You could get a great new job offer or get lucky with a surprise windfall. Or you could get laid off and struggle to find work for two years. We save because the future is unpredictable.
Saving money can provide a safety net in case of an emergency and help you become financially secure. But when the goal you’re trying to get to is vague and you’re not going to use that money for many years — say money for a down payment on a house or your own retirement — it can be hard to motivate yourself, let alone verify that you’re on track. And many people are not.
A 2018 Varo survey showed that 45% of people between ages 18-75 said they could find $500 in cash for an emergency—and only 33% of people say they have $5,000 or more in savings.
Whether you’re in your 20s or in your 40s, having benchmarks for average savings by age to track your progress as you save for emergencies and retirement can be helpful and important.
Saving for your emergency fund
An emergency fund is a stash of cash set aside to cover the financial surprises life throws your way. Having money available in a relatively safe and liquid account, such as a high-interest savings account, can help you avoid borrowing if you lose your job, suffer a debilitating illness, or need to make a major repair to your home.
A good rule of thumb is to have enough to cover three to six months’ worth of living expenses. Add up what you spend on rent or mortgage payments, utilities, transportation, insurance premiums, health care costs, food, debt service and any other essential expenses. Depending on your goals, multiply that number by three to six.
Saving for your retirement
The amount you should save for retirement depends on a variety of factors, including your age, your income, when you started saving, your planned retirement age, and your dreams for retirement. Employer plans, IRAs, annuities, and taxable accounts can all be used for retirement saving.
A good rule of thumb is to save at least 15 percent of your before-tax income every month, including employer matches, with the goal of replacing 70 to 80 percent of your annual pre-retirement income so you can maintain your lifestyle in retirement.
If you save 15 percent each year from age 25 to 67, you should get there. But if you wait until you’re 30 to start saving for retirement, the suggested savings rate is 18 percent. And if you wait until you’re 35, it increases to 23 percent, according to retirement plan provider Fidelity Investments.
The sooner you start saving, the better (thank you, compound interest!).
Although everyone’s financial situation and goals for retirement are different, there are benchmarks for average savings by age that you can try to hit at every decade of your life. How much should you be saving and by what age to stay on track?
How much you should have in savings by age 30
When you reach your 30s, you might be earning more than when you were in your 20s, but you probably have more expenses, too. Perhaps you bought a home, have a few kids, or are paying off student loans.
Higher expenses can make saving for emergencies and retirement more difficult. According to the Economic Policy Institute, the average retirement savings of Americans ages 32 to 37 is $31,644. That’s less than half of what it should be.
Each month, a 25- to 34-year-old on average earns $5,755 and spends $4,610, according to the 2017 Consumer Expenditure Survey from the Bureau of Labor Statistics. So, the average 30-year-old should have $13,830 to $27,660 saved in an emergency fund and about $69,062 — or one times their salary — in a retirement account.
How much you should have in savings by age 40
By your 40s, you’re probably in the prime of your career, and hopefully, your salary reflects that. Although you might have paid off your student loans, you might also be paying for a bigger house or saving for your children’s college educations.
The average retirement savings of Americans ages 38 to 43 is $67,270. Based on savings by age benchmarks, they are dangerously behind where they should be.
The typical 35- to 44-year-old on average earns $7,232 and spends $5,753 each month. So, the average 40-year-old should have $17,259 to $34,518 saved in an emergency fund and about $260,346 — or three times their salary — in a retirement account.
How much you should have in savings by age 50
When you reach your 50s, you are in your peak earning years. You also might be paying your children’s college tuition, fixing up the house, and paying higher medical bills.
Americans age 50 to 55 have an average retirement account savings of $124,831 — a far cry from the recommended figure.
The typical 45- to 54-year-old on average earns $8,351 and spends $6,159 each month. So, the average 50-year-old should have $18,477 to $36,954 saved in an emergency fund and about $601,278 — or six times their salary — in a retirement account.
How much you should have in savings by age 60
By your 60s, retirement is the light at the end of the tunnel, but research shows 56- to 61-year-olds only have $163,577 saved for their golden years.
The typical 55- to 64-year-old on average earns $7,086 and spends $5,414 each month. So, the average 60-year-old should have $16,242 to $32,484 saved in an emergency fund and about $680,296 — or eight times their salary — in a retirement account.
Tips for how to reach your average savings by age benchmark
Life doesn’t always fit neatly into a formula. If your savings are well below the recommended average for your age group, there are steps you can take along the way to catch up.
Set a monthly savings goal, and automatically transfer funds to your emergency funds savings account each time you get paid.
To help you save up even faster, round your debit card purchases to the nearest dollar, and move the difference into your savings account at the end of the week.
You can automate your retirement savings, too. If you’re saving in a workplace plan, your contributions will likely be deducted from your paycheck. If your employer offers a 401(k) with a match on your contributions, try to invest at least up to the match to take full advantage of that free money. Consider increasing your savings rate by 1 percent every year until you reach at least 15 percent of your pay.
Keep in mind that sometimes you will be able to save more and other times less. It might not be possible to hit your target every year.
What’s important is to get as close to your savings goal as possible and to check your progress at each benchmark to make sure you are staying on track.
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