Savings is the foundation of good personal finance. This article will discuss how much savings to accumulate by age so you can achieve financial independence and retire comfortably. It’s important to have savings targets at every age to keep you on track. When it comes to building wealth, you don’t want to just wing it!
I don’t want to hear excuses as to why you can’t save if you want to be free. Go somewhere else please. During the height of the pandemic in March 2020, the U.S. personal saving rate rocketed above 33% from ~9%. Therefore, we can all save more if we want to.
If you are serious about living life on your own terms, study my recommended savings by age chart carefully. The more you save, the sooner you can achieve financial freedom.
Recommended Saving Rate By Age And Income
Your saving 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. Let’s review my savings by age chart below.
Recommended Savings By Age Chart: Pre and Post-Tax Savings Guide
Below is my recommend saving rate and guide by age. It shows how much you should have saved in your pre-tax retirement accounts (401k, IRA, Roth IRA, 403b, etc) and your post-tax investment accounts.
Sadly, the average 401k and IRA contributions are not high enough. However, you have the power to do better than average. For 2023, the employee 401k maximum contribution limit is $22,500. This is up from $20,500. Your goal should be to max out your employee contributions as soon as possible.
Your saving rate should increase the more you make. Not only should you be maxing out your tax-advantaged retirement accounts, you should also be building your taxable investment portfolios. Your post-tax (taxable) investment accounts are what will generate useable passive income if you wish to retire before 60.
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:
- We have a tendency to raid our post tax savings,
- Tax free growth,
- Untouchable assets in case of litigation or bankruptcy,
- And 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.
The maximum 401k contribution for 2022 is $20,500 and for 2023 it rises to $22,500. The maximum pre-tax contribution amounts have historically increased by about $500 every two years. But it varies depending on cost-of-living adjustments and inflation rates.
Recommended Expense Coverage Ratio 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 saving rate for 40+ years with a 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.
You can buy an 18-month CD with CIT Bank for 4.5% thanks to aggressive rate hikes by the Fed. This is one of the best CD rates today. Before 2022, 18-month CD rates were less than 1%. Check back as the CD rate is always changing.
Expense Coverage Ratio = Savings / Annual Expenses
Note: Focus on the ratios, not the absolute dollar amount based on a $65,000 annual income. Take the expense coverage ratio and multiply by your current gross income to get an idea of how much you should have saved.
Savings By Age: 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.
In your 20s, it’s paramount to get your personal finance fundamentals right. You want to beat the average net worth for the above average person. And you will, if you save and invest aggressively for a long enough period of time. Everything is relative when it comes to finance.
Savings By Age: 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. And 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.
Need some extra motivation to keep on hustling and saving money? Take a look at the top 1% net worth amounts by age.
Savings By Age: 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.
The best age to retire to minimize regret and maximize life is between 41 – 45. Therefore, you should be aggressively saving more in your 40s. Your 40s is a decade when you really start to recognize your mortality. More friends and family members you know start dying. You might also have some health issues as well.
Savings By Age: Your 50s
You’ve accumulated 10-15X 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. As you get closer to traditional retirement age, you can save more in Treasury bonds which are yielding over 4% thanks to Fed rate hikes.
You want to focus more on capital preservation and not capital growth with your savings in your 50s.
Savings By Age: Your 60s
Congrats! You’ve accumulated 25X+ 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.
Regarding a more aggressive target net worth, shoot to accumulate 20X your annual gross income by the time you want to retire. By using a multiple of income, your net worth goal continues to increase as you make more money. There’s no way you can “cheat” your way to financial freedom by slashing your expenses.
Savings By Age: 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.
In your 70s, you should also think about what type of retirement philosophy you want to follow: YOLO or Legacy. Personally, I’m following the Legacy retirement philosophy in order to create a perpetual giving machine after I’m gone.
Save And Save Some More!
The only way to reach financial independence and hit my savings by age chart is to live within your means. National average money market accounts are still yielding a pitiful 0.07% as of November 2022.
Don’t fall pray to letting your cash sit in a savings account with less than a 0.1% yield. Look to direct, online-only savings accounts like CIT Bank’s Savings Connect Account instead. Even better is CIT Bank’s 18-month CD at 4.25%. Take advantage of these higher rates thanks to the Federal Reserve’s aggressive rate hikes.
In fact, I keep most of my saving in high-yield online savings accounts. They prevent me from having the temptation to spend. With the Fed hiking rates so aggressively, you might as well take advantage of higher savings rates.
