How Much Savings Should I Have Accumulated By Age?

High Above HonoluluIf you want to achieve financial independence, you’ve got to implement a savings routine. I don’t want to hear excuses as to why you can’t save if you want to be free. Go somewhere else please. If you are serious about living life on your own terms, study my recommended savings chart carefully.

Your savings rate should increase the more you make. To do this, you’ve got to spend at a slower rate than the rate of your income increase. I’m trying to use realistic numbers here so that folks don’t overly bitch and moan. I started saving 50% of my after tax income when I began earning more than $60,000, so please, save your excuses for the government instead.

Savings amounts are important, but what’s more important is your expense coverage ratio given everybody has different lifestyles. In other words, how many years (or months) of expenses can your savings cover in case your income goes to zero? Given nobody can work forever, we must increase our expense coverage ratio the older we get because we will have less ability to earn. At this point, it’s time to start drawing down our savings.

FINANCIAL SAMURAI PRE AND POST TAX SAVINGS GUIDE

Income Level Savings % Pre-Tax Savings/Yr Post-Tax Savings/Yr Fed Tax Rate
<$25,000 5% <$1,250 $500 10%-15%
$25,000-$35,000 10% $2,500-$3,500 $1,000 15%
$35,00-$45,000 15% $5,250-$6,750 $1,000 25%
$45,000-$65,000 20% $9,000-$13,000 $1,500+ 25%
$65,000-$85,000 25% $16,250-$17,000 $1,000-$5,000 25%
$85,000-$100,000 30% $17,500+ $8,500-$13,000 28%
$100,000-$150,000 35% $17,500+ $18,000-$35,500 28%
$150,000-$200,000+ 35%+ $22,500 $35,500-$53,000+ 28%+

I recommend everybody start off with 10% and raise their savings amount by 1% each month until it hurts. If you’ve ever had braces, you get the idea. Keep that savings rate constant until it no longer hurts, and start raising the rate by 1% a month again. If you make more than $200,000, certainly shoot to save more if you can. You can theoretically achieve a 35%+ savings rate in two short years with this method!

Please note that I am making 401K and IRA contributions a priority over post-tax savings. The reasons are: 1) we have a tendency to raid our post tax savings, 2) tax free growth, 3) untouchable assets in case of litigation or bankruptcy, and 4) company match. Obviously you need some post-tax savings to account for true emergencies. Ideally, my goal for everyone is to contribute as much in their pre-tax savings plans as possible and then save another 10-35% after tax.

RECOMMENDED EXPENSE COVERAGE AMOUNT BY AGE

The below chart is an expense coverage ratio chart that follows someone along a normal path of post college graduation until the typical retirement age of 62-67. I assume a 20-35% consistent after tax savings rate for 40+ years with a 0-2% yearly increase in principal due to inflation. The other assumption is that the saver never loses money given the FDIC insures singles for $250,000 and couples for $500,000. Once you breach those amounts, it’s only logical to open up another savings account to get another $250,000-$500,000 FDIC guarantee.

Expense Coverage Ratio = Savings / Annual Expenses


Age Category Expense Coverage Ratio Savings Based Off $65K
22-25 Accumulation 0.0 – 0.3 $0 – $19,500
26-30 Accumulation 0.5 – 1.5 $32,500 – $97,500
31-35 Accumulation 1.0 – 4.0 $65,000 – $260,000
36-40 Exploration 3.0 – 6.0 $195,000 – $390,000
41-45 Mid-life crisis 4.0 – 8.0 $260,000 – $520,000
46-50 Exploration 6.0 – 10.0 $390,000 – $650,000
51-55 Crunch Time 7.0 – 12.0 $455,000 – $780,000
56-60 Crunch Time 8.0 – 15.0 $520,000 – $975,000
61-65 Dream Time 10.0 – 20+ $650,000 – $1,300,000
66-70 Spend Time 10.0 – 13.0 $975,000 – $845,000
71-100 Spend Time 0.0 – 3.0 $0 – $195,000
Source: Financial Samurai 2014

Note: Focus on the ratios, not the absolute dollar amount based on a $65,000 annual income.

