How much should you have saved by 30? There’s no perfect answer to this question, and there are several different types of savings. But here are two rules of thumb that are commonly used by financial planners.
For retirement, you should have savings equal to one year’s salary in retirement accounts such as 401(k) and IRAs. Now, investments can fluctuate in value significantly over time, so take this with a grain of salt, especially in down stock markets (like we’re experiencing now).
For emergency savings, you should aim to have six months’ worth of your expenses saved in a readily accessible savings account.
So, let’s say that you earn $80,000 per year and that your monthly expenses are about $4,000. This means that you can consider your savings to be on track if you have at least $80,000 in retirement savings plus $24,000 in additional savings.
Of course, every situation is different, and if you haven’t reached one or both of these, it doesn’t necessarily mean that you are financially unhealthy. But if you are far away from either of these figures, you may want to take steps to boost your savings in the coming years, and we’ll get to some of those in a bit.
Savings milestones by age
First off, the six months’ worth of expenses in emergency savings isn’t an age-specific rule. It is the general recommendation for throughout your adult life. However, even if you have a six-month emergency fund, it’s important to occasionally reassess, as “six months’ worth of expenses” can be very different in your 30s than it is in your 40s, 50s, and so on.
For retirement savings, financial planners’ exact recommendations can vary, but here are some common guidelines to aim for:
| AGE | TARGET RETIREMENT SAVINGS |
|---|---|
| 30 | One year’s salary |
| 40 | Three times your salary |
| 50 | Six times your salary |
| 60 | Eight times your salary |
| 67 (or when you plan to retire) | 10 times your salary |
Data source: CNBC.com — “Here’s how much money Americans in their 30s have in their 401(k) accounts”
What if you’ve fallen behind?
If your retirement savings or emergency fund isn’t quite where it needs to be, the obvious solution is to increase your rate of savings until you get back on track. But there are some steps you can take to make this easier.
If you have a 401(k) or other retirement plan at work, increase your contribution rate by a percentage point or two. Experts generally suggest that you should save 10% of your income for retirement, not including any employer contributions.
If you save for retirement in an IRA account, or you need to boost your emergency savings, one of the most effective things you can do is to automate the process. Try setting up a recurring transfer into your savings every time you get paid.
Finally, if you’re struggling to find ways to save money or you feel as if you can’t boost your savings, it might be a good idea to talk to an experienced financial planner. They can help you with budgeting as well as give you a personalized idea of how much you’ll need to save for retirement and emergencies.
The bottom line on savings
It’s important to emphasize that these are just guidelines and aren’t meant to be one-size-fits-all rules. For example, if you have assets that aren’t in your savings and investment accounts — let’s say you own an investment property, for example — this should definitely be taken into consideration. And there are other considerations when it comes to the retirement savings you need. Will you have a pension or other fixed income source after you retire? Do you plan to live a relatively frugal life after retirement, or do you want to pursue expensive activities like frequent travel?
The point is to use these guidelines as a starting point, but to adjust the amounts higher or lower to better reflect your unique situation. And if you aren’t quite where you need to be, now is a great time to take steps to get your savings plan on track.
