Retirement Savings by Age: How Much Money Should You Have Saved at 20, 30, 40, 50 or 60?

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by Enoch Omololu

Updated

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How much money do you need to have saved in your 20s, 30s, 40s, or 50s if you want to retire comfortably?

While a ‘magic’ number for each stage of your life is great for assessing your preparation, predicting your retirement income using a rule of thumb is not as straightforward as you’d like.

Several factors can impact how much you need to retire, a few of which include your:

  • Housing situation: will you carry a mortgage or have paid off your home?
  • Lifestyle: if you plan to travel the world in retirement and take expensive vacations, you will need to save more.
  • Retirement Age: are you retiring at 55 or 65 years? Early retirement means more money is needed.
  • Government Pensions: how much and how many government benefits will you qualify for? After deducting the OAS and CPP, your income shortfall will come from your retirement savings or workplace pension.
  • Health Status: if you have significant health challenges, you may have to spend more money than previously planned.

What these factors tell us is that you should build some flexibility into your retirement plan. And, you should have a plan.

A poll conducted by RBC in 2018 showed that while Canadians had a retirement savings number in mind, 48% of them did not have a financial plan in place to reach their goal.

How much retirement savings should you have based on your age? Read on to learn more.

Retirement Savings by Age

The time to start saving for retirement is yesterday. The earlier you start, the better because compound interest works on your behalf and grows your retirement pot.

You can use an age-based rule of thumb or income multiple to gauge how well you are doing. A popular formula that’s been suggested by Fidelity works as follows:

AgeRetirement Savings
30 years1 × income
35 years2 × income
40 years3 × income
45 years4 × income
50 years6 × income
55 years7 × income
60 years8 × income
67 years10 × income

To attain these numbers, experts advise that you should be investing at least 10% of your paycheque. This is the classical “pay yourself first” principle.

At least 10% of your income should be invested in the financial markets.

If you plan to have a ‘fat’ retirement, consider increasing your savings rate to the 15% to 20% range, or even higher.

Retirement Savings in Your 20s

Fresh out of college or other post-secondary education, you are probably starting out with an entry-level job in your 20s.

If you are aiming for a traditional retirement age of 65, your investment timeframe could be up to 40 years or more at this point, which is great.

Start saving if you can. However, if you are carrying high-interest debt (e.g. credit cards or personal loans), my advice is to pay that off first.

Thereafter, focus on building an emergency fund that’s equivalent to 3-6 months of your expenses. Use a high-interest saving account to hold your emergency funds so you can easily access them if needed.

If your employer offers a retirement or pension plan and offers to match your contributions, take them up on the offer.

Personally, I saw my 20s as an opportunity to get an education, develop marketable skills, and invest in myself. It was a time for taking risky bets that would eventually make it possible for me to earn a decent income later on.

If you end up with limited savings in your 20s, don’t fret. There’s still time to catch up.

Retirement Savings in Your 30s

Based on Fidelity’s rule of thumb, you should have at least your annual salary saved by age 30, and two times by age 35.

The reality is that your 30s are probably going to be one of the most challenging times in your life to save for retirement.

You may be thinking about buying a home, getting married, paying off debt, having children, and more. While you are busy catching up with life, beginning to invest for retirement is crucial at this stage.

The retirement clock is ticking and you cannot afford to squander the time you still have on your side. Max out employer pension plans and pay attention to TFSA and RRSP contributions.

If you don’t have funds to contribute to both registered accounts, there may be merit to choosing one over the other.

Accelerate debt repayment and find ways to increase your income.

This is also a good time to get life insurance (when you are still very healthy) and create a Will if you have dependents.

Retirement Savings in Your 40s

At age 40, you should have saved three times your annual salary, and this increases to 4× your income just about the time you hit that age that defines mid-life or “midlife crisis”.

Not to scare you, but if you are not yet saving at this point, you will need to double up. Investment timeframe is no longer your friend.

