OneAZ Credit Union

Savings Goals at Every Age

Published: November 29, 2022

family dinner

How much should you be saving at every age in life?

Whether you’re 20 years old or 60 years old, savings should always be at the forefront of a good financial plan.

However, savings will still look a little different as you move through the years of your life and cross over into new life stages. Let’s start off with savings in your 20s and move forward from there.

Savings Goals in Your 20s: Just Starting Out

First off, if you are in your 20s and you’re even thinking about savings goals, then you’re already ahead of the game.

For most Americans, life really begins to speed up when you hit your 20s. Maybe you’re moving out of your parent’s house, graduating college, or starting a new job – in other words, you’re entering the real world of financial responsibility.

Creating a Budget

The best thing you can do in your 20s is to learn how to create a budget and then follow the plan you created. As the old saying goes — what gets measured gets managed.

Creating a budget is the foundation of your financial life and the best tool you have for obtaining and maintaining your financial wellness. In fact, this is a tool used by the most successful financial players to stay on top of their game. Thomas Stanley, the author of The Millionaire Next Door, interviewed 1,000 millionaires and found that most millionaires create and stick to a monthly budget.

Millionaires don’t start budgeting once they have built their wealth, but instead start budgeting early on in order to create their wealth.

The Emergency Fund

One thing everyone in their 20s will eventually come to find out is what can go wrong, will go wrong.

This could be a costly car repair, an unexpected medical bill, or maybe even a job loss. Whatever your life emergency is, be prepared for it to quickly turn into a financial emergency.

With that said, those in their 20s should start building their emergency fund by saving 3 to 6 months' worth of emergency expenses. An emergency fund doesn’t need to cover ALL your expenses, but rather what you would still need to pay for during a financial emergency.

Think of those essentials you listed when creating your budget, like your rent or mortgage, utility bills, phone bill, auto loan payment, fuel for your car, and anything else that you believe are your basic living expenses.

On the other hand, this would not include dinner with friends, a weekend getaway, or a new pair of earrings. Simply ask yourself what you would need during a financial emergency, add up the costs, and build a 3 to 6 month emergency savings fund from that amount.

Building Credit

With the increase in housing prices over the past few years, more and more people in their 20s are requiring more time to save for a large down payment for their future home mortgage.

This also gives them more time to establish and build credit in order to get the best possible rates when it is time to get a home loan.

The key to building credit early on is to avoid going into debt to build credit. Instead, pay off your credit cards in full each month, carry a low balance throughout the month, and only utilize credit tools to help you build a positive credit history.

Start Retirement Savings

Yes, saving for retirement when you’re in your 20s just starting out is definitely easier said than done. However, if you can start saving now, this will allow you to build wealth much easier and faster than if you start later.

What makes time your greatest ally when building wealth? Two words – compound interest. Compound interest is basically the interest that you earn on a balance in a savings or investing account that is then reinvested, earning you more interest.

How powerful is compound interest? Well, take it from the most famous genius of all - Albert Einstein. He once said that compound interest was the 8th wonder of the world and he was exactly right.

Here’s a quick example:

Let’s say that over a year you are able to save $1,000 and the interest rate earned was 10%. This means you saved $1,000 and at the end of the year the account was worth $1,100.

The next year you save another $1,000 and you earn another 10% interest. However, instead of 10% of $1,000, you actually earn 10% of the money and interest ($1,100) you made the year before.

While that may not seem like a lot at first, over time it starts to really add up, or compound, and that’s when the magic really starts happening.

The bottom line – time is the most important factor when building wealth. The earlier you start saving and investing, the easier it is to build wealth.

Savings Goals in Your 30s: Building Momentum

If you were fortunate enough to start saving before your 30s, then know how much easier it is to save and build wealth since you’ve had almost a decade of practice.

However, if you’re just starting off saving in your 30s, you are still in great shape. In fact, one reputable study found that only 39% of Americans started saving in their 20s, meaning that more than half of America began saving in their 30s or later.

Increasing the Emergency Fund

For most people entering their 30s, this also means more responsibility. This could be starting a family, buying your first home, and hopefully an increase in your income.

With that said, it may be time to reevaluate your current emergency fund and determine if you need to start saving and building it up more.

Below is a list of average monthly expenses for each age group with corresponding 3-month and 6-month emergency funds.