Think you can’t save more? Below is the saving rate chart during the pandemic. Notice how the U.S. personal saving rate spiked to 33% in April 2020. It has since fallen back to trend as more Americans become more comfortable with living through uncertainty. But the point is, we can all save more when we really want to.
My savings by age chart is based on consistently beating the median savings rate of Americans. The more you save, the more you can invest and generate more passive income.
How I’m Reinvesting My Savings
For the money you are comfortable risking, actively invest the rest of your after-tax savings in real estate, the stock market, bonds, private equity and anything else that matches your risk tolerance.
Personally, I’ve invested $810,000 in real estate crowdfunding because I like owning real assets that produce income that are less volatile. I’ve invested in the heartland of America to take advantage of strong demographic trends. Valuations are cheaper and rental yields are higher.
With private real estate, it’s great to earn income passively instead of having to manage tenants and work on maintenance issues. The work-from-home trend is here to stay. Technology is also only getting better.
My favorite real estate crowdfunding platform is Fundrise. They began in 2012 and are the pioneers of the private eREIT asset class. For most investors, investing in a diversified real estate fund is the way to go.
You can sign up with Fundrise for free and explore what they have to offer. Fundrise focuses on single-family rentals in the Sunbelt. With over 300,000 investors and $3.2 billion in assets under management, Fundrise is my favorite real estate investing platform.
If you are an accredited investor, also check out CrowdStreet. CrowdStreet offers individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and potentially higher growth. If you have more capital, you can build your own select real estate portfolio with CrowdStreet.
With high inflation, owing real estate is a shrewd move. Inflation whittles down the cost of debt and boosts the value of your real assets. Inflation also reduces the value of your cash savings. Hence, you should always be strategically investing your savings by age to at least keep up with inflation.
Diligently Track Your Net Worth
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. It enables you to easily monitor your finances. It’s easier to hit my savings by age target with this free tool.
Before Personal Capital, I had to log into eight different systems to track 28 different accounts to manage my finances. Now, I can just log into one place to see how my stock accounts are doing. I can track how my net worth is progressing as well.
One of their best features is their 401K Fee Analyzer. It is now saving me more than $1,700 in portfolio fees I had no idea I was paying. There is also have a fantastic Investment Checkup feature that screens your portfolios for risk.
Finally, utilize the incredible Retirement Planning Calculator. It uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes.
Definitely check to see how your finances are shaping up as it’s free. Try it today!
Savings by age charts are completely updated for 2023 and beyond. After this post, hopefully, you are no longer wonder how much savings should I have accumulated by age. If the amount of money you’re saving each month doesn’t hurt, you’re not saving enough!
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I just wanted to thank you for this wisdom.
When I finished my Ph.D., the one thing that I wanted the most was to own a supercar. I wanted all of those years of hard work and low pay to be worth it.
I got a very nice paying job doing what I love, worked hard, aggressively put in constant overtime, basically lived at the office on weekends for two years, and saved up constantly toward that goal. However, something always went wrong when I went to order a car. The first time, at one dealership, the sales associate left mid-transaction for another dealership and thus wasn’t responding to emails or phone calls. My car went to another buyer on accident. The second time, at another dealership, the sales associate couldn’t get me a build-order allocation due to the the model line being discontinued. A new model had been announced a few days after I made a deposit; I was put on a waiting list, as a result, and later had my deposit refunded since I’d be waiting about a year for a build slot.
I was furious each time, but I didn’t know that I was also severely lucky. It saved me from making incredibly bad decisions.
I later stumbled on your blog. At first, I thought that the advice was about cars and the one-tenth rule was out of touch. Then, by happenstance, I sat down with an asset manager at dinner and realized it was absolutely wonderful.
I turned all of that overtime money into a just enough of a down payment to get a house in a highly desirable area. I put in for constant overtime so that I could make substantial home improvements in short time, like adding solar panels and a whole-house battery back-up system. I then sold that house and bought property to build my own house. I downsized immensely on that next house, but, thanks to the architects I used, I was able to get more usage out of less space. The overall build quality was vastly superior too. Most importantly, I was able to pay off the mortgage in under three years. All of that overtime led to back-to-back promotions that increased my pay rate and enabled me to make large principal payments every year.
Even though life is good, I’m still driving the same car that I bought when I was in grad. school. I keep it looking new and take good care of it. I’ll likely get another six or seven years out of it.
Without a mortgage payment and a car payment, I’m currently saving up almost ninety percent of my after-tax salary and investing about eighty percent of that every year. I just put everything into a mixture of ETFs and treasuries and let it grow. I could probably save up even more, but there’s a point where life becomes too austere; sometimes, you need to live a little.
