How much should you have saved for Retirement?

Savings is the foundation of achieving your financial goals, like buying your first house or creating a college fund. Without tracking your savings, how do you know if you'll reach your goals? One strategy is to compare your savings to what the average American of the same age has saved-- which is exactly what we are going to break down in this blog. 

Savings are funds saved aside for anticipated purchases or, in the case of an emergency, unanticipated costs. Given that each person's financial situation is unique, determining the average savings needed by age is not an exact science. Saving money may be simple for someone with a greater income and less expenses compared to someone with a lower salary or someone who has a large debt to pay off.

The Federal Reserve divides American savings into "transaction accounts'' and "time deposit accounts" in order to maintain track of total savings in the country. Account holders with transaction accounts can quickly make deposits and withdrawals. Some examples of transaction accounts include your basic checking & savings accounts, as well as money market accounts. There are also time deposits.  In these cases, once an account is opened, they normally don't permit the movement of money in or out of the account. A certificate of deposit (CD) is the best example of a time deposit account because you will take on penalties if you take your money out too soon.

The average transaction account balance in 2019 was $41,600, according to the Fed's most recent Survey of Consumer Finances. The median total balance of checking and savings was $5,300.

Here is a closer look at average savings rates by age, as reported by the Fed.

How much money should you have saved: Under age 35

According to the most recent data from the Fed, people under 35 have an average savings of $11,250. The median amount saved is $3,240.

If you are still in college or have just graduated, having a little amount of money in your 20s is not unusual. You may have a lower-paying entry-level position while also making school debt payments, but it's not too early to start saving money. For instance, you could sign up for your employer's 401(k), start a high-yield savings account for unexpected expenses, or contribute each month to an IRA. You can benefit from saving even tiny sums because you have plenty of time to take advantage of compound interest.

For those in their 30s, you may benefit from some advantages if you want to increase your savings. For instance, you might have moved into a job with a greater salary or be closer to paying off your college loans. At age 30, it's crucial to think about the financial objectives you're pursuing. Maybe your goals are to:

• Have a substantial emergency fund
• Focus more of your savings towards retirement
• Allocate some savings to first-time home buying

Depending on what you prioritize, setting goals can help you choose the best way to disperse your savings. There are also future opportunities in life that will help boost your savings. Let's use a 2% wage increase as an example. You might put that money toward increasing your 401(k) contribution by 2% rather than spending it. Keep your budget unchanged, even if your wage increases-- a simple approach to having more savings.

How much money should you have saved: Ages 35-45

According to the most recent data from the Fed, people over 40 have an average savings of $27,900. The median amount saved is $4,710.

You may be in the prime of your career and possibly at the top of your earning years by the time you're in your 40s, and you now may have an increased ability to save. Your objectives could change at this point. Continuing to grow your emergency fund may not be as crucial as saving for retirement, for example. 

You might be placing more emphasis on investing, which can provide bigger returns, than conserving money. Within this age bracket, there should be more planning involved. Make sure your investments are diversified to help manage risk. Professional advice or utilizing a CERTIFIED FINANCIAL PLANNER™ may be necessary.  If you're not sure where to start, use our Financial Checkpoint to learn more! 

Shifting the focus to Retirement Savings: Ages 45 and up

Now for those who have already purchased the first home and have done a solid job on creating a college fund for the kids-- retirement is probably the last financial milestone. For the rest of this blog, we’re going to explain the how’s, why’s, and where’s of retirement savings…

How much should I be Saving for Retirement?

Your financial needs and unique circumstances will determine how much money you should have in savings. To save for emergencies, many people recommend setting away three to six months' worth of spending. In most cases, this will be enough to cover expenses and bills once you return to work. Analyzing your expenses carefully will help you determine how much money you should save in order to roughly maintain your standard of living each month. The exact amount you should have saved can then be determined by taking that sum and multiplying it by three months or six months, whichever you feel comfortable with. 

Why Should I Save at All?

One of the main benefits of saving money is the peace of mind it may bring.

If you have money set aside, you won't have to worry about trying to come up with cash if your car breaks down or your pet becomes ill. Any lengthy financial crisis, such as getting laid off or an injury that keeps you from working, may be easier to get by with the aid of an emergency fund.

In the event of an emergency, having funds can assist you from sliding into debt. Although it can be handy, charging daily expenses like doctor visits to a credit card may result in more debt that must be repaid. If you're trapped using a credit card with a high APR, the interest may raise the cost of those charges.

Lastly, if you're earning a solid rate, saving money can be your best friend.  There are several high-yield savings accounts that offer a competitive annual percentage yield (APY), and even some with no fees. Your savings will grow faster if you save consistently and have high earning interest. 

How can I Save more for Retirement? 

If you're interested in saving more and saving more quickly, then take a hard look at your current budget. You may be able to uncover some opportunities to save money rather than spend it by going through each of your costs one at a time. The more unnecessary costs you can eliminate, the more money you can put aside as savings. 

There are even some automated tools to help accelerate your savings efforts. You can increase your balance painlessly by setting up automatic transfers from your checking account to your savings each pay period. If you're saving for retirement, you might also automate deposits to an IRA.

Where should I keep my Savings?  

Emergency savings should be kept in an easily accessible location with a high interest rate and little or no costs. In general, online savings accounts satisfy all three requirements: External banks can be linked for simple transactions, and they often have low rates and no fees.

Retirement savings will stay tucked away in your 401(k) and IRAs. Funds inside these accounts won't be accessible until you reach age 59.5. 

You can also utilize brokerage accounts and different stock accounts as a means to save for retirement. These funds can be accessed at any time, but they usually follow with capital gains taxes. Planning from a CERTIFIED FINANCIAL PLANNER™ is recommended if these accounts will be the majority of your savings. 

Closing Thoughts

You can obtain some perspective on your money by comparing your progress with the average savings by age. However, keep in mind that your capacity for saving probably won't be the same as someone else's. How much someone has saved in their 20s, 30s, 40s, and beyond might depend on a variety of things. 

If there’s anything that will help grow savings the most, it’s consistency. Making savings a consistent component of your financial routine is crucial.

This article is provided by McAdam LLC (“McAdam” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. This article is the sole opinion of this individual and is not indicative of the firm’s belief.