As we begin 2024, now is an opportune moment to assess your savings plan for the upcoming year. While individuals may tailor their savings strategies annually based on their specific short- and long-term objectives, our focus here is on delving into retirement savings.
How Much Can You Save?
In 2024, the allowable contribution to your 401k is $23,000 if you are below the age of 50 and $30,500 if you are 50 years old or above. For IRAs and Roth IRAs, the limits stand at $7,000 for those under 50 and $8,000 for those aged 50 and beyond.
The question of how much to save is inherently subjective, varying for everyone based on factors such as time horizons, existing savings, and retirement lifestyle aspirations. Although we cannot provide a rule that works for everyone, it is valuable to consider some general guidelines that can serve as a foundation for determining the appropriate savings amount.
The 15% rule is a widely recognized benchmark for retirement savings, advocating that individuals strive to set aside a minimum of 15% of their gross income annually to adequately fund their retirement. This rule offers a practical recommendation, taking into account historical market returns, life expectancy, and the desire to sustain a similar lifestyle during retirement.
Starting Savings Rate by Age
Depending on when you start your savings, the percentage of your income will vary. Initiating savings at an earlier stage necessitates a lower annual percentage, while a delayed start results in an escalated requirement. It underscores the importance of early financial planning to ensure a more manageable and effective savings strategy over time.
The chart below is a baseline recommendation put together by Charles Schwab that shows if you are starting at a particular age, the corresponding percentage matches up most consistently with a healthy retirement savings target.
(Source: Charles Schwab)
Average American Retirement Savings Balances by Age
Derived from the 2022 Survey of Consumer Finances, the latest available data reveals that the median retirement savings for all families stands at $87,000. Below is a detailed breakdown of this figure categorized by age groups.
(Source: Nerd Wallet)
The retirement savings decision will differ for all investors, but as we kick off 2024, it’s an opportune moment to evaluate your current efforts and determine whether they align with commonly studied and recommended rules of thumb. This can provide valuable high-level guidance in shaping your approach to retirement planning
Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.