The sooner you start planning for retirement the better. Too many people wake up 20 years from now and wonder where all their money went. By having specific financial goals by age, your retirement will be more comfortable than if you had decided to just wing it.
I suspect being overwhelmed with choices is one of the main reasons why folks don't start financial planning as soon as they find their first job. When you've got to decide between various retirement plans, various investments, and learn about various rules, it's much easier to just hoard cash.
Heck, some people even find hoarding cash hard. It's sometimes easier to spend all your money now on the good life instead of figuring out how to make your money grow over time.
Don't procrastinate when it comes to retirement planning. The more time you have to let your money compound, the better.
To make retirement planning easier, let's go through some financial goals to achieve by age. To make retirement planning even easier, I'll just highlight one main financial goal by decade.
Recommended Financial Goals By Age (Decade)
My goal for this exercise is to keep retirement planning as simple as possible.
My assumptions are that you are:
- Feeling overwhelmed
- OK to work until you are 60
- Will live a normal life expectancy
- Will feel more confident about managing your finances over time
Every person should be able to achieve one of my recommended financial goals within 10 years, let alone 30 years. If you do, I'm confident that by age 60, you can retire comfortably.
If you can achieve two or more goals per decade, then you will likely be able to retire earlier than age 60. And if not, that’s OK too. The choice is yours.
Here are my financial goals by age to follow in this chaotic world. Let's get back to basics!
Financial Goal In Your 20s: Max Out Your 401(k)
The sooner you start contributing to your 401k, the more you’ll get to benefit from the power of tax-free or deferred compounding. Further, companies usually offer 401(k) matching, which is free money.
In 2021, you can contribute a maximum of $19,500 to your 401(k). If history is any guide, expect the maximum to increase $500 every two or three years.
Below is my 401(k) by age guide. The 401k by age targets will depend on your existing age, how well your 401(k) portfolio performs, and your employer's generosity.
Bottom line: If you do nothing else for retirement in your 20s, contribute the maximum to your 401(k) each year. If you do, you will likely become a 401k millionaire by the time you're 60.
With $1,000,000 or more in your 401(k) by 60 and Social Security benefits, you should be able to lead a comfortable retirement lifestyle.
In addition to maxing out your 401(k) in your 20s, use your endless energy to start a side hustle. It's important to diversify your income sources to protect yourself and help grow your wealth faster. When you're in your 40s, your energy to create new income streams will go way down.
Financial Goal In Your 30s: Buy A House To Get Neutral Real Estate
Real estate is one of the best ways the average person can build wealth over time. Given everyone has to live somewhere, owning your primary residence over the long term will help you build equity, build credit, and get neutral inflation.
You want to ride the inflation wave, not get pounded by it. Inflation is an unstoppable force that tends to go up and to the right over the long term. As a result, renters lose because they tend to pay ever-higher rents over time.
The median homeowner literally have 40X – 60X more wealth than the median renter. When you are not putting some of your money towards regularly paying down mortgage debt and building equity, it's easy to spend your money on frivolous things.
Sometimes, real estate will appreciate faster than the national rate of inflation. The rate of real estate appreciation depends on demographic trends, job growth, and income growth.
In your 30s, I'm not even asking you to go long real estate by buying more than one property. Getting neutral is good enough for this retirement action plan.
Bottom line: If you buy a home and pay it off by the time you retire, your net worth will be equivalent to at least the value of your home. Further, you'll be able to afford your retirement lifestyle much easier. For most retirees, shelter and healthcare costs are the two main expenses.
If you can combine a million dollar 401(k) with a paid-off house, you shouldn't have a problem living a comfortable retirement lifestyle.
If you decide to actually go long real estate by owning more than one property, real estate is one of the easiest ways to generate passive income as well.
Financial Goal In Your 40s: Lock Down All Estate Issues
Your 40s are incredibly important because your responsibilities have likely ticked up. Maybe you have a spouse and children to take care of. Or maybe you have elderly parents who need all sorts of support. Maybe you’ve got some of your own health issues to deal with.
If you have a family, nothing else will matter more than your children. Given you will love your children more than anything, you will need to do the following:
- Write a will
- Create a revocable living trust (better than a will)
- Get life insurance
- Set up a 529 plan if you haven't already
You shouldn't have any revolving consumer debt in your 40s. Further, any student loan debt should be paid off before you turn 50.
The only debt you may still have is mortgage debt, which is considered the least worst type of debt because it is tied to an asset that usually increases in value over time.