Your 20s: You’re in the accumulation phase of your life. You’re looking for a good job that will hopefully pay you a reasonable salary. Not everybody is going to find their dream job right away. In fact, most of you will likely switch jobs several times before settling on something more meaningful. Maybe you are in debt from student loans or a fancy car. Whatever the case, never forget to save at least 10-25% of your after tax income while working and paying off your debt. If you have the ability to save 10-25% after tax, after 401K and IRA contribution up to company match, even better.

Your 30s: You’re still in the accumulation phase, but hopefully you’ve found what you want to do for a living. Perhaps grad school took you out of the workforce for 1-2 years, or perhaps you got married and want to stay at home. Whatever the case may be, by the time you are 31, you need to have at least one years worth of living expenses covered. If you’ve saved 25% of your after tax income for four years, you will reach one year of coverage. If you saved 50% of your after tax income a year for five years, you will have reached five years of coverage and so forth.

Your 40s: You’re beginning to tire of doing the same old thing. Your soul is itching to take a leap of faith. But wait, you’ve got dependents counting on you to bring home the bacon! What are you going to do? The fact that you’ve accumulated 3-10X worth of living expenses in your 40′s means that you are coming ever close to being financially free. You’ve hopefully built up some passive income streams a long the way, and your capital accumulation of 3-10X your annual expenses is also spitting out some income.

Your 50s: You’ve accumulated 7-13X your annual living expenses as you can see the light at the end of the traditional retirement tunnel! After going through your mid-life crisis of buying a Porsche 911 or 100 pairs of Manolo’s, you’re back on track to save more than ever before! You are 100% in tune with your spending habits, therefore, you raise your savings rate by another 10% to supercharge your final lap.

Your 60s: Congrats! You’ve accumulated 10-20X+ your annual living expenses and no longer have to work! Maybe your knees don’t work either, but that’s another matter! Your nut has grown large enough where it’s providing you hundreds, if not thousands of dollars of income from interest or dividends. Full Social Security benefits kick in at age 70 now (from 67), but that’s OK, since you never expected it to be there when you retired. You’re also living debt free since you no longer have a mortgage. Social Security is a bonus of an extra $1,500 a month. You’re budgeting a couple thousand a month for health care as you plan to live until 100.

Your 70s and beyond: Sure, you’ve been spending 65-80% of your annual income every year since you started working. But now it’s time to spend 90-100% of all your income to enjoy life! They say the median life expectancy is about 79 for men and 82 for women. Let’s just bake in living to 100 just to be safe by taking your nut, and dividing it by 30. For example, let’s say you live off $50,000 on average a year and have accumulated 20X that = $1,000,000. Take $1,000,000 divided by 30 = $33,300. You’re getting another $18,000 a year in Social Security, while the $1 million should be throwing off at least $10,000 a year in interest at 1%. If you’re interested in retiring early, here’s a more aggressive savings strategy for you.

Important Note: Obviously no one ever knows what might happen to provide a boost or a drag to their finances. Maybe you get lucky with a great new job offer or invest in the next Apple Computer. Or maybe you get laid off at 40 and can’t find work for two years. My chart above merely serves as a savings guideline. Work to build alternative income streams in the meantime.

SAVE AND SAVE SOME MORE!

The only way to reach financial independence is if you save and learn to live within your means. Keep some of your savings in a high interest savings account at 0.95%. National average money market accounts are yielding a pitiful 0.1%. In fact, I keep about 90% of my saving in online CDs and savings accounts to prevent me from having the temptation to spend. Depositing and withdrawing money is easy, and the interest rate is obviously way higher than a bricks and mortar money market account.

For the money you are comfortable risking, actively invest the rest of your after-tax savings in real estate, the stock market, structured notes, P2P lending, and basically anything else that matches your risk tolerance. The point is to gradually expand your savings into investments where you feel most comfortable. Many people, including myself, love real estate because we can see what we are buying.

