If you Google “How much should I save for my retirement?” underneath all the advertisements for financial institutions you will get consistent results of “15% of your pre-tax income.” Great advice, but at what point in your life are you when you ask that question? Would the answer be the same if you are 25 years old or 50 years old?
Obviously, the answer would vary greatly based on your age and how much savings you’ve managed to achieve. So, let’s do a quick breakdown. If you are 30 years old, you should have 1x your salary banked for retirement. This includes 401k’s, IRA’s, 403b’s, etc. (listen to my Account Funding Priority podcast for more on where the money should be invested). So, if you make $50k/year when you’re 30, you should have $50k in retirement savings. As you age, here are the multiples of your salary you should have saved:
- Age 35: 2x
- Age 40: 4x
- Age 45: 6x
- Age 50: 9x
- Age 55: 12x
- Age 60: 17x
- Age 65: 23x
Panicking because you just did some quick math and realized that if you are making $150k by the time you are 60, you should have $2.5 million saved? Relax, your money will be working hard for you at that point.
You’ve heard of Warren Buffet, right? His net worth is over $102 billion. Did you know that 99.7% of his wealth was earned after his 52nd birthday? That’s because compounding works wonders for your retirement savings in those later years.
Here’s how you can make sure you live comfortably in retirement and take advantage of compounding interest:
- First, look at what you’ve saved and check the age chart above to see if you are where you need to be.
- Start saving now. Just as Google suggested, put away 15% of your pre-tax income. Are you behind where you need to be? You have options:
- Save more – Put a higher amount into your retirement accounts than the recommended 15%.
- Spend less – Need help trimming the fat from your budget? Listen to Wait a Week for tips on not spending.
- Work longer – No one said you have to retire at 65. There are many benefits to delaying retirement, including significantly increased Social Security payments.
- Automate your savings so you live off what is left in your paycheck AFTER you’ve saved. Listen to my two-part series on automation.
It’s never too early or too late to begin planning for retirement (ok, it might be too late if you are already 65!). Check out the resources below for more information on saving for your future.
00:00 Matt: Welcome to real financial planning, broadcasted on WKXL available, or wherever you get podcasts. I'm Matt Robison joined as always by Mike Morton of Morton financial advice. Also the host of financial planning for entrepreneurs, which if you're an entrepreneur and you're not listening to this podcast? I don't know. What are you doing with the rest of your time? new companies? What are you doing? Listen to more podcasts.
00:22 Mike: That's right. You've got the time.
00:25 Matt: exactly right. For people who are spending their time. Thank you for joining us on this. Oh. In whatever podcast feed you find it. We're in financial planning for We're also in the capital closeup podcast feed. I hope you have subscribed to both those podcasts where we appear in both and actually ratings and reviews. Really helped those podcasts out. So if you like, please leave one of We like five-star ratings. If we consider a four-star rating, we'll accept that. That's cool too. That's awesome.
00:52 Mike: Yeah. Yeah And you don't, if you don't like the podcast, then you could just, not listen and don't leave any reviews
00:58 Matt: Just don't listen, I'd say that's amazing advice. That's the kind of insight I get from Mike Ward here and nowhere else. Hey Mike, we were saying right before we got on for this show, we were talking about what you wanted to talk about. You uncovered something that I find actually neat. It's so interesting. How. When we think about, look, some of us don't like to think about our money or finances, or savings that much. We mostly think about it as a way to not worry about it. The problem is that we worry about it. Anyway, the real question is, am I okay? It's like when you go to the doctor and you're like, Hey, what's this, what's the spot here on my arm. you want the answer to that, but what you really want is for the doctor to say, oh, you're okay. And then you're fine. And so you have a neat way of. Of doing that when it comes to retirement savings of rather than a whole lot of math, a shorthand for, am I doing right?