Average Monthly Expenses at Each Age

Age Group Average Monthly Expenses 3 Month Emergency Fund 6 Month Emergency Fund
20-24 $2,812 $8,436 $16,872
25-34 $3,904 $11,712 $23,424
35-44 $4,720 $14,160 $28,320
45-54 $4,724 $14,172 $28,344
55-64 $4,536 $13,608 $27,216
65 and older $4,092 $12,276 $24,552

Source: U.S. Department of Labor

Adding More to Retirement Savings

A great way to continue to build wealth is to give your retirement savings a boost every time you get a raise.

Chances are good that you’re now making more in your 30s than you were in your 20s. One of the best ways to increase your savings is to split your raise every time you get one.

Let’s assume you get a 10% raise. When you decide to split your raise, you give yourself a 5% raise and then give your savings another 5% raise.

What does this look like?

Let’s assume you are 30 years old and your annual income was $50,000, however you just got a 10% raise and you’re now making $55,000.

When you split your raise, $2,500 more goes in your pocket and the other $2,500 goes into your savings.

Now, let’s assume you get a 10% raise every five years and you continue to split your raise.

Age Annual Income 5% Raise Saved Added Wealth
30-34 $55,000 $2,500 per year $16,133
40-44 $66,550 $3,025 per year $92,390
45-49 $73,205 $3,328 per year $173,483
50-54 $80,525 $3,660 per year $309,053
55-59 $88,578 $4,026 per year $534,470
60-64 $97,435 $4,429 per year $907,948
65 $107,179 $4,872 (one year) $1,008,124

**Assuming 10% income raise every five years and 10% annual return on added savings

As you can see above, by simply splitting your raise with yourself and your savings, compound interest really starts to add up over time.

Savings Goals in Your 40s: The Turning Point

For most Americans, the 40s are a time of peak earnings and also signals the middle point of your career.

This is the time to start measuring where you are in order to determine where you will be in the future.

A good rule of thumb is to have three times your income saved by the time you are 40-years-old and then five times your income saved by the age 50.

Savings Benchmarks By Age vs Your Income

Age Savings Benchmarks
30 Half of our income saved
40 3x of your income saved
50 5x of your income saved
55 7x of your income saved
60 9x of your income saved
65 11x of your salary saved

Using these benchmarks allows you to determine where you are when you enter your 40s and what needs to be done in order to reach savings goals when you turn 50.

Here’s an example:

Let’s say you have just turned 40 years old and your annual income is $100,000. Three times of your income would be $300,000 saved, which means you still have ten years to set aside $200,000 more, and that’s if you don’t get a raise during that time.

However, if you’re already starting to fall behind and you don’t have three times your income already set aside, then what should you be doing in order to save more money?

Look at Your Current Lifestyle

If you’re behind on your savings goals and wondering why, you may want to look at where your money is currently going.

Take a look at your income and compare it to your current expenses and ask yourself these questions:

  • Are you saving at least 15% - 20% into retirement savings?
  • Do your current expenses represent the life you are trying to design for yourself?
  • Is there money each month that can’t be accounted for?
  • Are you paying yourself (saving) first?

Turn Your Budget Upside Down

Many Americans make the mistake of creating their savings around their lifestyle. While this may work for some, others may find themselves behind in savings and they need to make a drastic change if they ever want to retire with the goals they had in mind.

In this case, turn your budget upside down and build your life around your savings — meaning savings comes first and then your expenses.

Try this:

First identify how much you will need in retirement and how much you need to add to savings each month to get to that number.

Then, create your monthly budget with that amount accounted for first and then all other expenses come after savings. This is also known as paying yourself first.

Maxing Out All Retirement Savings Options

Most Americans are at their highest income level in their 40s. With higher incomes, some Americans may find themselves maxed out inside their employer sponsored retirement savings.

Savings Limits: Did you know that the 2022 401(k) contribution limits are set at $20,500 and are expected to increase again in 2023?

If you are looking for other ways to save outside of your current 401(k) employment plan, keep in mind you can still contribute to a traditional IRA or ROTH IRA.

The 2022 annual contribution limits for either a traditional IRA, ROTH IRA, or a combination of both is set at $6,000.

2022 Annual Retirement Contributions Limits

401(k), 403(b), 457, or TSP Traditional or ROTH IRA Total
$20,500 per year $6,000 per year $26,500
$1,708 per month $500 per month
$788 every 2 weeks $231 every 2 weeks
$395 per week $116 per week

Savings Goals in Your 50s: Optimize Your Savings

Up until age 50, your primary focus when it came to savings was to build wealth. In fact, financial experts say you should have five times your income saved by age 50 and seven times your income saved by age 55.