I don’t get paid a crazy amount compared to some of my peers from my lab in grad. school. I took the path of doing what I love, and basically being my own boss, versus grinding for an obscenely high paycheck. However, I can say that even with a good education, strong work ethic, and prudent spending mentality, you can easily save and invest to the point where, after about fifteen to twenty years of being patient, getting a new supercar every year is basically a fraction of the annual investment returns.
If I still want a fancy car at that time, then at least I’ll be able to truly afford it.
Hi there,
I am 26 yrs old currently saving 16.5% pre-tax in my 401k including the company match and maxing out my Roth IRA each year. The rest post-tax money after expenses I put into multiple funds for emergency, car maintainence, and investment property. My question is should I reduce my 401k contribution to the minimum so that I can maximize saving for the investment property and/or put the post tax money into a taxable account?
I don’t plan to get rich quick with real estate but I am looking to develop multiple cash flows sooner rather than later.
Why should one save money in the beginning and keep that one and only goal. Rather work hard on one’s skills do an MBA from a top ranked university and become a CEO of a decent organization and earn 5 million dollars per year in mid 40s .Also want to know why would one leave an executive level position even though he/she had achieved financial Independence as the earning potential will increase manifold as you move a level up.Is financial indepence is more valuable than a top ranked MBA or an executive level position.Your views are highly appreciated since you worked at an executive level position.
Hi. You underestimate work toll on mental and physical health. Corporate world is full of corpses in their 40s and 50s.
Also no everybody can make it to executive level salary. But most can make average wage and push savings rates high.
So yes you are right. But your 5mil wage will be reached only by couple of thousand. What about remaining hundreds of millions in USA only? FIRE applies to more general population.
Cheers
Mr Whyninetofive
Hi Sam,
I’m evaluating various online banks to park some cash. How is CIT Bank able to offer 1.5% while an outfit like Wealthfront is offering only 0.26%?
Thanks!
Pretty incredible that CIT Bank is offering a 1.5% savings rate when the 10-year bond yield is at <0.7% and the Fed Funds rate is at 0% - 0.125% right?
The answer is that each bank is different and have different needs for deposits. CIT Bank wants to attract more deposits because it probably sees more investing and lending opportunities than other banks. The spread is how banks make money.
Take advantage!
Sam, please also think of stablecoin returns (~8% these days) in places like BlockFi or Nexo. Although, harder and riskier for most people to get into.
Thanks for your amazing and thoughtful articles over the years!
Sam,
I appreciate all of the insights you share on building wealth, and hope more Americans begin taking your advice earlier in their careers. One point of yours I may disagree on is maxing out a pretax 401k first, then using what’s leftover in after tax vehicles. In my situation, I invest ~$20,000 a year, but I find it more advantageous to put $14,000 in my 401k & $6,000 (max) into a Roth IRA, since I predict I won’t always be able to contribute to a roth (Not including back door conversions). Assuming I have the discipline to not touch my roth until retirement, I find the Roth’s tax advantages to greatly exceed that of a pretax account because I will never be taxed on the capital appreciation of my investments in the roth. Can you please share your thoughts on why you think maxing our pretax contributions first is a more efficient way of building wealth than maxing out a Roth, and investing the remainder into a pretax 401k? Thank you!
Kyle
I just turned 43 today and my wife is 45. I have been married for 20 years with three kids 20, 17, 13. My wife is retired military and currently receive $6000 a month in retirement and disability. My wife still works and has a salary of $52,000 a year and my salary is $75,000 a year. We have $25,000 in savings and another $200,000 spread out in TSP’s and ROTH IRA’s. We are 2 years into a 15-Year mortgage and we pay $500 dollars extra to the principle. Our remaining balance is about $170,000.00. We have about 9 years left due to paying extra. I would like to pay it off in the 3 years. Should we pay the house off early or invest the money we would use to pay off the house. I plan to work until I am 57 where I can receive about $2000.00 a month with out taking money from my TSP and Social security a little later. I feel like we are doing O.k. and will have a comfortable retirement. We have a great start due to my wife’s Military retirement. My top priority is no mortgage going into retirement. Any comments/suggestions will be helpful.
Hi Calvin – Sounds like you guys are doing well. The pension is huge. Check out these two posts to answer your questions:
Pay Down The Mortgage Or Invest
How To Calculate The Value Of My Pension
GL!
