How Much Should You Be Saving For Retirement?

July 5, 2022

According to the Social Security Administration, its retirement benefits are only designed to replace approximately 40% of the average worker's wages. That means that approximately 60% of your money in retirement will need to come from a combination of your IMRF pension, other retirement savings accounts such as IRAs, 403b or 457b plans, personal savings accounts, and/or other investment earnings.

So, how much should you be saving for your retirement?

Industry Benchmarks and Rules of Thumb

One major investment firm recommends that you aim to save at least 1x your salary by age 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. So, if you are earning $50,000 by age 30, you should have $50,000 banked for retirement. If you reach 67 years old and are earning $75,000 per year, you should have $750,000 saved, based on this rule of thumb.

Another major investment firm says that saving 15% of your income per year (including any employer contributions) is an appropriate savings level for many people. They also give the following benchmarks, which are similar to the rule of thumb listed above, but slightly less aggressive for ages 30 to 50, and with wider ranges for age 55 to 65:

• Age 30 - half of salary saved
• Age 35 - 1x to 1.5x salary saved
• Age 40 - 1.5x to 2.5x salary saved
• Age 45 - 2.5x to 4x salary saved
• Age 50 - 3x to 5.5x salary saved
• Age 55 - 4.5x to 8x salary saved
• Age 60 - 6x to 11x salary saved
• Age 65 - 7x to 13.5x salary saved

How Do Others Your Age Stack Up Against These Benchmarks?

Most Americans are not saving sufficient amounts of money for their retirement years. This is true for all ages ranging from millennials to baby boomers. Research from one of the major investment firms shows the following average contribution rates and retirement savings balances for others in your age range:

Twentysomethings (Ages 20 to 29)

• Average retirement savings balance: $10,500
• Contribution rate (% of income): 7%

Thirtysomethings (Ages 30 to 39)

• Average retirement savings balance: $38,400
• Contribution rate (% of income): 8%

In its 20th annual survey, the Transamerica Center for Retirement Studies found that millennials had median retirement savings of approximately $23,000. The median retirement savings for Gen Xers was $64,000 and for baby boomers it was $144,000.

Similar findings come from the Economic Policy Institute: It estimates that those ages 32 to 37 have saved around $31,644, and those 38 to 43 have saved around $67,270. For ages 44 to 49, the average retirement savings are $81,347, and those 50 to 55 have saved an average of $124,831.

Though these may seem like healthy amounts, all of these numbers are well below even the most conservative goals.

What Can You Do to Bulk Up Your Retirement Savings?

As an IMRF member, there is a unique and highly effective savings vehicle available to you, to help supplement your retirement savings. IMRF's Voluntary Additional Contributions (VAC) program is just one of many savings options available to you, but it is low-risk and offers higher interest rates than many other retirement savings options.

VAC is a particularly attractive savings vehicle in the current economy, with the stock market experiencing a historic decline and economists predicting a recession, due to its consistent high interest rate.

With VAC, you can elect to save between 1% and 10% of your reported earnings in an account that currently earns 7.25% interest. The interest is credited at the end of the year, based on the opening balance at the beginning of the year. Contributions are after-tax and do not reduce your taxable income as in a 457 or 403(b) plan.

IMRF members who begin contributing under the age of 40 will benefit significantly from the compounding interest on their contributions, which will add up to substantial savings by the time of their retirement.

VAC is a great way to build the personal savings members will need to supplement their pensions in retirement.

For more information on IMRF Voluntary Additional Contributions, click here.

Public link

Please use the above public link if you want to share this noodl on another website.