It’s important to then track your investments to make sure you’re comfortable with your positions. I highly recommend signing up for Personal Capital, a free online wealth management tool that let’s you easily monitor your finances. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into one place to see how my stock accounts, how my net worth is progressing, and whether my spending is within budget. The best feature is their 401K Fee Analyzer which is now saving me more than $1,700 in portfolio fees I had no idea I was paying. They also have a fantastic Investment Checkup feature that screens your portfolios for risk.

With the ever presence of inflation chipping away at your wealth, it’s important to stay proactive with your finances. If you stay consistent with your savings habits, you are going to wake up 10 years from now and be amazed with how much you’ve accumulated.

Photo: View of Diamond Head, Honolulu, HI. SD.

Updated: 7/16/2014

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Barbara j says

    I have been reading your savings suggestions. These sound good except in this economy and years past, very few people were making 65k. I worked for the better part of my life at 35-40k. I saved what I could most now gone due to layoffs one right after another. Getting behind and playing catch up kills your saving potential. It’s taken me to the age of 59 to finally make 65k. I’ve managed to rebuild my savings to about 10k in 401k. I plan to work at least 10 more years. Ill save what I can but it’s a little too late to accumulate what you suggest. I venture to say there are a lot of people like me, hurt by the economy now left out in the cold. The problem with people like you is you don’t factor in the average wage earner. What you and others like you preach are for those who have the ivy league jobs right out of college. Where we’re you 30 years ago.

    • Financial Samurai says

      Sorry to hear about your circumstances. I hope this article can inspire those who still have a lot more time.

      30 years ago I was trying to get good grades to give myself a chance at getting into a good college to get a good job.

    • Pat G says

      Don’t give up hope. Just do what you can to cut expenses and make a little money in retirement. Try to enjoy the free things in life. Good Luck!

  2. Noel Vieira says

    I am 27 yrs old. I don’t own any stocks, not have I invested in anything. Besides saving, what is the first step I should take to see any kind of money grow before I hit 40? Please note, I have not been very well educated on how I can make sure I’m taken care of by the time I’m elderly (based on my own actions).

  3. gman says

    I have a question. I am 45 years old and have about 900K in savings total. I own my own business so my income is not really set per say. Last year I was taxed on about $400,000 but I would say I brought home around $250K (maybe a bit more). Also I have just gotten married and my wife makes 50K per year, so in a way I am supporting 2 people now at my present life style. She maybe has 14K in a IRA. In the past I never worried about a set amount for savings as I made enough to just put away a lot of money. I would say in the last 5 years I saved around 60% of my income (thus the 900K). I don’t think I will be able to do that now due to the money being for 2. My thought was to put around 100K per year total from here on out into savings. Does that seem to be enough? One other thing is we are going to buy a new house and thinking of just paying cash (around 400K) so that will bring my savings down to around 500k but will own my house out right. Thanks for any kind of advice.

  4. Babets says

    Hello FS and thank you so much for your very informative posts.

    I am intrigued by this article among others, and this lead me to a question for you.

    In my case I am ok with savings in % vs my salary, and aligned with you.
    However when it comes to the chart of how much cash you should have accumulated by a certain age, i get a bit “worried”. In my life i bought 2 houses and renovated them both. Pretty safe investment in terms of locations. In 1 i have no mortgage, in the other one I have a mortgage very manageable providing i keep my job…
    The choice of houses vs cash left me with “only” savings of 30x my monthly need (i am in the 40/45 year old range) and a small 401 k that should reach at least 1 mil $ by age 65.

    Should i sell 1 house in favor of having more cash to invest (600k approx) or just sit tight in your experience?

    Thank you in advance

  5. Trish says

    So how do you handle putting your kids through college? We saved a lot but not enough to put two kids through 4 years of college, and how do you continue saving while doing this?

  6. Mark says

    I am 52-years old an have almost $900K saved. I have a tax-deferred 401K with close to $390K, two tax-deferred annuities, which I most recently opened (to avoid my 28% tax bracket) with close to $405K, plus a bank CD account with another $105K earning 2.96% with an APY of 3.00%.

