When I was starting in my career, it wasn’t clear to me how much we should have saved in our twenties & thirties. This was before the Internet and there was a real dearth of useful information available.
Recently, my former MegaCorp Boss sent me an interesting article from Quicken that shared the median retirement savings and savings goals decade by decade for Americans.
I have to admit that I was a bit underwhelmed by the figures they shared.
First, here is what they shared for Median Savings by decade:
⁃ Twenties: $16K
⁃ Thirties: $45K
⁃ Forties: $63K
⁃ Fifties: $117K
⁃ Sixties: $176K
And here are their Savings Goals vs Annual Salary by decade:
⁃ Twenties: 10-15%
⁃ Thirties: 1-2x
⁃ Forties: 3-4x
⁃ Fifties: 6-7x
⁃ Sixties: 8-10x
I’m surprised how relatively LOW both the medians (actuals) and savings goals (aspirations) are. I understand that early in your career, saving is difficult, but to only have $176K saved by your 60s seems really pathetic.
Additionally, even the goals they share aren’t very compelling to me. To only have 8-10x of your annual salary by the time you retire? It feels like that number should be 20-25x, doesn’t it (for a 4-5% withdrawal rate)?
As usual, I’m taken aback by what poor savers we are as a nation. In a country with nice cars, the latest gadgets, and wonderful travel opportunities – as nice as anyplace in the world – few are saving what they need to live comfortably in retirement, let alone retire early.
My wife & I were aggressive, early savers and I think we had $100K in our 401Ks before we were 30 years old. And, that is despite finishing college with a heavy dose of student loans and credit card debt. We met with my Dad’s financial planner about the time we turned 3@ and I remember him saying we were “probably in the top half a percent of savers” at that point.
Importantly, we didn’t have great, high-paying jobs. But, we were quick to learn that ‘DEBT’ was a 4-letter word and were already living well below our means. We didn’t have the toys or take the trips many of our friends were, but we didn’t have any needs that went unfulfilled either.
Are you surprised – or like me, disappointed – when you see how little people save for their future?
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MrFireStation 
During our early 30s my wife and I were both working and earned about the same and we didn’t have any children yet, so our expenses were super low. We banked the equivalent of one of our salaries via company 401-Ks with any extra cash going into a brokerage account to buy stocks. We were able to do this despite it being a really bad time economically in Los Angeles because the Cold War ended and the number one industry in town, the defense industry downsized and much of what was left of it packed their bags and left town. Six properties that touch mine we lost to foreclosure. We learned why our neighbors always had fancier cars than us, because the treated their house like a piggy bank and kept taking out loans to buy nice cars and stuff.
When we were in our late 30s to early 40s, I was working at my all time best paying job between 1996 and 2000. The majority of my income was commissions, with around 10% base pay. The company allowed me to participate in a Deferred Compensation Agreement and I elected to defer 50% of my income. My wife and I also maxed out our 401-Ks. My company had a discounted stock purchase plan, which I also maxed out. And, we still had leftover money that we used to more more stocks.
My all time best paying job ended at the end of Q1 2000 and we were back to more normal earnings and now had higher expenses of children in either daycare or parochial school. Our primary savings was both my wife and I maxing out our 401-K plans. When we reached 50, we maxed out our 401-K plans with the after 50 catchup provision.
We never set goals about what percentage we were going to save. We set a budget we could live on and saved everything else, first in tax deferred 401-K accounts with company matching and then stocks in a broker account. When we made more we saved more. When we made less, we saved less. This tended to smooth out the ups and downs of the economy as our lifestyle was always about the same.
Here is how the percentages worked out.
In our early 30s we were saving the equivalent to 50% (one of our incomes).
In our late 30s to early 40s, I know the number was higher than 50% because that was what I was putting in the Deferred Comp Plan. Adding in maxing out our 401-K, discounted stock purchase and using any leftover money to buy stocks probably made our savings around 2/3rds.
Since 2000, our primary investment vehicle was maxing out two 401-Ks, so I would estimate around 25%.
Some parting thoughts. We set a budget and decided to save anything leftover very early on. My wife and I were both on board with this plan. We know couples were one of the couple is a spendthrift and thinks it is okay to spend his or her entire income on stupid stuff.
Windfalls, instead of leading to windfall spending led to windfall savings. The windfall savings between 1996 – 2000, given 20 years to compound in the market with a boring 60% stock – 40% fixed income fund became the foundation of our early retirement.
We have given ourselves the best gift we could ever give ourselves. We own ourselves.
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It sounds like you two did a bang-up job from the very beginning. When we got married, my older brother suggested to “live on one income and save your spouse’s income”. We had student loans and credit card debt to get out of at first, but we too were soon banking 50+% of our pay. If you do the math, saving 50% of your income (with basic assumptions) will get you to retirement in just 16 years. Make 20 to be safe and you could be retired at 42 years old. Math is wonderful.
