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It’s Never Too Early to Save for Retirement… Truly!

Writer, Ina Fernandez, CPA

A 2018 report by the Transamerica Center for Retirement Studies* made me sit up and take notice. It found that the median savings for people in their sixties, including equity in their homes, was $172,000. That seems like a lot of money until you divide it by the 20 years that most are likely to live beyond retirement. That calculates to $8600 per year, hardly enough to supplement the $17,000 per year from social security that the average retiree is likely to get, and way, way below what most will need to cover expenses in their retirement.

So, with pensions now as rare as landlines, we need to start saving for retirement early, as soon as our first job. If we put away small sums that we will not miss, we save on income taxes and have the awesome power of tax-sheltered compounding turbocharging the growth of our retirement nest eggs.

Here is how we suggest each age group can save for retirement:

Twenties: If you have enough for your basic needs and your employer offers a 401(k), start contributing to it right away. Contributions are automatically taken in small amounts from each paycheck, and you are unlikely to miss what you’re not used to getting in the first place. Many employers match your contributions to a certain extent, giving you additional return right out of the gate. The icing on the cake is that these contributions lower your taxable income and result in you paying less in income taxes as well. If your employer does not offer a 401(k), consider opening a tax-deductible IRA or a Roth IRA to allow your savings to grow, tax-sheltered, until retirement.

Rule of Thumb: Per Investopedia (, you should save at least 15% of your gross (before taxes) salary. We recommend you invest most of what you put away in diversified stock funds.

Thirties and Forties: You are now hitting your stride in your career, earning “real money” along with higher expenses on your family and home. If you can afford to, max out your 401(k) contributions and also consider adding to IRAs.

Rule of Thumb: By age 30, you should have a total of 50% of your gross salary in retirement savings. By age 40, that goal rises to twice your salary.

Fifties: You are now approaching peak earnings and should have about four times your salary saved. It is also time to assess whether you are on the right path to saving enough for retirement. Consult with a financial planner, or if you are a “do-it-yourselfer,” check out the handy tools available online and at your local public library. At age 50, you can become an AARP member, which gives you access to many tools and advice on retirement. As a card-carrying member myself, I can vouch for the consistently helpful articles I find in their publications.

The AARP Bulletin of October 2019 discusses a relatively unique approach to assessing retirement security. In simple terms, it looks at the number of retirement years you will be able to fund given your current level of savings. The calculation requires knowledge of how much you have in assets, minus what you owe (call this “net worth”). You will also need to be able to estimate your expected annual inflows from all sources, minus your expenses (“net income”) in retirement. If you divide your net worth by your net income, you get the number of years you can expect to fund with your current savings.

Rule of Thumb: You should have four times your salary saved in your fifties.

Sixties: If you are healthy and can afford to, delay taking your social security as long as you are able, until age 70. For every year you delay, your benefit increases by 8%. Nice payback! As withdrawals from regular IRAs are taxable (Roth IRA withdrawals are tax-free), delay taking money out of them if you don’t need to. You are required to start withdrawing from your IRAs the year you turn 70 ½.

Rule of Thumb: By age 60, you should have 8 times your gross salary saved, 10 times by age 67. You will need to generate an average of 80% of your pre-retirement income to maintain the same standard of living in retirement.

If you are already retired, a way to stretch your retirement dollars is to go back to work. A 2017 survey done by the Rand Corporation (a nonprofit research firm) found that 40% of retirees return to work, many on their own terms. If you have a choice, do something that you enjoy with enough flexibility to take time off or sleep in late when you want to. As for that rocking chair? Let it rock on… without you.

Ina Fernandez CPA is President and CEO of Fern Capital Inc., an independent registered investment advisor.

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