Savings Benchmarks for Every Stage of Life
Every 20-, 30- and 40-something-year-old is unique, same as every teenager and senior -- and that's why stage-of-life financial advice is so hard to give. Even so, it is possible to outline a savings horizon that spans decades into the future.
While incomes, earning potentials, life circumstances, goals and endless other variables shape each person's journey, a few general guidelines, ratios and percentages have stood the test of time.
We spoke with several experts to learn more about those savings guidelines and how you can tailor them to suit your life and its many stages.
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Saving in Your 20s: It's OK To Get Started Slowly, but Get Started
Most people get their first financial reality check in their 20s, when they move out on their own for the first time.
Snigdha Kumar, personal finance expert and former head of product operations for the money app Digit, said that it's important for this age group to have some savings on hand no matter what. Kumar suggested starting out by trying to save three times your monthly rent. That may seem like a lofty goal, but experts urge young people to get in the habit of building a surplus to help them endure the unexpected.
"For example, sometimes you may have to pay the first month and security deposit upfront," Kumar said. "And keep in mind furniture, groceries, electricity, etc."
Imani Francies, personal finance expert with US Insurance Agents, said once you've built a surplus of cash, you can start working on your emergency fund.
"In your 20s, you should mostly work toward your emergency fund," Francies said "If you have room financially to save for more than your emergency fund, go for it."
Kumar agreed and suggested goals for emergency funds. "Emergency funds should have three to six months of expenses at a minimum and for a more aspirational goal, aim to save for 12 months."
In Your 30s: Get Serious About Saving
Life is different for everyone during this decade too, of course. But for many people, their 30s bring kids, a home, more income and a much greater responsibility to save than ever before.
Kumar said financial responsibility in your 30s is all about building on the good habits you set forth in your 20s.
"The main goal for this stage of life is stability," he said.
Middle Age: What You've Been Saving for Is Just About Here
If you started saving in your 20s, you'll be grateful for your early efforts by the time you reach your 40s.
"Two to three times the current income is a good benchmark for age 40 and four to five times for age 50-plus," Kumar said.
However, if you thought it was hard to save when you were young and free, wait until you get to middle age. By this point, many people are planning to pay for their kids' college at the same time as they're trying to save for retirement. Likewise, plenty of people spend this stage of life sandwiched between the financial rock and hard place of caring for aging parents while also raising young children.
Without a healthy savings account, the present will be a challenge and the future could be a bust.
In Your 60s: You're on Deck for Retirement
By the time you enter your seventh decade, you should be putting the finishing touches on a lifetime of saving -- but don't panic if you've fallen behind.
"If they don't have enough stacked away for retirement, then this is a good time to play catch up and save in order to prepare," Kumar said.
The Secure 2.0 Act of 2022 relaxed many restrictions on retirement plans to incentivize late-life saving. The legislation removed age barriers on contributions -- even beyond 70 -- loosened the standards for required minimum distributions (RMDs), expanded catch-up contributions and more.
"You can contribute more to a 401(k) as well as IRAs to build your retirement nest egg," Kumar said.
If you're not where you should be at 60, be grateful that you're 60 now -- there's never been a better time to be a senior saver.
The Retirement-Focused Lifetime Saving Strategy
Marco Sison, financial coach with Nomadic FIRE, said that savings strategies at every age should be calculated with the same goal in mind: retirement.
"The average cost of retirement is roughly $750,000," Sison said. "More than the combined cost of university education, raising a child and buying a home. The best way to ensure you are saving enough for retirement is to use a spreadsheet and calculate the present value of your goal at specific ages."
Sison scratched out the math. "To retire with $750,000 by age 70, you will need to have saved $46,000 before you turn 30, $92,500 before you turn 40, $186,000 before you turn 50 and $373,000 before you turn 60," Sison said. "For a quick calculation, estimate your nest egg doubles roughly every 10 years, assuming a 7% annual return on your investment."
Brooke Barley and Laura Beck contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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