Delayed gratification is challenging for many Americans. That’s why most Americans keep a minimal amount of money in their savings. On average, Millennials (ages 25 to 40) have about $51,300, Gen Xers (ages 41 to 56) have about $67,100, and baby boomers (ages 57 to 75) have about $102,400 in savings, according to Northwestern Mutual’s 2021 Planning & Progress Study. But are these figures meeting the recommended benchmarks for saving for the future?
To help you determine if you’re on track, here’s how much an adult should have in their savings in an ideal situation.
HOW MUCH MONEY SHOULD EVERY ADULT HAVE IN THEIR SAVINGS?
To ensure you have enough money set aside for retirement, Fidelity recommends having at least 1X your salary by age 30, 4X your salary by age 40, 6X your salary by age 50, and 8X your salary by age 60. This means that if you make $50,000 per year, you should have $50,000 in your savings by the time you reach 30. Then, when you reach 60 years old you should have $400,000 in savings.
The estimate is based on the assumption that you begin saving 15% of your salary by age 25. It also assumes that you invest more than 50% of your savings in stocks over the duration of your life and plan to retire at age 67. But, keep in mind, that these benchmarks are just a starting point to help you build a retirement savings plan and track your progress toward your goals.
WHAT IS THE JUSTIFICATION FOR HAVING THIS MUCH MONEY IN SAVINGS?
So, why do Americans need to stash away such a significant sum of money? Well, there are several reasons why saving is essential, including:
- Financial security. If something happens throughout your life and you need a windfall of cash, having money set aside can give you peace of mind. For example, if you lose your job, having a substantial amount of savings will help you avoid struggling financially while you seek other employment opportunities.
- Unforeseen expenses. From car accidents to a leaky roof, there are plenty of unexpected expenses that arise from time to time. So, if you need immediate funds, your savings can help you pay for these bills without having to borrow money from a lender or loved one.
- Life changes. Changes in your life may require a certain amount of savings. For example, when you have a baby or get married, having money available can make these changes easier to manage.
Retirement. When you decide to retire, you will need to access your savings for financial support. While Social Security can provide a little bit of a cushion, it may not be sufficient to get you through decades in your golden years. For this reason, constantly saving early on will make your retirement years more enjoyable knowing you don’t have to worry about money.
BEST SAVINGS TIPS
Now that you understand the importance of saving, here are some tips for developing strong saving habits that can help you reach your goals.
- Start right away. The earlier you begin saving the more time your accounts have to grow. So, even if you can’t start saving that much money, every little bit can help.
- Be consistent. Consistency is key when saving for the future. Setting up an automatic contribution to your account takes the hassle out of saving and keeps you consistent.
- Select suitable accounts. Speak with a financial advisor about the right savings vehicles for your needs. For example, if your employer offers a 401(k) account and matches your contributions up to a certain amount, make sure you capitalize on the match before investing elsewhere. This way you can receive extra money in your savings without having to do extra work.
- Invest raises. When you get a raise, put it in savings instead of upgrading your lifestyle. If you have been able to live off your current salary, investing your raise won’t impair your financial situation in the least.
- Create a financial plan. Developing a financial plan can help you set goals, budget your income, and assess your progress along the way. If you’re not sure where to start, contact a financial advisor who can help guide you.