Sam
This article is great if you take into account the !PERFECT! life scenario. By the time I was 20, I was alone and didn’t have a family. I had a good work ethic and a positive can-do attitude. However, all that doesn’t matter when a company goes bankrupt or it gets sold and your job goes with it. I never had a room-mate, and trying to make ends meet by yourself is not pretty. I never went to concerts, events, never drank coffee, never tried drugs, never smoked, didn’t go to pubs or restaurants, and never was a social drinker either. I saved, saved, and saved. Even today at age 50 I don’t have a mobile phone so I don’t have to pay for service. In my 30 working years I was unemployed a total of 11 years. Economy, buy-outs, layoffs, you name it. Now in my 50s, I have to face discrimination. I saved a total of 120k over the 30 years (or 20 actual working years). It’s not a rosy picture when you have to save your vacation days so when you get canned you can cash in your vacation time for survival. I am eyeballing moving to a 3rd world country, so I can retire with the money I saved. I don’t want to be homeless, because that’s pretty much what awaits you in the united states. And I don’t want to start a discussion with the 20-something millennials who call themselves “recruiters”. You think you have it now because you buy a new phone every year!? Well, just wait until you will be 50 and young kids will discriminate you. Remember, you did the same thing to others when you were young! Karma is right around the corner…
Hi! Great article. I would love your advice. I am a 23 year old female who has been working full time for a year after finishing undergrad. I’m about to return to graduate school for Master’s and PhD on full scholarship (thank God!). However, I’m wondering how I should move forward financially. I currently only have a checking account with a few grand saved in it and two major credit cards. The job I’m about to leave from has been taking retirement out of my check which I will have the option to obtain or I assume roll over into a personal retirement account. I have been researching Roth IRA’s which seem like a great idea for someone at my age, but also feel like I need to open a regular saving’s account…I fear I am falling behind and am unsure of what I should do to feel more secure. Thanks so much!
Hi Sarah,
Roth is a great idea b/c your tax rate will be the lowest.
Aggressively save after tax money until it hurts each month.
Build your side hustles while studying! No reason why you can’t earn extra income.
Related: Ranking The Best Passive Income Investments
Sam
Kind of ridiculous to keep working around our 70s. Life is short, and money isn’t everything.
this is only for rich people, not like me at 66 and NEVER in my life made over 20,000 a year!
20,000 is barely enough to live on, and no spending money!
Ihave 100k in savings and an income of 40k. I am 62can I retire yet?
Pay off Mortgage Principal vs After tax savings/investing?
My wife and I currently have a good situation as far as income goes. But, we aren’t doing that well in the realm of savings. We are 29 living in the Greater NYC area, we make 250-300k/yr combined, own a 2 unit house just outside of the city w/ rental income that pays for half the mortgage. Last year we bought the house (10% equity), a new roof, furniture, car and paid off the remaining 40kish of our student loans.
Unfortunately, we only have about 20k in liquid risk free assets (buffer), 50k in retirement accounts and a total net worth of about 110k. So, quite a bit lower than your target numbers. Our expenses were high last year, but hoping this year will be much lower. So, I’m trying to identify an optimal game plan to maximize our net worth. I’m assuming step 1 is to max out our 401k?
The real dilemma is whether to work towards reducing principal in our mortgage or accumulating after tax savings and investing it. Our mortgage rate is 3.625% or 4.60% APR
Benefits of Reducing Mortgage:
1. Low Risk Investment — Guaranteed 4.6% annualized return (30yr) + effects on interest and mortgage length
2. Reduces the effect of the front-loaded mortgage interest charge dramatically – No extra principal payments result in paying 82% above the principal over the 30yrs. The effects of paying down principal in the front result in approx 105% Return via lowered interest + lowered length of the mortgage.
I.e. with no principal payments the total mortgage payment over 30yrs is 722k, paying a 2k payment now reduces my overall mortgage payments by $4,412 or 120% return. Discounted to inflation of 2.5% over 30yrs is approx 105%. These returns will decrease over time…
3. Reduction in interest payments results in less interest tax benefits (small)
4. Since half of the property is a rental property, we are depreciating the asset. So, I believe we may be subject to 15% capital gains taxes on that segment despite being a live-in property. Other half will likely have no capital gains implications
5. All investments and paid principal will be into an illiquid asset.
After-tax Investing
1. Much Higher risk but also higher potential return. But, is the equity risk premium here large enough when factoring in opportunity cost of the mortgage principal reduction? Not sure @ current market levels…
2. Higher tax implications on cap-gains
3. Better liquidity if we ever needed to use those assets for something.
4. Much higher potential to spend this money at some pt.
The front-end load nature of a mortgage plays an interesting component in the decision. Solid near-guaranteed illiquid return vs Much higher risk but liquid and higher potential return….
Thoughts?
Check out this post I wrote just for you: Pay Down Debt Or Invest? Implement FS-DAIR
Enjoy!