    But that’s still not it – The best news – I am practically DEBT FREE. That’s correct, debt free – My two-bedroom, two-bathroom condominium is paid off in full, I have no mortgage; my 2010 Honda Civic Hybrid is paid off in full, my student loan (from many years ago) is paid off in full, and my credit card debt is paid off each and every month.

    My only expenses are medical (I do have lung / respiratory issues), annual property taxes, monthly condominium maintenance fees + monthly utility expenses.

    I guess it’s safe to say I am doing pretty well, allthough I am slightly concerned about my overall health. I am a former cigarette smoker and come from a family history of ALL smokers. I do have early stages of COPD, but since I quit smoking, I am hoping my COPD does not progressively get worse. Medical expenses are outrageously high, although I do have medical insurance. But this HDHP (high deductible health plan) really stinks. I am also putting money aside via a HSA (health savings account).

    With my condominium, automobile and rare collectibles, I would venture to say I am already in the “millionaire’s club.” Yet, at 52-years old, I am still working for a Fortune 500 company because I am single and really do not have anything better to do with myself. I am already well-traveled. I have traveled extensively both here at home (in the U.S.A.) and abroad (Europe and the Middle East).

    Guess it’s safe to say, “Life is Great !!”

  7. greg goetsch says

    My mother is 80, lives in one of the cheapest places in the country, makes 60k a year between social security and a guaranteed dividend (until she dies) from charitable gift. She also has about 500k in a mutual fund. She is considering buying my family a house as a gift. How much of the 500k should she keep for a rainy day at her age with a guaranteed income of 60k. She easily lives on the 60K and has little desire to buy expensive stuff or go on trips. I can’t see that she really needs much savings.

  8. greg goetsch says

    Actually, I don’t think the question or the answer depend on me at all. I was asking a financial question about how much SHE needs for her retirement savings/income at her age. But because I since judgement about my side of things, let just replace “buy house” with “give to worthy charity.”

    • Financial Samurai says

      It’s hard to know the future b/c of rising medical costs. If her insurance is in place for LTC and such, only she can answer the question comfortably. I’d just ask and then add on a buffer just in case.

  9. Raul says

    I am 23 years old and will make about 35 k (after taxes) after my first year(June). Im in a sales position and should be increasing so that by year 3 i am at about 60-70 k after taxes. Im looking to invest i am opening a 401k and my company is going to start matching. I do have some expenses coming up like a new car purchase but any general or specific advice. I am pretty good at saving my expenses are about 1400-1500 a month bc of a car payment i have to help my parents on. Without the car payment that ends in June ill be at 800-900 a month. I am just young and looking for direction

  10. fahzybear says

    How is this possible if you live in an area where average rent for a 1 bedroom studio is $2000? I live in SF where i Make 60K but over half my paycheck is going to rent.

    • Financial Samurai says

      Definitely not easy in SF (I live here too).

      How about finding a roommate? Savings is a choice. I lived in a studio with another fella for two years. I figured it was like a luxurious dorm room, and I was able to save 40% of my income in Manhattan making $40,000 a year.

      • Her Every Cent Counts says

        I also live in SF (not city proper) — and yes, get roommates. Move to the East Bay or cheaper cities on the Peninsula or just get a lot of roommates in the city. You can definitely spend less on rent that way. And make sure to always negotiate for higher salaries given the cost of living in the area.

  11. Pat G says

    So, wife and I both 58, with combined DC balances of 1.4m
    wife to start pension of about 36k per year at age 65
    expect combined SS of about 53k at age 70.
    Currently making 165k combined, before taxes and savings
    small mortgage
    want to retire in four years.

    What do you think our chances are?

  12. PD says

    We make $330K combined, have $285K in 401K, 150K in investments, and about $500K in home equity. No student loans, minimal debt – but we do pay child care, college savings, $15K car loan. We are 37 years old and I feel like in a position to make this money bigger, but not sure how. Are we sitting on too much home equity? Any advise?