01:57 Mike: Yep. Now, this is an article from marottaonmoney.Com and we'll list the article in the show notes. And I ran across it a few years ago and really liked the article. And it was all about actually the Oregon trail and traveling along was the comparison. And then where are you in retirement compared to the Oregon trail? But here you go, that what we're talking about is saving for retirement. Have you saved enough for retirement and where are you along the journey? And as you get older, of course, you want, saved more as you get older. So let's go ahead and Matt starts through the chart. And your age and how much you should have saved.
02:37 Matt: Right so let me make sure I follow this So we're following you're going to give us right up front here in the show to give us right up front here in the show and people keep listening but you're going to, give us at but you're going to give us at each age in five how much you should have saved at that point
02:58 Mike: That's right. And this is going to be like, it's going to be a little bit of a char, listeners can breeze all the ages that aren't near their age and just focus on the
03:05 Matt: Or or no, you could pay attention to those Or no you were friends at that to those. And then if you were friends at that age, you could point at them and okay So there's a lot of uses for so There's a lot
03:16 Mike: There's a lot of uses for this, but what I want you to first do is obviously think of your age. So you got that. And then I want you to quickly think about how much you currently saved for retirement Make a round number, how much, you know in your 401k is your individual retirement accounts with your partner, potentially
03:37 Matt: Just just a round number just a round
03:40 Mike: A round number
03:41 Matt: Got it Okay Okay. I think I
03:43 Mike: All right. So if you're 30, All Alright. You started your career five or eight years ago, at age 30. You have saved one time your salary. That was the other point, Matt. I didn't say, think about your salaries. that kind of is your
03:56 Matt: Oh, I see. Okay. So Oh I see Okay So so whatever is right in our household right eight, so that's how much should be in all of those accounts added up at.
04:10 Mike: so at age 30 you should have saved 1x Your entire salary
04:16 Matt: I make a hundred thousand bucks, I should If I make a hundred thousand bucks I should have up at that saved up at that point at age
04:25 Mike: that's right
04:26 Matt: Perfect
04:27 Mike: Here we go. Age 35, 5 years later, two times,
04:32 Matt: And that's whenever my current salary is. And that's whenever my current salary is Maybe I'm making more at that point. Maybe I'm making 150,000 at age 35. at age 35 So I should have saved two times that amount, 300,000.
04:48 Mike: You go 40. You should have four X.
04:52 Matt: Four Times your salary Got
04:54 Mike: Age 45, 6 X six times your salary, age 50, almost 10 times, 55, 12 times. Age 60 17 times. Age 65, going to call retirement. 23 times your yearly salary or you need to live on now. Yeah. So one thing I'll point out about this just briefly, and then I know you've got questions. We'll get into But at age 30, we started working at 20 to 25 by 30. You saved one X and this is a five years chunk. Let me just say the numbers every five years: 1, 2, 4, Then 9, 12, 23. So it starts really slow. One, two and four over know from ages 30 to 40, really small kind of slow kind of growth. And then the compounding really kicks So right off the bat, one thing I want you to notice is that if you're in the middle of your career, I I say the middle of your career ages, 40 to 50. You might feel really behind, maybe you are far behind. Okay. But you
06:09 Matt: Go on. I'm very interested in what you're saying. Go on . I'm very interested in what you're saying. Just say that, someone. Let's just say that you know someone will call him. Matt are who feels this
06:20 Mike: feels very far behind. Because you haven't saved that big pile of money yet realizing that compound is going to kick in for the last or 15 years. years and So you save a whole lot upfront. I mean It's really hard. It's nickels and dimes, you know when you're starting, it doesn't grow that fast. And then towards the
06:36 Matt: That's interesting because. I'm really glad you said that because I'm really glad you got off the show by saying that this is a way to get off the show but it's very easy. Unless you realize that it's very easy Unless you realize that last point you said and say ahead and find this reassuring. I find Ooh I don't find this What you're saying is. stressful a, how goes it is here, that's there's a how goes want to make sure that you're on it you want to worry on it but don't worry that don't see how you're going to make the gap on salary alone between here and salary alone between here and that next five-year