Continue to invest. Ensure you are not paying too much in investment fees. If you have a self-managed portfolio, ensure it is rebalanced at least 1-2 times each year.

A robo-advisor like Wealthsimple can save you the hassle of rebalancing and it offers free financial advice at a low cost.

You can compare robo-advisors in Canada.

Keep tabs on your emergency fund. It should hold 3-6 months’ worth of expenses and will need revisiting as your circumstances change.

Your 40s is a good time to increase your savings rate. Consider putting aside salary increases, bonuses, etc.

Retirement Savings in Your 50s

If you are a “Financial Independence Retire Early” (FIRE) adherent, your 50s could be when you retire (if you haven’t done so already).

For the average Canadian or American, a good gauge for assessing your retirement readiness is to have saved seven times your annual income by age 55.

If you haven’t been investing or you have a huge shortfall, there’s still hope, however, you will also need to start adjusting your expectations. For example, you could work a little longer and delay retirement by a few years.

Canadians can begin collecting CPP at age 65, however, for each year you delay it, your benefits increase by 8.4% per year until age 70.

If you decide to take CPP early at age 60, your benefits are reduced by 7.2% per year until you turn 65 (standard retirement age).

At age 50 and above, you should be more careful with the investment risk you are taking.

For example, if your portfolio was weighed 80% stocks and 20% bonds, you may want to lower the risk level a bit by increasing the bond component and decreasing stocks e.g. 60% stocks : 40% bonds.

A more conservative portfolio may also be appropriate depending on your circumstances. This is because your investment timeframe is shorter and you have less time to wait for the markets to bounce back if there is a prolonged downturn.

Some other ways to boost your retirement savings include:

  • Saving salary raises.
  • Lowering your investment fees. A robo-advisor can help and you may also benefit from working with a fee-only financial planner.
  • Maximize contributions to your tax-sheltered (RRSP) and tax-free accounts (TFSA).
  • Automate your investing e.g. set up preauthorized contributions.
  • Cut your expenses.

Retirement Savings in Your 60s

You are close to retirement. At age 60, plan to have 8 times your annual income, and at age 65, a 9-10 × multiple or more would be excellent.

At age 65, the Old Age Security pension starts. Combined with the CPP, these benefits may account for up to an average of $15,654.48 per year based on the current average numbers for 2021.

Your retirement savings fill the gaps in your retirement income needs since CPP and OAS alone won’t be enough.

You can learn about how these pension benefits work in this retirement guide.

Your investment portfolio continues to require attention. While it is advisable to lower your risk exposure in retirement, some level of risk is required if you want your returns to exceed the inflation rate.

Keep your cash holdings in a high interest account that pays a reasonable interest rate – TFSA Savings, RRSP Savings, or General Savings.

If you are in doubt about your plan, consult a certified financial advisor or planner. For a retirement calculation that takes your CPP, RRSP, workplace pension, and more into consideration, click here.

How Long Will My Retirement Savings Last?

It depends on how much you saved, how much you spend each year, your investment returns, and more. One way to look at this is to use the 4% withdrawal rule.

What this rule of thumb infers is that if you withdraw 4% of your savings every year, you should have enough money to last you through retirement (or at least 30 years)

Some of the assumptions of this rule include:

  • Your investment portfolio is invested in stocks (50% to 75%) and it generates a healthy return.
  • You have some flexibility with income withdrawals. For example, in a bad financial year, you may lower your withdrawal amount by a few percentage points.
  • You increase your annual withdrawal by the inflation rate to account for decreasing purchasing power.

Assuming you have a portfolio of $1 million. Using the 4% withdrawal rule, you will withdraw $40,000 in the first year of retirement and adjust to inflation in later years.

Downsides of the 4% Rule

It assumes you are partly invested in stocks. Depending on your risk tolerance and financial circumstances, a 50% or more asset allocation of stocks can be too risky.

