Maximize your 401(k), Roth IRA and Social Security for retirement

The past few years have seen increased market volatility and record inflation, leading many to worry about their retirement account balances. In a time of economic uncertainty, long-term financial stability is a valid concern.

However, new data from Fidelity shows that the situation is actually improving over the long term. Over the past ten years, IRA and 401(k) account balances have grown 29% and 42%.

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Accounts also grew significantly in the short term: balances of all types of retirement accounts increased 13-16% from Q1 2023 to Q1 2024.

The increase in the balance can be attributed to improved market conditions and retirement savings rates. Average 401(k) savings rates hit 14.2%, closest to the universal recommendation of 15%.

Benchmarks for retirement saving by age

Retirement experts estimate that having 1.5% of your annual salary saved by age 35 is a good way to gauge whether or not you’re on track for your retirement savings goals. A good way to achieve this is to contribute 15% (including employer match) of your annual income to your pension plan.

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By age 40, Fidelity recommends you have three times your annual salary saved, eight times your salary saved by age 60, and 10 times your salary saved by age 67. Savings expectations add up over time because wages tend to grow the most until retirement and workers can start collecting Social Security at age 62.

By that measure, someone making the national average salary of $59,228 a year should have saved over $175,000 by age 40 and over $600,000 by age 60.

Some financial professionals recommend that workers use the 80% rule as a guideline. This rule recommends that the annual retirement income be 80% of the pre-retirement salary. Workers with a pre-retirement salary of $100,000 should ideally live on $80,000 a year.

Others recommend the 25x rule, which suggests that workers save 25 times their annual portfolio withdrawal amount.

A retired couple is seen holding hands and walking on a beach. Preparing for your retirement years can be easy by following a few guidelines.

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Tips to prepare for retirement for every decade

The key to building substantial retirement savings is to start as soon as possible and contribute consistently, especially if your employer has a matching contribution plan. Synchrony notes that each age group should follow different savings plans and guidelines.

• Save in your 20s: Contribute as much as possible to your employer’s retirement plan while covering living expenses and outstanding debt, such as student loans. Work to build emergency savings to prevent the need to withdraw early from your retirement account to cover unexpected costs.
• Save at 30: Set a realistic monthly budget, considering contributing 15% of your income to retirement. If your company offers a contribution match, you can deduct that amount from the 15% recommended for retirement. Balance short-term goals like paying off student loans, saving for a down payment on a home, and planning for long-term retirement savings.

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• Save at 40: Check your savings temperature and compare yourself to the recommended goal of saving three times your salary by age 40. Start prioritizing your monthly retirement savings while making sure your other outstanding debts are paid off. If you receive a pay rise or bonus, it is recommended that the surplus be invested in retirement savings.
• Save at 50: Because these could be your highest-earning years, maximize your IRA and 401(k) savings with catch-up contributions starting at 50. It’s also important to compare your current savings balance to your standard savings goal of seven times the salary according to age. 50.
• Save at 60: Review your retirement account balances and make sure they will cover your expenses and standard of living. You can consider working a few more years if you haven’t yet reached your ideal retirement goal. Delaying Social Security until age 67-70 also ensures that you will receive the maximum possible payout.

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