Knowing how much to save for retirement can be difficult to figure out. Workers often struggle with determining how much they should be saving. The most important thing to know is the earlier you start saving, the better. While retirement savings may depend on individual circumstances, there are general guidelines on how much you should have saved when you hit certain milestone ages in life.
Retirement Savings Goals by Age
What should you have saved by a certain age? Experts believe you should aim for an amount equal to your annual salary by the time you are 30 years old. For example, if you are earning $60,000 at age 30, you should have at least $60,000 saved in your retirement account. Here’s a quick guide to retirement savings by age.
- 30 years old – at least one times your annual salary saved.
- 40 years old – at least three times your annual salary saved.
- 50 years old – at least six times your annual salary saved.
- 60 years old – at least eight times your annual salary saved.
- 67 years old – at least ten times your annual salary saved.
How does your retirement savings stack up to the recommended savings by age?
If you are at the recommended benchmark savings goals above, that’s great. If not, you are not alone. Now is the time to prioritize retirement savings and focus on hitting the target amounts. Budgeting can be the first step in accomplishing that goal.
The benefits of retirement accounts
Remember that retirement accounts can offer tax advantages. With an employer 401(k) plan or a traditional individual retirement account (IRA), you don’t pay income taxes on the money you are contributing. You’ll instead be taxed when you withdraw from your retirement account and be taxed at your current income tax rate at that time. Keep in mind that these accounts do have a maximum amount that you can contribute. This can help reduce your tax expense in the year that you contribute.
One of the greatest benefits of a 401(k) account is the ability to make pre-tax contributions. It automatically reduces your taxable income. Like a 401(k), contributions to a traditional IRA are also considered pre-tax contributions. Because deposits made to traditional IRAs are not made from an employer, but rather your personal account, these contributions would need to be written off as a deduction when you file your tax return. Just remember that there are limits to the amount that can be contributed tax-free.
Roth IRAs have one big difference when compared to traditional IRAs. They are considered post-tax contributions. This means you are not getting an immediate tax break when funding a Roth IRA. When you begin drawing from a Roth IRA, if held for the required amount of time, it is not considered taxable income, because you’ve already paid taxes.
Start saving more now for retirement
Saving early with the benefit of compound interest, which is interest earned on interest, can be beneficial in helping you reach your retirement goals. You can watch your money build significantly over decades of compounding interest. Having the retirement saving benchmarks by age that we discuss above may help motivate you to better plan for building adequate savings to retire. The first step is to start saving now.
Our retirement saving suggestions are just suggestions and what you actually need for retirement depends on your lifestyle and your expenses. The more you plan on spending, the more you’ll need.
Benchmark Federal Credit Union IRAs
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Free up more money in your budget to save for retirement with our blog post “31 Days of Savings Tips.”