If the financial markets suffer a prolonged decline during your early retirement years, your withdrawals could cut too deep into your principal and it may recover.

This is also referred to as the sequence of returns risk and it works both ways (positively or negatively).

Today’s low-interest-rate environment does not bode well for savers and makes a 4% withdrawal ambitious if you are invested in money market instruments.

Lastly, it does not incorporate taxation. For example, your $40,000 withdrawal is pre-tax.

Some financial experts now propose a 3% withdrawal rate as a more practical rule of thumb as it does better under stress-testing. On the other hand, these are those who believe you should be withdrawing more than 4%.

There are many paths to reaching financial freedom. For alternative ideas, you can take a look at some of the retirement savings case studies published by My Own Advisor.

So, how long will your retirement savings last? The answer is that “it depends.”

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Retirement Savings by Age: How Much Money Should You Have Saved at 20, 30, 40, 50 or 60?
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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in the Toronto Star, The Globe and Mail, MSN Money, Financial Post, Winnipeg Free Press, CPA Canada, Credit Canada, Wealthsimple, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

4 thoughts on “Retirement Savings by Age: How Much Money Should You Have Saved at 20, 30, 40, 50 or 60?”

  1. I really like this article because it prompts one to think about retirement savings and gives strategies to do so, i.e. saving salary raises. The idea that savings of “multiple times salary” should increase as one approaches retirement makes sense.

    But the article leaves me with three major questions:
    1) What qualifies as “savings” toward the figures of “6 x salary” or “8 x salary”, depending on age? How does “savings” differ from net worth? Does that include equity in my principal residence? Equity in an investment property which is rented? Does it include present value of a defined benefit pension plan? Or does it only include cash and equities?
    2) What qualifies as “salary” for the purposes above? Only my full-time employer paid salary (which is enough to live on now)? Or other income that I show on my income tax return such as rental income and investment income?
    3) How do these numbers change if I am in a defined benefit pension situation, where I and my employer together contribute a portion of my income to my retirement?

    Reply
    • @Ian:
      Excellent questions. Here’s how I see it:
      1. You should view your retirement portfolio as “one” portfolio which would include your investments (e.g. stocks, bonds, and investment property), savings accounts, and workplace pensions (especially when it is a defined benefit pension plan). Technically, this would also include your personal residence, however, you should be adding this value with some caveats. You have to live somewhere, so depending on your options for shelter, how much is going to be accessible, in reality, from this portion of your net worth? I haven’t considered reverse mortgages, etc.
      2. For most people, this would focus mainly on regular income (mostly salary). Again, this is not set in stone. If you earn the occasional income from other assets, it probably won’t matter. If you earn consistent rental income that is already factored into your standard of living, it should be reflected since the idea is you are looking to save enough money so your standard of living doesn’t change radically when you are retired (at the very least you don’t want to be less comfortable).
      3. Back to my analogy of viewing your investment portfolio as one piece, your DB pension should determine how much more you need to be saving. For example, your RRSP contribution amount is going to be reduced based on your DB contribution (both you and employer), so automatically this reduces how much you are able to invest in your personal RRSP. This may also give you some flexibility to take on higher risks with your other investments as some would view a DB pension as being fairly safe/secure (or as a sort of fixed income/bond investment/GIC). It often also means you may not need to worry too much about depriving yourself today as there is some sort of guaranteed payout in the future. Of course, nothing is really guaranteed, but a DB pension offers a lot more cushion than the alternatives…

      There are many sides to this than what I have provided. For instance, your magic number would also be influenced by how much you would be receiving in OAS/CPP i.e. whether or not you will be getting the maximums being paid at the time…

      Reply
  2. Hi Enoch,

    Does salary equal gross salary or net salary? This makes a substantial difference in the calculations.

    Enigma

    Reply
    • @Enigma: For this article, I had gross income in mind. This is based on the assumption that you would still need to pay taxes on a significant portion of your income in retirement.

      Reply
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