SUMMARY: So, you’re 10 years into your career. Is it time for you to start taking retirement more seriously? Read this post to find out how much you should be saving.
You’ve settled into your 30s, and, with any luck, your career is finding its stride. Given that it feels like you’re only just now getting the hang of working life, retirement planning likely feels like a distant issue, something to worry about in the next 10 years.
Nothing could be further from the truth. Now is a crucial time to take retirement seriously. Your financial future very much depends on it.
Some positive signs
Americans in their 30s with 401(k) accounts are generally on a positive track with their retirement savings, with an average balance of $42,700. They contribute 7.6 percent of their annual pay toward retirement, which their employers match at an average rate of 4.4 percent. This brings their savings up to 12 percent, which is an improvement over their saving rates just five years ago—an average balance of $36,700, with 6.8 percent of their paychecks contributed.
What you should have
As a general rule, a healthy financial outlook consists of 3-6 months of living expenses in an emergency fund as well as a robust, diverse investment portfolio, putting you on track to have $1 million for retirement.
A household that is led by a 25- to 34-year-old and earns $66,470 annually should have that same amount saved for retirement. For a household led by a 35- to 44-year-old, the stakes go up considerably. With an average income of $92,576, they will ideally have three times that amount stashed away—$277,728 in retirement savings.
To achieve these goals, you will need to solidly invest in your 401(k) or IRA. Keeping that cash in a low-interest, inflation-prone bank account or money market fund won’t get you far along the road to your retirement goals.
But you’re way behind
If the numbers above caused you to sit down and fan yourself, you’re not alone. And you’re not doomed. There are many ways to save for retirement, even if you’re behind.
- Set goals and start saving. Conventional wisdom recommends putting away 15 percent of your income every year for retirement in a diverse portfolio of investments. If this is more than you can stomach, that’s fine. Start with whatever you can and work up to that level. If your employer offers a company match, try to put enough away to take full advantage of that and increase it by 1 percent every year. These increases can be automated, which eliminates any second-guessing that might occur when it’s time to up the ante.
- Yay for your 401(k)! If your employer offers one, shoot for investing the maximum allowable amount—$19,000 in 2019. Most companies have the option to automate your tax-free contributions, so you’ll likely never even miss them. Did your boss give you a generous bonus last December? Did your late Aunt Ethel surprise you with a small inheritance? Put them right into the 401(k) as well.
- Consider an IRA. If you’ve maxed out your 401(k) contributions (or your employer doesn’t offer one), consider an IRA as a productive alternative or supplement. Workers under age 50 can put away up to $6,000 in 2019.
- Get aggressive. Time is on your side, which means you can allow for more risk in your asset allocation. Load up your portfolio with stocks (80-90 percent), and you will set yourself up for higher returns. You will also be in for a bumpier ride, as larger company stocks lose money, on average, one year out of every three. Still a winning ratio by any standard.
Ask for help
If the wheels on your retirement wagon have just started to turn and you feel a sudden panic, thinking they might come off as you pick up speed, there are professionals who can slow things down and help you keep perspective. If your employer offers a retirement plan, they likely have in-house or third-party experts to walk you through your options.
TDECU’s wealth advisors can also help you focus and plan for the future. Check out our free e-book, Your Complete Road Map to Retirement, for a bird’s-eye view of the journey ahead