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Chief, You beat my wife and I to early retirement and your post explains the secret to the difference. Your older brother got you saving and investing in your 20s, while we started in our 30s.
Start saving aggressively and add 20 years of compounding returns and ‘suddenly’ you are financially independent and can retire. This is the program I got my son to start at age 24 and he is investing more like the older version of me, than the younger version. So he can look forward to his retirement at the ripe old age of 44.
This doesn’t sound as daunting as what non-FIRE retirement articles are offering; slave away until you are Social Security age saving around 10% for 40 – 45 years. Keep working part time after you reach retirement age to avoid dipping into your savings too quickly. You figured out how to halve the work sentence with time off for good behavior.
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“halve the work sentence with time off for good behavior.” – great line! 🙂
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Sorry, forgot to answer your question. My wife and I are appalled when we see how little most people save. We saw it first hand in 1994 when six properties that surround ours were lost to foreclosure because these neighbors did the opposite of saving and paying down debt and refinanced their home to pull cash out to buy depreciating cars. I have heard my wife crank on her friends who think it is okay for them to live off their husband and waste all their income on stupid stuff. She tells them you should work together with your husband to save and invest and get ahead.
We are trying to teach our children to not be like most people and start on a saving and investing program early. My 24 year old saved $16K last year and I am helping him buy dividend paying stocks that are growing. We want our children to stop being serfs earlier than us.
We are doing well enough that we follow one of the tenants of another poster I have seen occasionally on your site, Financial Samurai. He wrote an article about “Stealth Wealth” which is to avoid giving off the appearance of being wealthy to avoid triggering envy and grifters.
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Agree – it’s shocking how little people understand their financial situation and get in over their heads. Regarding “stealth wealth” I haven’t personally encountered any grifters, but certainly a little positive envy from time to time! Truthfully, I welcome it as I’ve made it my mission to convince people a little planning & discipline can cut 5-10-15 years off of their working career. I want them to be a little envious.
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Sounds like you listened to your older brother. Getting out of college is the first real money that most of us ever had and continuing to live like your are still a college student will help you safe.
I have never done the math on save 50% for 16 years and retire. When I had my windfall job I figured that I was going to about meet what you calculated.
After 2000 we had children with education costs and never came close to the 2000 income ever again, so about the best we could do after that was around 25%. The final years of 25% helped, but the deferring instant gratification when we were younger gave the investments more time to compound turned out to be the bulk of our retirement income.
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My wife and I have had a very different experience regarding envy being a positive influence on others. Our experience has been most people who are spendthrifts fear that they will miss out by not getting what they want now and don’t want to change, and yet they allow envy to control them to the point it became problem in our interactions.
You are fortunate that you have not encountered ‘grifters’ yet. I highly recommend you check out the Financial Samurai’s post on this. They turn up everywhere. One of the biggest feeding grounds is churches because people let down their guard.
I am using the term ‘grifter’ to describe anyone who after figuring out you have some money wants it and tries to get it, including borrowing, asking for bigger donations or offering services you don’t want such as financial planning and investments that are not in my sweet spot.
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Yeah – the folks that use church as a ‘marketing channel’ are a curious bunch. We go to a Lutheran church and there is some of that, but thankfully not too much. Unfortunately, politicians are now seeing churches as a place to campaign as well. 😦
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It’s appalling data, or should be to a every American. But sadly, it’s likely very accurate and not even on most people’s top ten concerns.
I had a conversation over the weekend with relatives. We had a small family event at our home, and there were essentially 4 related couples at the family event. All were within 5-9 years of age of each other. All are college educated with typical corporate level careers with kids. We were the youngest couple at 55/56 years old. For perspective, the oldest couple was 60/64. We are also the only retired couple in the group. During typical family conversations, one family individual mentioned a problematic working situation and the intense desire to retire soon to “get away from the toxic work environment”. Conversations meandered for hours and much information was shared over a great meal and a few beers, and by the end of the night this was my analysis of the family group:
Couple 1: (58/59) They likely will have a bare minimal retirement opportunity by 65/66 (as they are hoping, but more likely at 69/70). Pushing out SS to 70 and by maximizing SS, with their low 401k balance they should be fine, but their consumption lifestyle will absolutely need to change significantly. They have significant remaining mortgage debt and carry multiple auto and CC debt loads. They are woefully under prepared and have done practically zero research into retiring. He (btw) is the one wanting to retire ASAP due to the problematic work situation.