07:12 Mike: That's right. I love the way you said that on your salary alone, because you're young and you're saving that 15%, that's why it takes you that first six, seven years to get to one you're literally saving like 15% times, six years to finally get know oh, I saved one times my
07:30 Matt: Ah
07:31 Mike: Then that is one time your salary. Is going to start compounding and you're still saving. Okay. So then later on in your fifties, say the bulk of your retirement savings is going to come from it is already what you've saved. It's already in the bank and it's compounding. You're not adding that much more. Every. Because you're adding 15% of your salary, but you've already saved the whole bunch, hopefully. And so that whole bunch compounding and probably adding more than your, know continuing to put in
08:00 Matt: Why to ask you about the bookends let's do the front end first and then we'll do the front end first and then then we'll said something kind At the front end You just said interesting, which is saving about a target of about 15% in those initial years in your career And about that I mean Those are those are going to be small dollars comparatively it sounds like that's kind of critical because those are the dollars that you're going to get the most magic of compounding on So in a way it's like they're almost more dollars is I it's weird but like is so first of all, is that of outright And and
08:38 Mike: That's a good question. So I always start with 15%. All So if you're in your twenties, thirties, or even teens, okay. Target 15% of your gross income. That is saved for the future for your retirement or flexible future. Okay. So 15% of your gross income. Just take it off the top. in your IRAs, your 401ks. That's probably about right. You're not hitting those maximums in dollars. So you can save 15% in those areas and just live off the rest. And if you get used to doing that in your teens and twenties, then you're already way ahead of the game. You're going to be great. Okay. So 15%. And the reason that it works, Matt, is because if you take the salary from , you know, age 24, up to age 65, And you assume, make some assumptions. Like my salary kind keeps up with inflation and I'm going to say 15%. I'm going to get some compounding on that. When you reach 65, you have enough to stop working and then live on that same salary. Okay. That's just mathematics, how that works out. That's what we say, 15%. And then you're exactly right. The early dollars make all the difference. And that's where the compounding starts. There's another story we've talked about before enough for awhile now, where for a new. You could put in some money. Okay. So you can put in a couple of hundred dollars or maybe for a grandchild, you put in $3,000, if you do $3,000, when they're born, it turns into millions of dollars. By the time they retire and it doesn't start big, right. 3000 is only going to be $200 next year. So you only made like $200 that first year and another $200 next year, you know, so by the time, 10 or 20 years, It's really not that big, even if it's the next few years that it gets bigger and bigger. So yeah, those dollars are really important. Start early, invest as early as you can And as often
10:29 Matt: I'm just continually struck by it. The magic of exponential growth compounding it really incredible I saw a a statistic once they were were talking about how humanity populated the Americas, basically during the last ice age And there was an estimate you started just a thousand humans Who migrated over from Asia across the land bridge that existed at the time over to Alaska And then down into north America a thousand over a thousand years becomes a million and you only need to add 0.1 people per year it's astonishing at rate you know and so you you end up with 101 people in the first year and you're like this is Never going to happen Never going to happen. And lo And behold I actually did it in Microsoft Excel. The same thing is true with retirement. Okay. That's fascinating. That's a very helpful 15% great rule of thumb you said table before that, by age 65, you should have 23 times. You're saying that's an awfully specific number. That's a suspiciously specific number. Why 23 Are you like a Michael Jordan fan Like what's up
