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How much money should I have saved by 30?

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Most people just guess when asked how much money one should have saved for retirement by the age of 30.

It can be difficult to provide a simple answer, due to factors like health, life expectancy and lifestyle. And if a person doesn’t understand how compound investment returns and tax-advantaged retirement accounts help savings grow significantly over time, even modest goals can be daunting.

Rather than set a seemingly impossible savings goal, many people say they will keep working after retirement. Eighty-three percent of millennials — 18 to 34 year olds — say they plan to work through their retirement years for income, to stay busy or to pursue a passion, according to a study published by Merrill Edge in the fall of 2016.

A plan that anticipates working after retirement is risky because of the potential for health problems to make it difficult or impossible to hold a job, or the possibility of a weak labor market. Furthermore, you might just get sick of working, even if you love your job so much now that you can’t imagine ever wanting to quit.

A better approach is to set short-term savings goals and long-term savings milestones. Decide to set aside a consistent and affordable percentage of your income every month, and also estimate the total amount you would like to have saved by the end of every decade until retirement.

The most important goal: Good financial habits

Robert Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania, says that the most important goal for age 30 is to have a plan to pay down debt and save a meaningful portion of income — as much as 10 percent — in a retirement account.

How much you accumulate by age 30 depends on your career path and investments you make in your future earning potential.

“For instance, if you are 30 years old and are currently training to become a medical doctor, it’s likely that you haven’t saved anything and, in fact, have taken on a great deal of debt. That is appropriate, given that you are increasing your future earning power,” Johnson says.

Emergency funds and paying down debt

How much money you should have saved by age 30 depends on many factors, says financial coach and planner Ryan Frailich, founder of Deliberate Finances, a fee-only financial planning firm based in New Orleans.

There are many variables, according to Frailich: costs of living, whether you’re married or single, total debt load, long-term earning potential and family obligations, to name only a few.

But one goal he recommends that everyone meet by age 30 is having an emergency fund equal to three months’ worth of expenses “so that when, not if, life throws you an unexpected twist, you’re prepared,” he says.

Make sure you’re getting the most out of your emergency fund by keeping it in a savings account that earns interest. Start by looking for a high-rate savings account.

For people burdened by student loan debt, a better approach would be to determine by how much they have increased their net worth since they started working. According to Justin Chidester, a fee-only financial planner at Wealth Mode Financial Planning in Logan, Utah, someone who has reduced their debt by one year’s salary by age 30 is on a good financial trajectory.

No magic savings number

Jamie Hopkins, a professor at The American College of Financial Services, says that there’s no magic savings number you should try to reach by a certain age.

“Instead, you need to develop a savings plan that meets your specific needs and situation,” Hopkins says. At age 30, the most important thing is to have debt under control, which means not carrying large credit card balances or missing payments, having a student loan repayment plan in place, and not buying a house that is beyond your means.

Getting started young is also a key factor. Hopkins points out that someone who has 40 years to save for retirement can safely save about 7 percent to 9 percent of their annual income, while someone who has 30 years to save for retirement needs to dedicate more like 15 percent to 16 percent of their income to savings.

“The longer you wait to start saving, the more you will have to save each year,” Hopkins explains. “For instance, if you want to replace 50% of your income in retirement from your savings and only have 20 years to save for a 30 year retirement, you will have to be saving over 30 percent of your income a year to meet your goals.”

Similar to workers in other age groups, less than a third of those in their twenties are saving at least 10 percent of their income for retirement, Transamerica found in a 2015 study. The study estimates that the median 20-something worker has saved $16,000 for retirement, while the median 30-something has saved $45,000.

How much can you save? Estimate the growth of your savings.

Given these numbers, it’s not surprising that only 18 percent of workers in their 20s said they were very confident that they would be able to fully retire and live a comfortable lifestyle, and 46 percent said they were somewhat confident. If those workers had a better idea of how much they should have saved by age 30, they might be able to increase those confidence levels — though all the uncertainties that come with being decades away from retirement can’t be eliminated.

What will Social Security look like? How will the markets perform? How much will a lifetime of health care cost? Will raising children make it difficult to save enough?

Catching up if you’re behind

“If you are behind on your savings goals, don’t get discouraged,” says financial planner Matt Hylland of Hylland Capital Management in Virginia Beach, Virginia. “No matter the amount in your retirement accounts, at age 30 there is still plenty of time to get caught up.”

He offers these suggestions:

  • Contribute enough to get the full company match in your 401(k) or equivalent retirement account. Don’t pass up this source of free money if it’s available to you.
  • If you have extra money after contributing to your workplace retirement account, contribute to an individual retirement account. You can save an added $5,500 per year in a tax-advantaged account this way, $6,500 if you 50 or older.
  • Set up automatic annual increases to your workplace retirement contributions to help combat lifestyle inflation as you receive raises.

Hylland points out that even small savings when you’re young can have a big impact, so it’s worth contributing whatever you can now.