  13. Walt says

    So I’m a little bit concerned about my future. I’m almost 30 years old. I work for a university almost solely for the tuition benefit. I served in the Army and used my Post 9-11 GI Bill and TA to get my bachelors and master’s degree. They’re both paid off. The university that I work with pays 50% of my tuition, the other half was paid by the GI Bill. I went back to school- why not? I hope it will pay off later, but as always, no guarantees. I only have one semester left of GI Bill eligibility, which means that I will have to come up with $16,000 spread out over 2 years to finish my PhD in education (not a high paying field). Should I take out a college loan if I feel I can cover it?
    I make 47,000/year. I have about $16,000 cash, with an additional 50,000 in stocks in mutual funds. My employer contributes to a retirement fund. I’ve only worked for the uni for 2 years. I have another year before I’m vested and there’s not much in the account. I have another 10,000 to pay off for my car loan. I live in a city with a high cost of living. I’d like to buy a home in the future but I’m not there yet financially. I want to be able to retire comfortably someday but I’m not accruing money at the rate I feel I should be. I left the army to take care of my terminally ill parent. She’s since passed away. I’ve managed to erase the debt from that, at great costs- wiping out everything I had saved from the military. Is there anything I can do to make things better? I work full time and I’m a full time student- it’s pretty stressful. I want to be proactive and set myself up for the future, but I feel like I’m missing something.

  14. Dan says

    I’ll be 30 in September and I have always been interested in saving for the future. Depending on Social Security seems fruitless and the emphasis for saving for the future is growing by the minute. I work for a University and make about $60,000. My intention is to increase my 401k contribution by 1% each year (retirement contribution is at 13% with the University contributing 6% of the total). According to Penn’s estimation, I should have just over $1M saved by the age of 65.

    My question for you is, what other revenue streams can I realistically expect to create for myself? I am about to get engaged, live in Philadelphia and want to buy a house. Is it a good idea to buy it, raise a family for 5 years, and then rent it out to pay the mortgage off and then have that revenue stream/asset? What other ways can I maximize my net worth and earn more money?

  15. Lindsey says

    I think you should consider paying off loans part of saving. A lot of us who are paying off student loans may not seem like we’re saving enough, but if you think about it terms of increasing your net worth, we really are.

    In my bracket, I’m supposed to be saving 25%. I’m saving 24%, but if I include loan payments, it’s 32%.

    I imagine this is true for a lot of people, including those who are much further under the “ideal rate” than I am.

    I’m also a little confused by your pre-tax/post-tax guidelines. Does the “savings %” only represent pre-tax? And is pre-tax only including 401ks or Roths too? (I know Roths are post-tax, but there’s also tax benefits on the other end.) I contribute 7% to my 401k (not counting match), 8% to a Roth, and around 9% to my savings account for an emergency fund/maybe eventually for a down payment on a house in the distant future/etc. (And another 8% to student loans.)

  16. Richard Nelson says

    Hello,
    My wife and I are 63. We’ve accumulated about $1.1M, about $1M in retirement accounts. We have zero debt and our net worth is about $1.4M. My wife was laid off 2 years ago but despite great efforts, she hasn’t found another job. I currently earn about $115K/yr. plus I’ve been getting a $20k/year pension from a previous employer. My wife will get a $5k/yr. pension when she turns 65.

    We’ve been to 3 retirement financial planners. The first, insurance salesmen, wanted us to use just about all of our money to buy equity index annuities. The second, a CFP that charges an hourly rate and doesn’t sell any financial instruments, suggested we keep about 3 years of living expenses in a liquid account, and about 50/50 of the rest in equities and bonds. The third, someone at a large investment company, recommended a balanced portfolio, offered to manage the whole thing for .25%/quarter. His company’s software indicated we could retire now, live off of my small pension and our cash until 66 and then begin to collect social security. The percentage chance of succeeding with this scenario is about 90% for the amount we need to live that included an assumed 3% average inflation rate.

    I so much want to retire (in 3 months) and the numbers are enticing. It looks doable, but of course we don’t want to outlive our money.

    Your opinion?

    • Financial Samurai says

      Your 3 months will go by in a nanosecond! Given you can collect Social Security soon, have zero debt, and a $1.4 million net worth AND pension, you guys will be so fine. How old is the wife?

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