Bottom line: Once you're in your 40s, you must start shifting your financial goals more from capital accumulation to capital protection. You're likely no longer just living for yourself, but for other people as well. Therefore, taking maximum risk is no longer the responsible thing to do.
You need to protect yourself against an illness, a death, or a bear market. These things will not only rob you of your wealth, but of your time. If you have people depending on you, it's imperative to get all your estate issues in order.
Financial Goal In Your 50s: Aggressively Build Your Taxable Investment Portfolio
After more than 30 years of work, you may finally be feeling a little burned out. You can see the finish line, but you don't want to negotiate a severance just yet.
Instead, your work goal may be to hit a magical age so you can collect a higher pension. Or, you may want to stick with work until your kids graduate from college. Or, you simply haven't figured out what you want to do once you retire.
Whatever the case may be, it's hard to leave work now because you're probably in your prime earning years. At the same time, you're thinking about your mortality more than ever before.
Maxing out your 401(k) and paying your mortgage should be mere afterthoughts due to your higher income. Perhaps you will have already paid off your mortgage in your 50s.
With excess cash flow, it is important to focus on beefing up your taxable investments. It is your taxable investments that will give you the confidence to finally retire in your 60s.
Below is an after-tax investment account guide to stretch for by age. Your goal is to accumulate a taxable investment portfolio that is 2X to 3X larger than your pre-tax investment accounts such as your 401(k) and IRA. Yes, you don’t have to have multiple millions to retire comfortably. But if you have the potential to do so, I say why not try.
Bottom line: Having a large enough taxable investment portfolio is the holy grail of personal finance. Utilize as much of your free cash flow as possible to build your taxable investment portfolio. Make it so big that you start viewing your 401(k) like a bonus portfolio. Treat your 50s like the last leg of a financial race.
Financial Goal In Your 60s: Enjoy Retirement!
Congratulations on following the various financial goals by age. With a paid-off home, a million dollar 401(k), all your estate issues squared away, and a large taxable investment portfolio, you should be able to enjoy retirement to the maximum.
Feel free to spend more money on wonderful experiences. Go ahead and buy those things that you think will make you happy. You've earned it. Hopefully, you've been enjoying your life up to this period as well.
What's amazing about taking care of all your financial needs by yourself is that you also get a bonus in the form of Social Security. Not once have I mentioned Social Security until now because I think it's good to not rely on an underfunded national pension system.
We tend to take our finances more seriously when we are in the mindset of only depending on ourselves. The reality is, Social Security will likely still be there for us when we retire at a traditional age. Perhaps we'll only get 70% of what was promised, but we should still at least get something.
Social Security Retirement Bonus
Here's an example using Social Security's “quick calculator.” If you were born in June 1960 and earn $50,000 annually on average, here's potentially how much Social Security you could collect at different ages:
In other words, if you can wait until 70 years old to collect, your Social Security benefit will be almost double. Run your own Social Security calculation to see what you can get.
If you are in good health, consider collecting Social Security as late as possible to get a higher payout. If you are in poor health, then consider getting Social Security earlier.
Sometime in your 60s, your net worth should be at least 25X your annual expenses or 20X your average annual gross income. Once you hit these multiples, you have achieved financial independence.
Bottom line: By reaching just one financial goal per decade, you should be able to retire comfortably by your 60s. There's no need to overcomplicate your finances. If you want to retire earlier, then it's up to you to save and invest more aggressively.
Financial Goal In Your 70s+: Make Sure You Don't Die With Too Much
There's a good chance that if you follow all my financial goals by age, you will likely die with too much money. Therefore, run your numbers through a retirement planner and calculate how much more you should be able to comfortably spend.
In the below retirement calculation by Personal Capital, this 41-year-old person wants to retire at age 50 with a $3.5 million portfolio. If he does, he will have an excess gross monthly cash flow of $6,000. Therefore, this person can either retire sooner, spend more money, or cut his return assumption numbers.
The key is to run your numbers through a retirement planner so you can make various financial assumptions. Don’t fly blind when you don’t have to. Once you decide what financial assumption you're most comfortable with, then you can spend accordingly.
Things change over the decades. In your 70s, it's time to revisit your will or your revocable living trust to see whether your beneficiaries are still appropriate. For example, your favorite son may have dishonored your family name. In which case you may want to cut him out.
Dying with “too much” is an individual determination. Some of you may think that leaving anything more than just enough to cover your funeral and estate expenses is too much. Others may think that leaving anything more than the estate tax threshold is too much.
