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Banking 101: How Much Should I Have in Savings and How Much Should I Save?

Written by Joni Sweet | Published on February 21, 2020

Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.

How much you should have in savings depends on your age, your salary and your financial goals. As of June 2019, the average American household had $183,200 saved in their retirement and bank accounts. That number may be higher or lower than what you think you need, so let’s take a closer look at common yardsticks for measuring how much you should have in savings at any age.

In this article we will cover:

How much money should I be saving?

Broadly speaking, you should be saving a set percentage of your income every month. Figuring out the precise amount depends on your income and your age — and the amount you save will change over time. Between the start of a worker's career and the point when they retire, average U.S. income keeps rising steadily until the 55-64 age range, and rising income gives you more scope to save over time.

Most of your savings should be set aside for retirement. This is a long-term savings goal that you will be pursuing from your first paycheck to the day you retire. In the shorter term, focus your savings on your emergency fund, which should hold enough money to cover three to nine months of living expenses, in case of unemployment or major medical trouble. 

How much should I save for retirement?

In June 2019, the average American’s retirement savings totaled $24,570 for millennials, $127,550 for Gen Xers and $279,250 for boomers. However, your retirement goals might not fit into the average scenario. Here are three strategies you can use to determine your retirement savings target:

  • The 4% withdrawal rule: The rule of thumb is that you can safely withdraw 4% of your assets during your first year of retirement. You can increase that withdrawal amount to match inflation each year throughout your retirement. This method should allow your retirement fund to stretch for the next 30 years. 
  • The 75% of income rule: This rule states that you should plan to spend a maximum of 75% to 85% of your current salary annually throughout retirement. If you were born in 1980 and now take home $100,000 per year and plan to retire at age 67, you’ll need to put away almost $1.6 million in your retirement savings to sustain you for your estimated 21 years of life expectancy after you stop working.
  • The 15% of income rule: Fidelity recommended putting away 15% of your pre-tax income toward your retirement savings every year. This target includes contributions your employer may make toward your 401(k) or other retirement accounts. 

“With the possibility that interest rates may remain low for decades, it would be prudent to plan to save an amount that’s larger than what standard rules of thumb suggest, like the 4% withdrawal rule,” advised Ken Tumin, founder and editor of DepositAccounts, a LendingTree subsidiary. 

He also recommended considering other factors in your life as you set your retirement savings goal. “These include your job type and if you will be able to and want to keep doing the job after your retirement age. Your planned retirement expenses are also an important factor,” he said.

How much should I save in an emergency fund? 

Experts recommend squirreling away the equivalent of three to six months’ worth of expenses in an emergency fund. That amount could keep you afloat while you're looking for a job after a layoff, or cover the unexpected expenses that pop up in everyone's lives from time to time, like a major car repair, significant home repair or hospital bills. 

Your individual life circumstances can play a role in your emergency fund savings goal. If you’re single and you have a stable job, a three-month emergency fund might be enough of a safety net. Your emergency fund may need to grow if you are self-employed and/or have dependents. 

“The [emergency] fund size should be closer to 12 months [equivalent of living expenses] if you have more family responsibilities or if it would be difficult to recover from a job loss,” said Tumin.

To figure out how much you need in your emergency fund, tally up all monthly expenses, such as your rent or mortgage payment, utilities, insurance premiums, transportation and food. Then, multiply that by the number of months you’d need your fund to cover you in an emergency, such as three or six. Start putting away as much as you can each month until you hit that goal, and then don't touch your emergency fund unless you absolutely need it. 

How much should you have in savings by age

To help you understand how much you need to save at each stage in life, we examined data from the Bureau of Labor Statistics (BLS) on average income and annual expenditures for people across age groups. We then calculated how much a person should have in emergency savings to cover their typical expenses for six months, along with their retirement savings goal, based on the 15% of income rule.

These numbers can help you get a sense of appropriate savings goals for someone who earns and spends the average amount for their age group. However, many people fall outside the average savings by age, and you may need to save significantly more or less, depending on your financial situation.

Emergency fund savings goal* Retirement savings goal**
By age 30 $28,229 $55,562
By age 40 $35,599 $183,559
By age 50 $37,693 $338,020
By age 60 $33,106 $486,300
*These figures are based on an emergency fund equal to six months of expenses. **These figures are based on the 15% of income rule and assumes the person started saving for retirement at age 25. 

How much should I have in savings by my 30s?

