Investment Timeline: Optimal Amount to Invest for Retirement by Age 60
Retirement Savings: A 60-year-old's Guide
Ever wondered if you're on track for your golden years? Here's a straightforward approach to figure out if you're saving enough for retirement. Let's dive into the ballpark figure for a 60-year-old's retirement savings.
Determining the Magic Number
The key to a comfortable retirement lies in maintaining the standard of living you enjoyed during your working years. Most estimates suggest you only need to replace around 80% of your work-based income post-retirement. In essence, work life consumes roughly 20% of your salary.
The big question, however, revolves around the lump sum of money necessary to maintain your lifestyle in retirement. While everyone's needs may vary, the investment titan T. Rowe Price states that you'll ideally have savings of around 11 times your annual salary by the time you retire. So, for someone earning $80,000 per year near retirement, you can expect to have roughly $880,000 set aside for retirement.
This figure aligns with similar estimates from brokers Merrill Lynch and Charles Schwab, as well as retirement plan administrator and mutual fund giant Fidelity. They all agree that savings of around 11 times your full-time wages later in your career should suffice to generate annual spendable cash of roughly 80% of that amount once you retire.
Accumulating such savings requires steady savings and growth over your entire career. Yet, the journey can get complicated due to capital appreciation taking over as the primary growth driver about two-thirds of the way into your savings period. However, the investment industry still offers some guidelines for where you should stand at different life stages. For example, T. Rowe Price suggests you'll want your nest egg to be about nine times your annual pay when you're 60 years old, which equates to $720,000 for someone earning $80,000 annually.
These rules of thumb are in line with recommendations from Schwab, Merrill, and Fidelity. However, it's essential to remember that individual circumstances, such as lifestyle expectations and health care needs, may affect the ideal savings amount.
Catching Up If You're Behind
The question of whether you're behind on retirement savings is a common one. Liberate yourself from self-condemnation; many people find themselves in the same boat.
According to the Federal Reserve's most recent survey, the average American 60-year-old only has about $500,000 saved for retirement, which is far from the cushy savings many dream of. The Census Bureau suggests that the typical retiree living in the United States spends an average of $60,000 per year. Given this figure, half a million dollars won't last very long.
It's crucial to understand that being behind doesn't mean the game is over. There are still strategies you can implement to catch up. Cutting costs is one such strategy. For instance, consider foregoing the purchase of a new vehicle and opting for a quality used one instead, which could significantly reduce your car payment. You might also be surprised to learn that the average American household spends around $4,000 annually on restaurant dining – a cost that can be reduced. Lastly, evaluate your streaming services subscriptions – collectively, they can add up.
Remember that some investments are more likely to perform better than others. Steer clear of leaving your retirement accounts invested in cash-like and near-cash instruments when alternatives could yield better returns.
The bottom line is that there are actions you can take if you find yourself needing or wanting to tuck away more for retirement. In fact, you should view this situation as an opportunity, as you still have several high-earning years left before retirement. Embrace the challenge, take the first step, and remember that each step gets easier than the last.
- T. Rowe Price recommends that you aim to have savings that are approximately 9 times your annual salary at the age of 60, which for someone earning $80,000 annually, equates to around $720,000 in retirement savings projected for that life stage.
- According to the Federal Reserve, the average American 60-year-old only has approximately $500,000 saved for retirement, a figure that falls short of the industry's projections for a comfortable retirement.
- With the average retiree in the United States spending an estimated $60,000 per year, having only half a million dollars saved for retirement may not provide long-lasting financial security.
- In an attempt to catch up on retirement savings, strategies such as cutting costs on discretionary expenditures, like dining out, car payments, and streaming services, can help free up funds for retirement.