Whatever the case may be, you need to make your financial wishes clear before you die.
Finally, it's good to think about what type of legacy you want to leave behind. What do you want to be known for? Who do you want to help into perpetuity long after you are gone? Only you can decide.
Keep Your Financial Goals Simple
Once you've set up a financial plan, stick to it over the long run. Having a financial goal by age makes retirement planning much simpler.
Remember, it is not a sacrifice to save and invest for the future. It is a privilege! Even if you don’t achieve all the financial goals by decade in this post, you’ll be much better off than those who didn’t plan and try.
Although life goes by quickly, I've found that the stronger you can boost your finances, the more you'll be able to slow down time.
With stronger finances, you are free to do more of the things you want and less of the things you hate. Having the freedom to choose how you spend your time is priceless.
Related:
How To Retire Early And Never Have To Work Another Day Again
It's Hard To Frugal Your Way To Early Retirement
Explaining Why The Median 401(k) Balance Is So Dangerously Low
How To Build Passive Income For Financial Independence
Readers, what other financial goals by age would you recommend?
I love this site but I’m feeling the severe sting of not being anywhere close to these targets for my age. Gotta keep hustling and playing the investment game smarter.
I do find it helpful to compare where I am with where I should e for my age. I also like how you included a range of values based in when you started savings. The gap between early savers and late savers is stark however.
In the After-tax Investment by Age to Comfortably Retire chart, what annualized return are you assuming for both the Pre-Tax and After-Tax investments?
I am confused – 401k savings target at high end is $500k at 35 but $1M at 40? How does one “target” to double one’s account balance in 5 years – especially with the caps on 401k contributions?
Further, why does the growth target fall off by 50% between 40 and 45? (E.g. 500k > $1M by 40 > $1.5M by 45).
Sorry, math is definitely not my strong suit.
Howdy Mate,
First of all, I know these targets are aggressive. But they are purposefully aggressive to help the average person build more wealth than they thought possible. Once I started believing making X or accumulating Y was possible, I took action to make it happen.
Picture a 22-year-old college graduated today making $60,000. He can save $19,500 max a year. He gets a $5,500 company match, so $25,000.
What will the maximum 401(k) contribution be in 15 years? Maybe $24,000. As now a more senior person at his firm, his 401(k) match might turn into hefty profit sharing of $24,000 a year as well. As of 2020, the maximum 401(k) contribution from employee and employer is $57,000.
When you can start contributing $48,000 a year to your 401(k), the $500,000 at 35 can turn into $1,000,000 in five years with a 7% compound annual return.
$1,000,000 by 40 is a 401(k) target amount I’d like folks just starting out to try and achieve. Will it be easy? Probably not. But is it possible? Absolutely.
Related: https://www.financialsamurai.com/historical-401k-contribution-limits/
Sam
Hey Sam, thanks for explaining. I am already 40 with ~$400k in my 401k, so I was not thinking of likely increases to annual contribution limits over the next ~20 years and how that might drive achievable growth.
My employer is stingy with contributions, so 2x by 2025 is a pipe dream! But it puts pressure on me to grow my after-tax holdings for sure:)
Got it. As a 40-yo, follow the middle column.
In 2011, I was receiving $20,000 a year in profit sharing. So I’m sure there are employers paying that today and over the next 15-20 years.
I just turned 47 and only at about half the net worth listed in your chart. I saved, invested, have a house and did everything from my early 20’s. Am I missing something or do the number seem really high to me?
Depends on your income. If average, then yes the numbers are very high.
Long-time reader, first time poster. Great post. I am comparing this post to your average net worth of the above average person and by 60 this article has a net worth of $10M (w/o real estate and the average person post has a net worth of $2.2M (w/ real estate). What drives the 5x difference and does that make the person getting to $10M way above average. I felt really good on the average person post, but this one seems to really move the goal post.
I wouldn’t get hung up on the $10 million. The $10 million was basically continuing to extrapolate growth of an aftr-tax investment portfolio based on a desired multiple of your pre-tax investments. The $10 million is a nice round number goal b/c the estate tax threshold was $10 million and now is $11.58 million per person.
These are stretch goals. And for the $10 million mark, it’s good for those who are just graduating from HS or college.
How old are you?
I’m 44. I am way ahead of the average investor chart but below on this one. The gap looks to be on the after-tax side. This looks like it’s assuming about at 7% return on top of about $75k yearly savings (from 40-50, which seems pretty aggressive if we should be shifting to a portfolio protection strategy in a zero yield environment. The earlier years actually seem easier to do with assuming the higher risk profile.