11:49 Mike: Right so again, this is pulled from the Marotta on money article. And I highly recommend checking that out and of the supporting articles well, and it's just, again, mathematics you the average return and assumptions living on that salary for the next 30 years, 65 through 95, the withdrawal rate, if you had 23 times, I often say 25 times just to make the math easier. If you have 25 times what you need every year, Then you withdraw from that portfolio to live off about 4%. Okay. So you have 25 X, what you need, you can take 4% of that
12:27 Matt: Which is one 25th So it's like you
12:30 Mike: Yep. One 25th, 4% and a 4% withdrawal rate is pretty sustainable. All right, now we can get into sustainable withdrawal rates. That'll be a whole other podcast. If I have a million dollars, I really live on 25,000 a year? And. forever? know Potentially, so yeah, 4% is a pretty good conservative, pretty good rate. And so that's why we say 23 X or 25 X. Is it really a good target to know? Now remember, so you're thinking now you're thinking, I need 25 X and I'm not far from retirement and I've only got 15 or 20, geez, I have to add another five times my salary. But remember what you just said is like, from. 60, You only have 17 times your sad. and in the next five years you'll get 23 times your salary. So those last five years of working where hopefully that retirement portfolio is working for you and continuing to grow while you're not withdrawing
13:23 Matt: Now one thing that is not subject to the magic of compounding is whatever money you're going to get from security I you know like
13:34 Mike: No. Wait, hold on a sec. Hold a sec. That is subject to compounding because if you delay taking social security, you get a guaranteed 8% return on that. So the longer you delay social security, one of the best ones out there is that you want to delay taking social security. As long as can, every year you delay, you get another 8%
13:54 Matt: Oh that's interesting. I didn't know that dude Why didn't you do a whole show about that you gave away, you get like we're still in the the first 20 of the movie you showed the shark and John You save the shark. Now we're going to need a bigger boat and another podcast for that Um All all right. That's fascinating So I that that the broader question I going to to ask is you touched on this briefly at the top of the the show What is included in that you know like all of your savings, here you said IRA Four Oh three BS I still I've done this show with you I've done like 60 70 episodes show with you I don't know know what a 4 0 3 PS um whatever It's it sounds like a
14:36 Mike: People that have them know
14:37 Matt: Oh okay good so for people who BS, that's included that's good but social security is in there too right so you do have to do a
14:44 Mike: No, it's not. Okay. So this, so it's really good. good point. What you need to know is the amount that you need. All The math gets more interesting as you're approaching retirement So I do recommend this. Oh, I'm getting pretty close to retirement. Am I going to be okay? I will retire two years from now or four years from now, that's when you really want to start dialing. in. You don't want to just wing that. You want to know when is a good time for taking social security? How much can I rely on my portfolio? What are investments in my portfolio in how risky am I being? What's a safe withdrawal rate for me? All of those things, you really should work the So that's one thing to be aware of, but in terms of gross numbers, what talking about is for retirement. 401k is for three BS , deferred comps and individual retirement accounts. If you have taxable savings, brokerage accounts that are hundreds of thousands of dollars that you're saving for retirement, you've made some savings. Yeah. So just put all that together in one big bucket. Now, the other point is that I mentioned, oh, if you saved a million and you withdraw 4%, so 40,000 a year, can I live 40,000 a year? If you've saved $1 million? You might add social security or pensions on top of that. So 40,000 might not be enough, but with your social security, in any pensions, maybe $1 million enough. So that's when you're really dialing in,
16:01 Matt: So that 23 targets all of this assuming there's probably some social security in there. keep it separate just look at your various accounts Okay That's actually, that's very helpful. Now, look, this is going to be a fast and I think obvious one, think but you're M. Robison and you're behind what are your options You And again, we're not saying project forward because we don't know about the here We're saying right now at. Chart off you know you're in a certain age range and you do not have saved that multiple of your salary to be targeting at that point And you do have to do a little bit of catching up the obvious ways to do that. I'm assuming they spend less and earn more.
