Savings Goals by Age
Managing your finances, from the time you enter adulthood to the time you expect to retire, is like running a marathon: To make sure you reach your goal within the desired time, you need to be aware of your pace and distance along the way.
Marathoners do not start off at a leisurely pace with the expectation that they’ll just make up time in the end, yet so many of us approach retirement that way. According to the National Institute on Retirement Security, over 60 percent of working households age 55-64 have less than one times their annual income in retirement savings.
You don’t have to be destined for the same fate. To avoid suddenly waking up at retirement age only to realize you’re way behind, you’ll need to pace yourself. Aiming for specific “mile markers” along your financial journey will ensure you remain on track to meet your goals. Here are some money milestones to hit at every age.
Goals to Reach by Age 25
Your early 20s is the perfect time to establish healthy financial habits. Leverage the fact that time is on your side, and look to hit these important milestones.
- Have a Fully-Funded Emergency Fund: Setting aside money for emergencies is a must for any solid financial plan. Look to have between three to six months of expenses saved up.
- Secure Your Own Health Insurance: Since you’ll no longer be able to stay on mom and dad’s medical insurance beginning at age 26, have a plan in place well before then to avoid any lapse in coverage.
- Begin to Contribute to Retirement: Let compound interest do its magic by saving for retirement early. If you’re battling student loans, make those your priority, but attempt to contribute something towards a 401(k) or IRA, and look to increase it annually.
Goals to Reach by Age 30
By the time you enter your thirties, you’re getting the hang of this thing called adulthood. It’s time to firm up your financial foundation. Look to hit these goals.
- Eliminate Student Loan Debt: Attempt to get rid of your student loans as quickly as possible. After all, you potentially have your children’s (or future children’s) college to think about soon, so make sure paying for yours is behind you.
- Save for a Down Payment on a Home: If purchasing a home is a goal, look to save 10-20 percent for your down payment. While you can buy a home with less down, having a healthier down payment puts you in a position to build equity and avoid private mortgage insurance (PMI).
- Secure Life Insurance and Establish a Will: If you’ve started a family, or if anyone is dependant upon your income, establish life insurance policies for both you and your spouse (if married), and write your will. Even if you haven’t started a family yet, it’s still worth looking into, as you can lock in a lower life insurance rate when you’re young and healthy.
- Contribute 15 Percent of Your Income Towards Retirement: If you’re putting less than 10 percent of your pre-tax income towards retirement at this stage, it’s time to increase that. Aim for 15 percent, and certainly no less than 10 percent.
Goals to Reach by Age 40
By 40, you are more established in life, and your finances should reflect that. Aim for these critical milestones.
- Eliminate All (Non-Mortgage) Consumer Debt: Hopefully, your student loans are far behind you at this point. Also look to knock out credit card, car loan, and other consumer debt by this age.
- Have a Plan for Kids’ College: Don’t wait until your children are seniors and are looking at their acceptance letters to start thinking about college funding. Have a plan in place before you get to that point, and be realistic about what you can afford to contribute.
- Have Twice Your Income Saved: A great goal to work towards is to have twice your annual income saved in your retirement accounts by this age. This will help keep you on track to have enough saved once you reach retirement age.
Goals to Reach by Age 50
Continue to build on your firm financial foundation by looking to reach these milestones by 50.
- Max Out Retirement Options: Max out all the options you have for retirement. Meet with a professional to see what adjustments you need to make to remain on track to meet your retirement goals. Take advantage of higher catch-up contribution limits beginning at age 50.
- Pay Extra on Your Home: With consumer debt behind you, this is a good time to start thinking about paying extra on your home. If you are maxed out on retirement and have college-funding secure, turn any available dollars in your budget to your mortgage.
Goals to Reach by Age 60
You’re in the home stretch of your financial marathon, but you haven’t crossed the finish line just yet. Aim to accomplish these tasks.
- Fine Tune Your Retirement Goals: Again, meet with a professional to assess your retirement goals and what additional steps you need to take to reach them. If you are considering downsizing your home, moving, or making any other significant changes before retirement, establish a firm timeline that you need to work towards.
- Review Your Will and Life Insurance: Revisit your will to make sure it reflects your current situation and wishes. Make any necessary changes. And check to make sure your life insurance policy meets your needs.
- Look Into Long-Term Care Insurance: Look into long-term care insurance for yourself and spouse if married. Ideally, you want to have this in place before you need it.
Have a Plan
It can be daunting to think about hitting all of these milestones, especially if you’ve already passed some of them by. Don't be discouraged, though. Instead, assess where you are and what you need to do to position yourself to meet them.
The key is to have a plan and to be intentional with your financial choices. By being aware of these milestones and aiming for them, you’ll set yourself up to be on track to meet your retirement goals.