U.S. workers ages 25 to 34 earn an average of $74,082 per year, according to BLS data. That means retirement savings by age 30 should be $55,562, based on the 15% of income rule. Expenses for this age group are about $4,705 a month, so they should have a six-month emergency fund of $28,229 to serve as a safety net. 

By age 30, you’ve probably already gained quite a bit of work experience. Most 30-somethings have also started socking money away for retirement, while simultaneously juggling student loan debt. You might also have dependents, such as children, who add to your monthly expenses.

How much should I have in savings by my 40s?

Your retirement savings by age 40 should be $183,559, considering the average annual income for people ages 35 to 44 is $96,581. Monthly expenses for people in their early 40s are usually $5,933. Based on that, you’ll need an emergency fund of $35,599 to cover the recommended six months of living expenses. 

Your 40s are an important decade for planning for retirement. Some people in their 40s may choose to downsize to a smaller home once their kids are grown and/or pay off their mortgages. 

How much should I have in savings by my 50s?

By age 50, you should have $338,020 in retirement savings. Your monthly spending will equate to $6,282 on average. Therefore, your six-month emergency fund goal should be $37,693.

People between the ages of 45 and 54 have the highest pre-tax income ($109,366 annually) compared to all other age groups, which could present an opportunity to bolster your savings. Most people start facing the realities of their looming retirement in their 50s and make long-term savings a major priority.

Consider taking advantage of catch-up contribution allowances for people age 50 and up to boost the balance in your 401(k) and IRA accounts. These allow you to contribute an extra $6,500 to your 401(k) or $1,000 to your IRA annually from age 50 onward. 

How much should I have in savings by my 60s? 

The average annual income drops to $88,342 for the 55-64 age group, and monthly expenses fall to $5,518. Given that you’re spending less, you can bring your emergency fund goal down to $33,106. You should have at least $486,300 saved up for retirement by this time. 

Depending on your target retirement age, you may only have a few short years left in your career by age 60. Now’s the time when you might want to start thinking about what your retirement may look like. How much do you expect to receive from Social Security? Do you intend to have any other sources of income, such as a part-time job? What are your expected health care expenses and long-term care considerations? 

As you near retirement age, adjust your investment portfolio to make it less risky. Five years before you retire, stocks should account for no more than 20% of your overall portfolio. Work to pay off any remaining debts and continue to use catch-up provisions to give your retirement savings one final boost. 

Where should I keep my savings?

You need to keep your savings in accounts where they will earn interest and grow over time. But you may need different accounts for different kinds of savings.

You should consider saving your emergency fund in a highly liquid deposit account that allows you to access the money rapidly in an urgent situation. Remember, your emergency fund is an insurance policy, not an investment opportunity. For that reason, Tumin recommended keeping the fund in an FDIC-insured savings account or money market account. Think twice before potentially investing your emergency fund in higher-risk, lower-liquidity assets like stocks and bonds.

On the other hand, you need to obtain a higher rate of growth for your retirement funds than would be available from an insured deposit account. You should consider keeping your retirement savings in individual retirement accounts (IRAs) or 401(k) plans, both of which enjoy significant tax advantages. 

Early in your savings journey, you might consider a riskier allocation for your retirement fund. The long horizon of your investments can give you time to rebuild after any downturns in the market and capitalize on the power of compounding interest. As you get closer to your retirement age, you may want to shift your savings into less risky financial products to reduce the potential for losses that you won't have time to recoup. 

Tips to make sure you have enough money in savings

  • Create a budget. A budget can give you a clear idea of what your expenses are and how much of your paycheck you can save each month. Write down each of your fixed costs (like rent payments and utility bills), along with your discretionary spending (such as going out to eat or traveling). Then, decide how much you want to save of the remainder and whether you’ll put it toward your emergency fund, long-term savings, another financial goal or some combination. 
  • Set up automatic transfers. Once you’ve figured out the right amount for how much you should save each month, set up automatic transfers to get in the habit of putting that money in the intended place. You can set up automatic transfers to align with your payday or move money into your savings at fixed intervals, such as weekly or monthly.
  • Cut out fees. Monthly maintenance fees, overdraft fees and other surcharges can chip away at your savings. If you’re regularly paying fees for your bank accounts, consider switching to a financial institution that charges few to no fees.
  • Set up payment reminders. You might be missing out on other opportunities to save money if you’re incurring fees from late bill payments. Set reminders about when your bills are due and strive to pay them on time.
  • Pay down debt. Debt is expensive. Every month you carry a balance on a loan, credit card or another type of debt is another month that you’ll probably incur interest. Create a plan of attack for your debt, and then stick to it until you bring your balance to $0. 

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