16:51 Mike: Yeah. Yeah. It's those three it's never pleasant. A couple of tips. If you're younger, already mentioned this. If you're younger, it doesn't seem like a lot, but those dollars make a big difference later. So if you're not at the 15% yet, really focus on that by saving more and spending less, you're just going to have to. Okay. But the earlier you dial that in. You get the double whammy mat because your living expenses are going down, which means for the rest of the decades ahead of you, your living expenses are a little bit less and one 3%, little bit less makes massive compounding on the expense side. Okay. So I do this projection all the time with my clients. Hey, we're going to project 30 years of retirement. Are you spending 4,000? We're 5,000 a month? What these thousand bucks seem like a whole lot, right? Every month for 30 years, that's 25% different. It's massive. Okay. So if you can just save your expenses a little bit, and you're still in the middle of your career, early career, that's going to make a massive compound difference on the expense side and get it Okay. So both ways, the other thing is to get a double whammy is work a little bit longer. All right. By working one or two more years. Not only are you saving one or two more years, but really the best part is you're not spending from your portfolio for those one or two years. And again, the compounding, if you do that at age 65, 66, okay. Not spending the dollars at 65 66, those dollars are getting invested for another 30
18:27 Matt: Got it Well I actually Somewhat reassuring So somewhat comforting. So look, seems like the the bottom line here, once again is people can look in the show notes, go to either of these podcasts check out the but this is it's just a great shorthand and there are things you can do the younger you are to get onto the target that you need to be at.
18:49 Mike: it's always good to know where you are and feel confident, um that you're on the right
18:54 Matt: So another seemingly obvious question. Do your particular investments matter in all of this? you are a little bit behind.
19:03 Mike: Yeah we're talking a lot about and you're not going to compound very quickly if you don't invest. So yeah, just go back and listen to what other episodes we've ever done about investing in and what you should be in at which funds and all that. But yeah, across your retirement accounts, these are accounts that are for the far future, usually, 5, 10, 20 years away. And so you want to be heavily invested, 70%, 80%, 90%. Again, this is not financial advice, but something to consider, be heavily invested in the future because those investments are what really give you the compounding over.
19:37 Matt: But it's not like there's a secret sauce out there. Here's one weird trick. If you have how'd that you wouldn't be doing this
19:42 Mike: That's
19:43 Matt: you yourself would invest and wouldn't tell anybody else. So you maintain that. It doesn't exist if it existed people, if it exists, you're not going to hear about it from anyone writing about it or anyone podcasting about it, it themselves. So if you hear that out there, it is not valuable. What about, are there any specific things that you should be doing right now?
20:08 Mike: Yeah. Yeah. So let's give the listeners some action. So one, we started off the whole show with what age you are and how much you should have. So go ahead and take minutes and figure that out. Total your accounts, check all your retirement accounts, check your age, look at the show notes to get the link, read the article, but you can just check and see if you're on track. So that's the first thing to do. And then we gave you some tips, if you're behind and congratulate us. You know if you're ahead and then number two, you can double-check your savings rate. We mentioned 15%. I told you why. I really liked that. Getting some for savings, keeping your expenses a little bit lower, living off the other 85%. so double check your savings rate. Are you saving 15% of your take-home salary? And then third automate those savings? We had an episode about automating your savings and making sure you don't have to keep revisiting this topic all the time, spending the mental energy to just make sure you automate your savings. But the big thing Matt does is don't stress too much. Okay. If you find yourself a little bit because compounding really kicks in, everyone knows. knows how rich Warren
21:14 Matt: Oh, no, wait, that's Jimmy Buffet. Now I know Warren buffet, the famous investor, the mega billionaire. Yes.
21:21 Mike: Yeah. The mega billionaire made over 99% of his money after his fifties. And he made over 95% of money after he was age 60. Over 95% of his wealth after he's age, the real secret to buffet is not as investing acumen. The secret is he started as a teenager and he's in his nineties and he's still going. So he's invested for over 80 years of compounding and that is the secret.
21:50 Matt: That's very reassuring. We started off by stressing people. We tried to reassure first. We said, oh, look, we're gonna give you a handy tip. Then it was like a second. Isn't this stressful? And I liked that. We've kindly got to come full circle here too. Even if you're not at one of these benchmarks that you gave in this table, there are things you do. They're not rocket science. None of this is rocket science. There's not that much math involved. do the straightforward stuff. Excellent Mike Morton as always. Great, very practical Thanks so much. so much
22:22 Mike: Thanks for joining us on financial planning for entrepreneurs. If you like what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts. You can connect with me on linkedin or mortonfinancialadvice.com. I'd love to get your feedback. If you have a comment or question, please email me at . Until next time thanks for tuning in!