re better off paying the loan off slowly and putting extra money into your retirement accounts.” As for emergency rations, perhaps put together a grand or half a grand and then leave the emergency worries alone. Focus on your retirement!
I know. Investing? Stock market? Bulls? Impaled? It’s all so terrifying, but if you really want to see yourself meet your savings goals, then investing is the smart thing to do. Take this example from Nerd Wallet … for example:
“Take two people, both 30: Investor No. 1 is invested in a conservative portfolio that is mostly bond funds; Investor No. 2 almost entirely in stock index funds.
Investor No. 1 earns an average of 4 percent annually; Investor No. 2 earns 10 percent, the historical annual average market return. They both invest $500 a month over the next 35 years. The first investor would end up with about $440,000 at the end. The second? Over $1.6 million.”
Disclaimer. You might not always earn 10 percent obviously, and you don’t have to stay in the stock market your whole life. But you can make some serious dough, and during your youth is the time to be taking more risks. Risks that can pay off well in the long-term.
Saving is scary. It requires thinking about the future. And the future is scary. But saving and thinking about the future are just two things that you absolutely must do if you’re going to survive this little thing called life. Plus, you are more than capable of handling this whole saving thing. So, have at it! Go get em, tiger! Do it up! … other words of motivation!
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