The past few years have seen heightened market volatility and record inflation, prompting many to worry about their retirement account balances. In a time of economic uncertainty, long-term financial stability is a fair concern.
However, new data from Fidelity shows that the situation is actually improving in the long term. Over the last ten years, IRA and 401(k) account balances have increased 29% and 42%.
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Accounts also increased significantly in the near term: Balances across all retirement account types increased 13-16% from Q1 2023 to Q1 2024.
The balance increase can be attributed to improved market conditions and retirement savings rates. Average 401(k) savings rates reached 14.2%, the closest they have ever been to the universal recommendation of 15%.
Retirement saving benchmarks by age
Retirement experts estimate that having 1.5% of your annual salary saved by 35 is a good way to benchmark whether or not you’re on track for your retirement savings goals. A good way to achieve this is by contributing 15% (including employer match) of your annual income to your retirement plan.
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By age 40, Fidelity recommends you have saved three times your annual salary, eight times your salary saved by 60, and 10 times your salary saved by 67. The savings expectations compound with time as wages tend to increase the most leading up to retirement, and workers can start collecting Social Security at 62.
By this measure, someone making the national average salary of $59,228 per year should have saved over $175,000 by age 40 and over $600,000 by age 60.
Some financial professionals recommend that workers use the 80% rule as a guide. This rule advises that your annual retirement income should be 80% of your pre-retirement salary. Workers with a pre-retirement salary of $100,000 should ideally live off of $80,000 per year.
Others recommend the 25x rule, which suggests that workers save 25 times the annual portfolio withdrawal amount.
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Tips to prepare for retirement for each decade
The key to building substantial retirement savings is to start as soon as possible and contribute consistently, especially if your employer has a matching contribution plan. Synchrony notes that each age group should follow different savings plans and guidelines.
- Saving in your 20s: Contribute as much as possible to your employer’s retirement plan while covering living expenses and outstanding debt like student loans. Work towards creating emergency savings to prevent the need to withdraw from your retirement account early to cover unforeseen costs.
- Saving in your 30s: Set up a realistic monthly budget, factoring in contributing 15% of your income towards retirement. If your company provides a contribution match, you can subtract that amount from the 15% recommended for retirement. Balance short-term goals such as paying off student loans, saving for a down payment on a house, and planning for long-term retirement savings.
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- Saving in your 40s: Take a temperature check of your savings and benchmark yourself against the recommended goal of saving three times your salary by 40. Start prioritizing monthly retirement savings, ensuring that other outstanding debts are paid off. If you receive a salary increase or bonus, it is recommended that the surplus is put toward retirement savings.
- Saving in your 50s: Since these are likely to be your highest income years, maximize IRA and 401(k) savings with catch-up contributions starting at 50. It’s also important to benchmark your current savings balance against the standard savings goal of having seven times your salary by age 50.
- Saving in your 60s: Review your retirement account balances and ensure they will cover your expenses and standard of living. You can consider working for a few extra years if you have yet to reach your ideal retirement nest egg goal. Deferring Social Security until you reach 67-70 years old also ensures you’ll receive the maximum payout possible.
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