Boost Retirement Savings

Starting at age 50, you can benefit from what the IRS calls “catch-up contributions”.

This allows you to start saving even more into both your employer sponsored plan like a 401(k) and also into an IRA or ROTH IRA.

2022 Annual CATCH-UP Retirement Contributions Limits

401(k), 403(b), 457, or TSP Traditional or ROTH IRA Total
$27,000 per year $7,000 per year $34,000
(compared to $26,500)
$2,250 per month $584 per month
$1,039 every 2 weeks $270 every 2 weeks
$520 per week $135 per week

Estate Planning

One of the most common myths when it comes to financial planning is that estate planning is only for the wealthy.

Believe it or not, everyone has an estate and it needs to be planned for.

Your estate consists of every single thing you own: your home, cars, checking and savings accounts, retirement accounts, life insurance, and any other personal possession you may have.

As morbid as it may sound, part of your financial responsibility is to have a plan in place for all of your assets before you pass away.

Instead of your assets going to the probate courts and then being divided up according to state law, create an estate plan and make certain all of your assets are distributed exactly how you would want them to be.

Income Planning

With retirement on the horizon, now is a great time to start income planning. As retirement nears, you will want to start looking ahead at your income sources to determine how much income you will have in retirement and compare that to how much you will need.

Sources of income could include: retirement savings, social security payments, pension payments, annuities, or any other asset that pays out a dividend.

If you’re noticing there is a gap between your estimated income and your needed income for retirement, now is a great time to identify ways to boost your savings and possibly extend your working years.

Savings Goals in Your 60s: Nearing the Finish Line

Once you reach age 60, retirement is well within reach. Therefore, you will want to make sure your savings goals are met and your financial house is in order before you start planning the exit from the workforce.

Fully Funded Emergency Fund

It’s time to boost your emergency fund to six months' worth of emergency expenses. This will give you a sense of added security when entering retirement and giving up the steady paycheck from your current job.

Your emergency fund should be in the form of cash in either a savings account or money market account. Do not invest or place your emergency fund into a CD, share certificate, or an annuity. You will want to have immediate access to your emergency fund without having to pay a fee or penalty.

Eliminate Debt

Seniors in America are now carrying more debt than ever before. A Congressional Research Service report found that 61% of those aged 65 and older carried debt in 2016 as compared to only 38% in 1989. 

With the trend of debt increasing among those entering retirement, many people in their 60s are having to re-enter the workforce.

To avoid this, it is important to make certain to pay off your debt before retiring. This could include credit cards, auto loans, personal loans, and even student loans paid.

Pay Off Your Mortgage

For most Americans, the largest expense each month is the mortgage payment.

The main reason to pay off your mortgage before you retire is because you’ll most likely be on a fixed income and you’re better off not having a mortgage payment take up such a large portion of your limited monthly cash flow.

Whether it’s downsizing prior to retirement or rolling up your sleeves and paying down the balance on your current home mortgage, knocking out the mortgage before retirement should be a priority.

Final Thoughts

Throughout the article we laid out different benchmarks and savings goals so you can compare where you are at right now and where you will need to be in the future.

With that said, remember that everyone’s life is a little bit different, which means savings goals won't look the same for everyone. Some of you may have started earlier while others started much later. Some will earn the majority of their income in their 30s while others will maximize their income potential in their 50s.

The bottom line is to make savings a priority, no matter when you get started. Pay yourself first and then build your lifestyle around your savings goals.

Lastly, keep in mind that the best time to start creating a savings habit is right now. Although yesterday, five years ago, 15 years ago or even earlier would have been a better choice, there still is no better time to start saving than right now.

Chris “Peach” Petrie is the founder of Money Peach. Money Peach partnered with OneAZ to provide free financial education to members across the state. To learn more about OneAZ’s partnership with Money Peach, click here.

Click/Apply online icon

Click

Our virtual team is standing by to find the right loan for you.

Apply now

Call icon

Call

Speak with an experienced virtual loan officer 24/7.

800.453.9897

Visit a branch icon

Visit

Locate a nearby branch and connect with a loan officer.

Find a branch

Schedule an appointment icon

Schedule

Schedule an appointment with a banker.

Schedule an appointment

APR = Annual Percentage Rate

You are leaving oneazcu.com

Continue?
Yes No