The average American believes he or she will need a whopping $1.3 million to retire, according to figures from financial planning and insurance company Northwestern Mutual. And given today's typical household spending and the expected rate of return on appropriate retirement investments, this estimate is not far-fetched.
problem? This requires raising a lot of money, especially if you are starting with nothing. Granted, it's so expensive that some people may not even bother trying it.
Of course, this is a big mistake. It's also an easily avoidable mistake.
Retirement wealth is rarely built overnight through large incomes and windfall investments. Most people reach their seven-figure goal by contributing modestly but steadily over a long period of time, enough to match the long-term growth rate of the stock market. Rather than worrying about the end goal, these investors focus on reaching financial milestones on the way to retirement, which is a much less scary goal.
With that in mind, let's take a closer look at how much money you should have saved at age 50. If you don't have enough money, it's not too late to do something about it.
magic numbers
do not worry. A specific number (or at least a narrow range of numbers) comes. But before we get into the details, let's explain how these numbers are determined.
The goal of this exercise is to figure out a finite amount of money that will allow you to maintain your current standard of living in retirement. This takes more time for some people than others. But ultimately, this number is based on your current income and the lifestyle it funds. Once you no longer have income from your job, you will need multiples of that amount.
These numbers assume that you will continue to accumulate retirement funds for the time being and invest the majority of them in the stock market. After all, at 50, you still have time to ride out two or three bear markets.
So what's the number?investment trust company T. Rowe Price It is said that people should have 3.5 to 6 times their annual income saved for retirement by the age of 50. The midpoint of that range is 4.75 times his annual salary. Assuming that people between the ages of 45 and 54 currently earn an average annual income of $66,300 (according to the Bureau of Labor Statistics), they've already saved $300,000 for retirement.
We can still close the gap
not present? Maybe you are nowhere to be found? Don't worry…at least not yet. Time is on your side in many ways.
The most important of these methods is the fact that, statistically speaking, you'll probably be making as much money in 10 years as you are making now. But if not completely eliminated, you'll end up paying off a significant portion of the debt associated with your life's biggest expenses (house, car, school, kids, etc.). For the foreseeable future, you should be able to earn more investable income than ever before. It may also be the perfect time to start a side hustle as a way to leverage the tools, skills, and knowledge you've acquired so far to raise additional investable cash.
I also gained something just as (if not more) important than what I didn't have before. That is wisdom. Even if you don't have a lot of money saved for retirement, you tend to understand better how to invest to minimize risk and be more disciplined than before. Maximize profits. At this age, you may be forced to make investments that you thought you didn't need to make. But, as mentioned above, there are still many years ahead, and there is still room to overweight your portfolio in reliable growth stocks.
Image source: Getty Images.
Finally, a third benefit that wasn't available before is that individual retirement account (IRA) contribution limits are now more generous. As of this year, anyone over the age of 50 can contribute an additional $7,500 to a work-based retirement plan. Otherwise, contributions under age 50 are limited to her $23,000. For regular self-directed traditional IRAs and Roth IRAs, anyone under age 50 can only contribute $7,000 a year in 2024, while anyone over age 50 can add her $1,000 to that limit. can.
This isn't a huge change, especially considering that these contributions are generally tax-deductible, with the exception of Roth IRAs.
Don't delay, start today!
Excited? Worried? Perhaps a little bit of both?
If you're 50 years old and haven't saved as much for retirement as you need to, these feelings are understandable. Certainly, there is work to be done. But it's never too late to do it. Somewhere in his 15 years of high returns and relatively low costs, there should be a chance to catch up. The key is to plan wisely and be patient, accepting the fact that you won't be able to close the gap in just a few months. Attempting to do so actually requires taking on more risks than benefits, which is a recipe for disaster.
In any case, do Start today, even if you start small. Something is better than nothing.
By the way, if you're looking for your next milestone, T. Rowe Price suggests you should have 4.5 to 8 times your annual income saved by age 55, or 6 to 11 times your annual income. I am. Once you reach age 60, your annual standard labor wage will increase from 7.5 times to 13.5 times (average 10.5 times) by age 65.
For an average earner today, that last amount would be around $700,000, which is certainly much more than $300,000. Keep in mind that market-based returns on the money you've already invested actually do most of the heavy lifting for you.
