How Much Should You Be Saving at Every Age?

A penny saved is a penny earned, but how much money should you save throughout your career? The simplest way to start saving is to pick a set amount to put aside for savings, often either per paycheck or per month. But the amount you set aside can change depending on whether you’re just staring out at your new career, hitting your stride at peak earning years, or winding down and preparing for retirement. If you're not sure how much money you should be saving at every age, here we have all the answers you’re looking for.

50/30/20 Rule

One popular budgeting guideline is the 50/30/20 rule. According to this guideline, you should spend 50% of your income on necessities, 30% on discretionary spending, and keep the remaining 20% as savings. Necessities include things like housing, utilities, healthcare, and other expenses that absolutely must be paid. Discretionary spending includes things like entertainment, going out, and other enjoyable but not critical expenses. The remaining 20% is kept for savings of all kinds, including retirement and building an emergency fund. This guideline helps encourage people to build a household budget, categorize their expenses, and save up money consistently. Since it is based on percentages, it can be an easy budgeting system to use if your income tends to fluctuate, such as for gig workers or contractors. It does require that you be honest about needs versus wants, as it can be tempting to miscategorize expenses that should be kept in the discretionary category. The 50/30/20 rule works well for all age categories.

Federal Reserve Average Savings Metrics by Age

Another way you can design your budget is to try to match your savings to the average savings per age, as reported by the Federal Reserve. This is a good metric to see if you’re ahead or behind of where you should be. The Federal Reserve Board’s Survey of Consumer Finances obtains this information from voluntary surveys from around 4,000-6,500 families, and averages information based on demographics, income, savings, and other information for use by financial institutions. Comparing to this average can be a good way to make sure you’re staying on track to having enough savings for emergency expenses and a comfortable retirement. The survey data divides the population by age in 10-year intervals starting at age 35, making it a good average to try and match as you move through your career.

·    According to their most recent data, 35-44 year olds should have $45,000 saved up for retirement.

·    45-54 year olds average around $115,000 in retirement accounts.

·    55-64 year olds should have built up to $184,000 in savings.

·    In the 65-74 year age bracket when people start to retire, $200,000 is the average amount saved in retirement accounts.

By comparing to these numbers, you can match your savings to what others in similar age categories have saved up to make sure you’re keeping pace.

Salary Savings Per Age

Financial experts at Fidelity Investments, one of the largest asset managers in the world, recommend that people keep at least a set number of yearly salaries worth of money in savings until retirement age, starting in your 30s and increasing through your working years until retirement age.

·    For 30 year olds, they recommend keeping at least what you earn in one year in savings.

·    In your 40s, saving 3 times your average annual salary is recommended.

·    By your 50s, you should build up to 6 times your annual salary.

·    By age 60, they recommend having 8 times your yearly salary.

·    Finally, by age 67 you should have 10 times your average annual salary in savings to ensure a comfortable retirement.

The actual amount in saving varies based on your salary and industry, but following these guidelines will leave you with a comfortable nest egg throughout your retirement years. To achieve these categories, Fidelity Investments suggests saving at least 15% of your income each year as savings.

JP Morgan Guide to Retirement

Another strategy to build up savings can be to start putting aside a percentage of your income as savings, and increasing the percentage as you get older and build up your career. This strategy is recommended by the JP Morgan Asset Management group in their 2024 Guide to Retirement. This guide offers suggestions on what percentages to save at many different ages and incomes, including these examples:

·    25 year olds earning around $30,000 should save 3%

·    40 year olds earning $60,000 should save 13% of their income

·    50 year olds earning $90,000 annually should keep 36% as savings

By going through the guide, you can compare your savings to the recommended goals. This strategy starts out at a low percentage and builds up over time, making it an easy choice for people starting out at lower income positions. The smaller percentages at the younger or lower earning side of the chart leaves more income available for necessities and grows once you have been working long enough to be settled into your career and have more income.

Emergency Funds

Many savings guidelines focus on saving for retirement, but it’s also important at any age to have money set aside for emergencies. Whether it’s a temporary job loss, a health problem, or a car breakdown, you never know when you might need a little extra to help you get through a bad time. Having a buffer of savings can help keep you and your family comfortable until the emergency passes. A typical way to decide how to set up an emergency fund is to calculate your monthly expenses, and then save up enough money to weather through a few months without your regular income, often 3-6 month’s worth. While retirement funds can be built over time, it’s a good idea to set aside money for emergency funds as quickly as you reasonable can so that the money can be available right away if you need it. As you get older and your expenses change, make sure to add to your emergency fund to keep in correct proportion to your living expenses.