It’s Complicated…How Much You Should Really Have Saved, By Age

I come across articles every so often in financial media on this specific topic, and I always tend to have the same response.  Really?  Below is a link to the latest article that espouses how much money you should have saved at certain benchmarked ages.  For example, by 30 you should have X, by 40 you should have Y, and on, and on. 

https://www.forbes.com/advisor/personal-finance/how-much-should-you-have-saved-by-age

Here’s the real answer to how much money you should have saved by certain benchmarks, not the ones by various financial companies as given in these articles.  It depends.  More specifically, it depends on A LOT of things.  Generally speaking, the theme is to have a certain multiple of your annual income saved by benchmarked ages.  For example, at 40, this particular article says you need 2x your annual salary saved.  And by 45, 3x your salary.  On the surface, not a horrible gauge, although someone on the lower threshold of those numbers could be in serious danger of not having a very comfortable retirement.  What these benchmarks do, however, is allow investors to feel one of two ways.  One is scared that they haven’t saved enough yet, getting them to take action.  Or two, make them believe they’re well ahead of the curve, possibly prompting someone to loosen their standards and take their eye off the prize, so to speak.  Either way, there’s danger in both lines of thinking. 

So much of financial planning is so seriously tailored to an individual that it’s difficult to paint with broad strokes when setting these benchmarks.  Let’s go over some examples.  If you’re a small business owner, you probably view your retirement plan far differently than a 9 to 5 employee.  Your business, in all likelihood, is a huge chunk of your retirement plan.  But on paper, your individual savings don’t equal what some financial wonk thinks they should be.  I’m not saying business owners don’t need to worry about putting money away themselves, far from the truth.  There are avenues available to them that a salaried employee won’t have.  But the reality is, business owners think about things differently.  They are betting on themselves, and in most cases, investing primarily in their businesses to see it grow and bear fruit.  That’s a worthy cause (assuming their business isn’t selling water to whales).  It’s also the case with certain professions that you don’t start making real money until your thirties at least.  Doctors aren’t usually gainfully employed until their late 20’s or early 30’s, after getting through medical school and then residencies.  They can come out making pretty decent money, sure, but they’ve also got piles of student loans to pay off, right around the same time they’re getting married, having kids, and establishing a life for the first time. 

Here’s something else you can’t find in these benchmarks.  Your lifestyle.  For someone who never gets married or has kids, and makes $150k a year, they have an ability to sock away an obscene amount of money.  In all likelihood, they would hit all these numbers.  But that same person making the same money who gets married to someone making let’s say $50k, they probably will have kids, two cars, and a house in the suburbs.  That additional $50k income gets spent before it’s earned it feels like.  Now let’s say this same person making $150k has an aging parent with Alzheimer’s they’re now responsible for.  That $150k is now spread a little more thin. 

Life happens.  I speak as someone who just made a major career change myself, but knowing a lot of friends and family that have done so as well.  People get laid off.  People start businesses.  People have kids.  People get sick.  Life is beautiful.  Life is messy.  How much money you need to have saved for retirement, quite frankly needs to be determined by you and your lifestyle.  If you’re fine living in a one bedroom apartment and cutting coupons every week, there’s a way to prepare for that.  If you want to continue the same lifestyle (whatever that may be) well after you’ve stopped earning a regular paycheck, there’s a way to prepare for that as well.  The point is, your situation isn’t like mine.  And ours aren’t like theirs.  Everyone’s different, and everyone’s financial plans and “retirement numbers” need to be catered especially to them. 

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