I’m in my early 40’s. It looks like you are using about a 7% average return on the after-tax portfolio on top of a $75k annual savings from 40-60. Isn’t that going to be difficult if shifting to a more conservative blend in a zero interest rate environment?
Fun post. I will add that my wife and I have a slightly different wrinkle.
We like to be efficient and don’t mind working until 55. Somewhat by accident we have everything in Roth IRAs and company 401ks. We should be able to take advantage of penalty free withdrawals at that time.
Laws change of course and likely we’ll still keep working part-time anyway at that point. But I’m throwing out the rule of 55 so people might see it and know that there are options . And there are yet other options. Sam writes about it below.
https://www.financialsamurai.com/you-cant-save-too-much-in-your-401k-for-retirement/
I absolutely agree with early and responsible home purchasing, but being part of the younger than 40 crowd in Southern California, I know many who are so concerned with how high the prices are that they are afraid to jump in, despite making great incomes.
Fortunately, my parents were real estate people so they always encouraged us to buy and not rent, so we did at 27 as soon as our jobs allowed us to. But in talking with a lot of other people my age and younger, they just don’t see it as a realistic opportunity. So I am curious of the impact later as less people buy houses and/or they buy houses much later. Considering the “extreme” growth has really occurred the last 10-15 years, I’m not sure we have started seeing the impact yet.
My grandma had bought their house and finished having three kids by 19, my parents had bought their house and finished having kids by 28, and we had bought our house and finished having kids by 35.
As the cans of life continue to roll a little further down the road with each generation, I’m curious how this all plays out in the later years.
The impact is either more adults will live at home with their parents or in on of their parents rental properties. This is happening all around me in my current neighborhood and previous neighborhood over the past 15 years. My neighbor graduated college at 24 and is still living with his parents at 30.
It makes me thing that we parents need to work harder on educating our kids about money, or work harder to support them as adults.
Related: A Real Estate Goal Every Investor With Kids Should Shoot For
Should a 20 something-year-old with $X amount of student loan debt max out a 401k?
Depends on your tax rate and interest rate. Follow FS-DAIR – The Debt And Investment Ratio.
In general, I recommend always maxing out the 401(k) and using money left over to pay off debt.
Sweet. Thanks for the input. Definitely a tough choice. I am putting in 6% to get employer match. But probably could do much more. I will go through the FS- DAIR article again.
Great post, thanks Sam.
Definitely an interesting statistic you’ve highlighted that the median homeowner have 40X – 60X more wealth than the median renter. Know it will be slightly skewed by age with a lot of younger people renting but does get the point across that owning property is the way to go!
Dude, Sam, Love your stuff, but only been reading a few years. Now I’m 40, and I dig your notion of 2x your pre-tax dollars, but… Dang! You had to be rigorous at 20 and live on peanuts… Seems insurmountable to catch that number now. My 401k/IRA is in good shape, but.. after-tax investments.. No where near that. Thoughts? Thanks!
Hi Jake – Yeah, it’s not easy. But it’s doable. At 40, you can always start aggressively focusing and saving to catch up. I would focus all you can on your after-tax investment portfolio. It is what will set you free before your 60s.
Related: Achieving Financial Independence On A Modest Salary
That’s a great post!
I like your After-Tax Investment Chart.
Do you ignore home equity and 529 plans when creating this chart and planning? Also, is this per person or per couple? $8m between two people at age 50 is probably more than most of us will need for a lifetime, assuming we don’t want to leave behind a large estate…..
I don’t. You can include the home equity and 529 plan values into the after-tax investment chart if you wish. Those count towards net worth for sure.
Interesting that a Roth IRA and 3-6 mo emergency fund was not in this somewhere? I love taking in all the different perspectives of financial bloggers.
Would also love to see a post that walks through considerations for when you need to tap your 401k early as part of an early retirement approach. Something that considers these options:
-72t
-start laddering 5 years in advance to a roth ira
-just take the 10% withdrawal penalty (surprisingly this approach seems to do well mathematically?)
Keep up the good work, Sam!
The emergency fund is an afterthought or a default assumption. But I can include it into the post for clarity.
If you are in the 24% federal income tax bracket or lower, contributing to a roth IRA is fine. But please, max out the 401(k) as well.