Couple 2: (57/62) Have no hopes of retirement. He was a corporate finance person his entire career. She was in the medical industry. They carry significant debt (mortgage, auto loans, credit card debt, medical debt, student loans for several children). They have little savings and no pensions. Sadly, he says they will work until they die. Even more sadly, he doesn’t realize that it will likely not be an option as they age. I fear for them the most.
Couple 3: (60/64) They have a reasonable 401k balance, no pensions and like couple #1, have a shot at a mediocre retirement by age 70. They still have a modest mortgage balance that should end by age 70, but also still buy vehicles on credit. Fortunately, they don’t carry CC balances, but are still helping two live-in kids nearing their 30’s. She has a significant health issue and has recently had to stop working.
It’s hard for me to understand buying cars on credit at this phase in anyone’s lives or carrying CC debt. I can understand the mortgages. I get wanting to help their kids get on their feet, but one 30 year old “child” still living at home has his freaking PHD…Kick then out of the dang house already! Big family vacations, new car purchases (on credit), 401k withdrawals for “emergencies”, and using “financial advisors” were common themes of our discussions. These are wonderful people that are reasonably educated, smart, intelligent people and it all seems dangerously desperate to me. My wife and I thanked our lucky stars for our life decisions after everyone left for the evening. But the numbers you shared (unfortunately) make perfect sense. Consumerism and lack of basic personal financial education rules our nation.
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Yikes. ‘Money management’ was an interest of mine since I first got a paper route, but you are right that lack of basic personal finance education really does “rule our nation”. It sounds like your family members are reasonably smart, yet continually do dumb things – which sentences them to years and years of extra work. I guess people are so enthralled with the houses, cars, trips, and gadgets people are willing to sell them on credit that it just starts to seem normal.
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I remember when I was in my mid-30s. I was not making very much money at the time and the company I was working at started offering a 401-K plan. Of course I maxed my contributions out every year.
One of my coworkers who was 65 and hadn’t saved a dime asked my if she should participate. When she was my age, she had gone through a couple divorces and received settlements. Instead of buying a house or investing the windfalls, she used the money to live in Mexico without working for around a decade.
Of course I didn’t tell her the truth, which was you will be paying a price for the bad decisions you made when you were my age. You are probably going to have to work until you pass away or become too sick to continue or lose your job and no one wants to hire you.
Instead I made a generic statement like it is always good to put away some money.
By the time someone reaches our age we can help them tweak their finances, such as getting their expenses under control and getting a safe reasonable return, but we probably cannot help them overcome massively bad decisions they made in the 30s and 40s.
There is a takeaway here from Chief, we can be his older brother for our children and give them the same advice he receive when starting out.
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“Old Chinese Proverb”: The best time to plant a tree is 20 years ago. The second best time is NOW.
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It the least bit surprised. This is consistent with other data about savings for retirement. Many Americans are less than a month away from bankruptcy if income and doles cease. Planning for decade(s) ahead is not taught, nor supported, by our culture. To achieve retirement with means (much less early retirement) one must swim against the stream. Diligence, determination, and sacrifice in the present to fund the future must be pursued. These traits were once American virtues. Today they are forgotten antiquities. The Nanny State is all to willing and able to keep people down.
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We’ll stated, John – As a nation, we spectacularly fail the ‘marshmallow test’.
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I guess I’m not surprised, nor disappointed that the savings goals and the actual savings are so low.
Us, as a FIRE community, are probably at the top percentiles of people who care and are very conscious about our money. The median person is unlikely to function like the FIRE community. As such, they probably don’t think about the 4% rule everyday like us FIRE folks and incorporate it into our daily prayers. So it’s not surprising that their savings goals isn’t going to be that 25X+ mark.
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This would be an interesting question for Chief to throw around. Was being able to retire on a 4% withdrawal rate the trigger for you retiring early. In my case, following the rule of 4 would have meant that would have been able to retire five years sooner than I did. It would have been tight, but I could have made it.
My triggers were my oldest son graduating from college which freed up $35K and my youngest son graduating from parochial high school which was $8K more per year than UCLA he is attending now. Because the $43K was after tax, it really cost me $65K per year. The five extra years of saving and compounding returns increased my kitty by 50%. Lower expenses and 50% higher savings meant that I was able to create a retirement budget that covered my expenses with a very generous amount left over for discretionary using only a 2.75% withdrawal rate. This provides margin of safety against inflation.
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I had a DATE goal, not a dollar goal. I had exceeded my FI number a few months after taking a new job. As exciting as that was, I stuck with it until I got close to my 50th Birthday target. I wrote about both approaches here … https://mrfirestation.com/2016/11/21/fire-milestones-dollar-number-or-date/
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Yes, the FIRE community is certainly among the top percentile of people focused on their money, but I’m still astounded that as much as people gripe about work, they don’t put enough productive use to their wages.
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