Money worries don’t discriminate by age. Whether you’re fresh out of college or nearing the end of your career, you’ll likely always fret over whether you have enough.
Enough to pay the rent. Enough to buy a house. Enough to send your child to college. Enough to live comfortably in retirement.
But how much is enough? There is no one-size-fits-all answer. Marriage, children, homeownership, major medical events and caring for aging parents all can change your savings strategy. Luckily, there are some good rules of thumb.
In your 20s
This decade is full of firsts for most people. You’re probably on your own for the first time, earning your first real paycheck and navigating a new level of financial responsibility.
On top of all that, many get married and welcome their first child in their mid- to late 20s. While marriage is (often) a one-time expense, your newborn bundle will add at least $10,000 to your annual expenses for the first few years.
Money may be tight, but it’s important to start saving what you can now to prepare for these and other expenses. Experts recommend setting aside at least 10% of your annual income. If that’s not feasible, save what you can now and increase your savings rate as you go.
One trick to make saving easier: automatic transfers. If you start moving $50 per paycheck into savings when you’re 20, you’ll have more than $12,000 in savings by the time you hit 30. Increase your savings to $75 per paycheck and that figure climbs to nearly $18,500 (assuming you’re paid twice a month and earn 0.25% APY).
You also want to start stashing money in a retirement plan such as a 401(k) or Roth IRA. If your employer offers a plan that matches your contributions, put in enough to get the full match. Doing this now, rather than waiting until you’re 30, could increase your nest egg by more than $100,000.
For another example, read our post on how retire a millionaire on a $27,000 salary.
In your 30s
You likely have more expenses than you did a few years ago. You hopefully have more income, too. Rather than letting your savings slip, now’s the time to ramp it up.
Consider investing beyond your 401(k), too. Roth and traditional IRA accounts both have tax benefits but may not be great for medium-term savings goals, such as a house. A taxed investment or high-yield savings account are two solid savings options.
One formula recommends having at least your current salary stashed in your retirement plans by the time you’re 35. So if you make $60,000, you want $60,000 in your various accounts.
Beyond retirement, consider future goals and needs such as buying a house or sending your child to college. The latter can cost upwards of $150,000 if Junior attends a public university, and as much as $340,000 if your child attends a private college.
Start saving $250 a month when your child is born and you’ll have more than $86,000 saved by the time he or she is 18 (assuming a 5% annual return, compounded monthly). Increase your monthly savings by just $50 and you’ll have almost $104,000 set aside. A college savings plan, such as a 529 plan, can help you get the most out of your money, since these accounts typically come with tax benefits.
In your 40s
All that saving and investing in your 20s and 30s should be paying dividends now. Using the same formula from earlier, you want to have three times your annual salary saved by 45. If you make $60,000 now, you want $180,000 in your retirement accounts.
In addition to shoring up your future, make sure your loved ones are taken care of should the worst occur. That’s where life insurance comes in.
Like other forms of insurance, life insurance premiums are based on risk. So the younger and healthier you are when you buy, the lower your monthly payments. To determine how much coverage you need, calculate your salary and financial obligations — things like a mortgage, child care costs, debts, future college costs and funeral expenses — and subtract liquid assets, such as existing savings and investments.
In your 50s
This life stage is often referred to as the “sandwich generation.” Your kids haven’t quite left the nest, and your aging parents may require more and more of your support. Around 15% of adults aged 40-59 financially support both an aging parent and a child, according to a report by the Pew Research Center.
Although your child will eventually become financially independent, it’s likely your parents will need long-term care, such as an in-home nurse or a room in a nursing home. A semi-private room in a nursing home averages around $75,000 a year, according to the U.S. Department of Health and Human Services.
Caring for your parent may prompt you to save for your own long-term care. If you start saving for this at age 50, BankMobile’s savings calculator suggests saving close to $700,000 for your care. But health insurance and other savings may help cover those costs.
Want to start saving now? Open up a BankMobile high-yield savings account!
Kelsey Sheehy, NerdWallet
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