Related post: https://www.financialsamurai.com/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/
Some of my neighbors are an example of this post. They’re in their 60s, have a fully paid off house, have everything automated (house cleaning, landscaping, etc.) to maximize their time doing what they want, and they’re living COMFORTABLY. They’re able to do this presumably because they hit their financial goals by planning well, but most importantly, because they were real estate neutral. Btw, I love the phrase “real estate neutral”. I’ve been using it to persuade those who are on the fence about buying a house.
A comfortable retirement life is all we can really ask for right? We can pull the levers based on what we want.
Exactly. My lever is based on my kids graduating college (if they go that is, who knows how the landscape for college will look like in 15 years). Then I can spend most of my time doing what I love: annoying my kids. Lol.
Love it! Retirement planning is one of the best things I’ve done with my money. I started around my mid 20s I think. And started saving aggressively in my 30s. I’ll be in my 40s soon (ack) and am glad to say I already got life insurance and did some estate planning as well.
Being able to watch the power of compounding returns in my retirement and investment accounts has been such a blessing. Yes they’ve also been hit during the recession and the inevitable downturns. But such is the ebb and flow of the markets.
I’ve never regretting putting money into my retirement accounts and continue saving now for both my future and my kids.
Yes! The money we saved and invested 10-20 years ago sure is coming in handy now. A blessing to plan ahead and take action.
Love these types of posts. Gives you milestones to shoot for and allows you to breathe easier when you hit them.
I agree that you will likely die with too much money if you are at or above these age goals but that is not a bad problem to have and really first world problems.
I’m certainly at the level where need to stop procrastinating and do some serious estate planning since I do have a 14 yo daughter to consider.
For sure. Gotta set up that revocable living trust, or at least a will. I think I saw you got married recently again? If so, congrats!
I’ve had a will ever since I had my daughter back in 2005, revised it after divorce in 2010. The trust is where I have been kicking the can down the road for a bit too long.
Currently engaged but definitely want to get married again (this time the girl of my choosing :) ).
Going to be a longer engagement by choice from both of us with where we are with kids and her career.
My money is doing me no good. I no longer buy work suits. I don’t eat out. No movies. No airplanes. No vacations. Nothing. I wish I had spent more of my money.
Well, the economy won’t be shut down forever. Build your savings now and unleash it on whatever you desire once things open up again.
I’m personally enjoying some nice food delivery meals. I’m also looking at real estate deals. If you want to spend your money on a better life, a nicer place to live is tops on my list.
Love this Sam! I am 25 and have a net worth of 300k. I am huge on saving, living frugally, and investing.
One big thing for me was to really develop, hone, and articulate my skills to the company I work at which has helped me get a great compensation package (non engineering, banking, law). I recommend anyone in their 20s to not only build a strong skillset, but know how to sell that skillset. Bonus points if you can find a interesting niche/intersection of multiple skills, in Sam’s example he married certain skills banking, severance negotiation with writing.
$300K is huge at 25! Nice job. I hope you avoid some of my mistakes and don’t go backwards, only forwards.
But if there’s any time to take a solid calculated risk, it’s in your 20s.
OMG… I only need $9 more M in order to be able to retire.
You can do it! After an hour of working a minimum wage job here, I can save $9 after tax.
See: https://www.financialsamurai.com/rich-spoiled-clueless-work-minimum-wage-job-at-least-twice/
Visit a nursing home spend your money before u get there. Saving for old age is a fool’s errand
The goal is not to save for old age, but for the option early retirement. It’s the smartest thing you can do with your money.
Yes, let’s not die with too much, which is why it’s important to run our finances through a retirement planner/calculator to get an idea of what’s going on. In fact, I’m going to do that right now before my kids wake up.
Sam, your social security numbers are WAY OFF! I was born in 1960, spent 8 years in the army and 2 years civil service (did not pay into social security) and my latest statement is as follows”
62 $1749 per month
67 $2579
70 $3263
I make about 100K a year the last 10 years, the previous 20 was about $50K (average.)
This is from my social security statement from may 2020.
Great! Even better. Folks are free to play around with the SS Quick Calculator linked. Perhaps your $100K a year for the last 10 years has something to do with your amount being higher than the $50K earner example since FICA tax now goes up to $137,700.
Great article, Sam. Just shared this with my teen-aged daughters. It’s one thing for Dad, to say it. Hopefully a little more impactful to hear it from another source.
Not sure if teenagers will listen to anything, but I hope so!
I do remember being highly cognizant at 15 we did not have much money based on the 8-year old Toyota we drove, the townhouse we lived in, and the fact I was working a $4/hour job at McDonald’s.