Actively Saving Saving as You Age

Setting a retirement savings goal is key, and timing plays a big role in your ability to meet your target. Suppose you're aiming to save $475,000 by the time you hit age 65. If you save $400 a month starting at age 25 and earn an average annual return of four percent, you'd reach your goal in 40 years. If you wait until age 45, you'd have 20 years to save and would need to put away $1,300 a month.*

Goal: $475,000 by Age 65 Years to Save Average Annual Return Monthly Savings Needed1
Starting at age 25 40 years 4% $400
Starting at age 45 20 years 4% $1,300

No matter where you are in life, make sure you have the right strategy to save for retirement.

20s and 30s: Take advantage of time. At this stage, you have the most powerful tool at your disposal—time. With 30+ years until you retire, you can put the power of compounding returns to work for you.

A long timeline also lends itself to being able to assume more risk—and potentially more reward—with your investments. If you participate in a Thrift Savings Plan (TSP), 401(k) or other employer-sponsored retirement plan that offers a match, strive to contribute at least enough to be eligible for the full matching amount. Strive to meet the goal of saving the equivalent of the salary you're earning at 35 by that same year.

40s: Boost your savings. As these may be some of your peak earning years, aim to increase your retirement plan contributions annually—even one percent can make a difference! Let's say you came in to the working world with a starting salary of $40,000, earning a two percent salary increase each year since. Assuming you're earning a six percent average annual return on your tax-deferred savings account, you can see just how much more you could earn just by upping your contributions by one percentage point.2

Contribution Level 10 Years 20 Years 30 Years 40 Years
4% $23,611 $71,065 $162,351 $333,514
5% $29,514 $88,832 $202,939 $416,893
6% $35,416 $106,598 $243,528 $500,274

If you're maxing out plan contributions or want to expand your investment selections, consider opening a Traditional or Roth IRA. Even if you have the majority of your assets in stocks, now is a good time to add certificates to the mix. Keep in mind that by age 45, you should have saved three times the salary you're earning at that age.

50s and 60s: Crank up your contributions. Now is the time to max out your contributions, especially if you're behind on your retirement savings. Once you turn 50, catch-up provisions allow you to make additional contributions to your TSP, 401(k), 403(b), 457 Plan or Individual Retirement Account (IRA) each year. Consider whether your asset allocation needs to be adjusted to reflect your current goals, timeline and risk tolerance. Begin developing your withdrawal strategy and consider working with a financial advisor to nail down the details of how you'll manage your finances in the final years before retirement and beyond. Aim to have five times your salary saved by age 55 and eight times your final salary by age 67.

1Approximate monthly savings needed
2Rate of return is for illustration only and is not intended to represent the return of any specific investment. Your return will vary. Assumes all interest and earnings are reinvested in a tax-deferred account.

Next: Managing Life Changes

Want to increase your retirement savings?

Boost your IRA contributions or add a certificate to the mix.

Not sure where to start? Contact a financial advisor at 1-877-221-8108.

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