In the coming years, America will face a retirement crisis. Nearly half of Americans aren’t saving at all for retirement, and those who do save aren’t saving enough.1 Instead of packing their bags for their dream vacation in their 60s and 70s, millions of Americans will be packing their lunch for another day at the office. That’s the bad news.
The good news is, it’s never too late to turn your situation around. You don’t need anyone’s permission to start making your dreams a reality—you can do something about it today.
Let’s take a look at what average Americans have saved for retirement by the decade. Then we’ll talk strategy so you can get closer to your retirement goals.
Average Retirement Savings by Age
So, how do Americans shape up? Let’s take a look at the average 401(k) balances (plus any IRAs) that Americans have earmarked for retirement, according to data from Fidelity.2
And remember: You can find ways to improve your retirement savings in every decade of life. As we look at these numbers, remember that the goal isn’t to be “average.” You work too hard for too long to simply settle for average in your retirement savings!
Americans in Their 20s
- Average balance: $10,500
- Contribution rate: 7%
Seven percent? That won’t get the job done. Time plus compound growth are the two most powerful forces in wealth building. And when you’re in your 20s, those two forces are on your side!
How much will you need for retirement? Find out with this free tool!
The reality is, the earlier you start investing, the better! Even just five years can make a huge difference—and that determines when you can or should retire.
So, in your 20s, even if you’re not earning much yet, build a strong financial foundation. Get out (and stay out) of debt. Build your emergency fund. As soon as you’ve done that, start investing 15% of your income in retirement. After all, what looks like a little now will look like a whole lot more as you get closer to retirement!
Americans in Their 30s
- Average balance: $38,400
- Contribution rate: 8%
As we can see here, the average American in their 30s still isn’t contributing enough to their retirement. This is likely because a lot of people in their 30s are balancing big financial goals like a mortgage and starting a family. You might not even be thinking about retirement yet, telling yourself, I’ll worry about that later.
That’s a big mistake! At this point in your life, it’s time to make saving for retirement one of the top priorities in your financial journey. After all, research clearly shows that the top indicator of investment success is your savings rate.3 Translation? If you want to have enough money saved for retirement, you have to actually save and invest for retirement. Go figure!
Americans in Their 40s
- Average balance: $93,400
- Contribution rate: 8%
In your 40s, you’re probably making more money than you ever have before. Because of that, it’s so easy to try to keep up with the Joneses. You fall into the trap of buying cars or going on vacations you can’t afford to impress people you don’t even like. But guess what? The Joneses are broke! And if you try to keep up with them, you might end up right there with them.
The average salary for Americans in their 40s is around $59,000.4 Let’s say you started investing 15% of that salary starting at age 40 and did that every year until you retired. If you invest that money in good growth stock mutual funds inside your 401(k) and IRA, you could become a millionaire by age 65. Translation? It is never too late to get started!
Americans in Their 50s
- Average balance: $160,000
- Contribution rate: 10%
You might find yourself in one of two places in your 50s. Either you’re feeling confident about your nest egg, like you can almost reach out and touch your retirement dreams . . . or you’re feeling way behind, which could send you into full-on panic mode.
If you’re in that second group, don’t panic. You still have some time to get back in the game! Here are a few things you can do to catch up:
- Cut all unnecessary spending so you can increase contributions.
- Put each pay raise or bonus toward your investments.
- Downsize your home if your mortgage is a heavy burden.
- Take advantage of the “catch-up contributions” in your retirement accounts—an additional $6,500 for a 401(k) and $1,000 for an IRA.
It’ll take some hard work and sacrifice, but you can turn this thing around! Also, it’s a good idea to talk with an investment professional to make sure your plan will get you where you need to be.
Americans in Their 60s
- Average balance: $182,100
- Contribution rate: 11%
Most people would like to step away from their career at some point in their 60s so they can focus on time with family or time to pursue other passions.
Looking at the average numbers, though, we see a different story. Lots of Americans will keep working well into their 60s. Maybe you’re okay with that. In fact, a recent survey found that more than one-third of American workers (38%) say that their retirement dream involves some sort of work.5
That’s great! But if you’re going to work in your retirement years, it should be because you want to—not because you have to.
Americans in Their 70s
- Average balance: $171,400
- Contribution rate: 12%
This last number is heartbreaking. It’s clear that many Americans simply aren’t prepared for retirement—$171,400 is nowhere near enough to cover health care expenses in the later years of your life!
But keep in mind that this number is an average. There are also plenty of millionaires with a high net worth who are comfortably living out their dream retirement. They’ve used common sense. They’ve worked hard. And they’ve built wealth that will help them leave a legacy for their families and their communities.
And that’s the goal, isn’t it? After all, being generous is the most fun you’ll ever have with money! But if you haven’t even saved up enough to take care of yourself, then how can you expect to take care of the needs of others?
How Much Should You Save for Retirement?
Here’s the reality: If you’re out of debt and you’ve saved up three to six months of emergency expenses, you should be investing 15% of your income in growth stock mutual funds for retirement. If you’re getting started later in life, you might need to play catch-up and contribute more than 15%.
Since the 15% rule applies to all sorts of people with different salaries and standards of living, it makes sense that everyone will be aiming for a slightly different target. Work with an investment professional to find out how much money you need to save by the time you retire!
Let’s look at an example using an income of $50,000 and apply the 15% rule to understand what milestones this person should be hitting along the way. (If you make less than $50,000, that’s okay. You can still save for your dream retirement on a small salary.)
So, 15% of $50,000 is $7,500 a year, or $625 a month. If you invested at this rate for 40 years (from age 25–65) at an 11% average annual return, you would end up with more than $5 million! That’s a solid nest egg! Especially for someone who never got a raise in 40 years! You can use our investment calculator to plug in your own numbers.
The reason why your money skyrockets is because of the basic recipe for investing success: time plus compound growth. It’s not enough to just save plain cash for retirement and bury your money in the backyard like a pirate. You need to invest your money so it grows over time! That way, inflation won’t eat up all your savings and you’ll be able to live comfortably in your retirement years—which could be decades of your life!
Stay Focused on Your Retirement Dreams
Your goal is to be prepared for the last few decades of your life so you can enjoy your time—whether it’s traveling around the globe, serving your community, or spending time with your children and grandchildren.
And if you’re feeling behind, remember it’s never too late to get back on track! Keep your retirement dreams front and center, then commit to a plan of action that will get you there.
No one becomes a millionaire overnight. Keep a long-term mindset and be ready to make some sacrifices along the way. Even if you’ve made some mistakes in the past, remember to focus on what you can control and keep moving forward.
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This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.