Are You on Track to Achieve a Financially Secure Retirement?
Many people who are saving diligently still find themselves wondering if they’re doing enough to create a financially secure retirement for themselves. If you’d like to gauge whether you’re on track, your net worth can serve as a valuable benchmark. This is the number you’re left with when you add up your assets and subtract your liabilities. While it can be tempting to compare yourself to friends and family, remember that their financial habits aren’t necessarily good measures of your own financial footing. Instead, take a look at the net worth targets below that reflect where you should be based on your age and the amount of income saved.
Your 20s: Small, Meaningful Steps
When your career is just beginning, you don’t need to be overly concerned with net worth. In fact, you may be paying off student loans and carrying a negative net worth – and that’s okay!
Instead of focusing on the negative, take small steps that will have a big impact on your future net worth. For example, be sure you’re taking advantage of any retirement savings plan your company may offer. If you’re lucky enough to be eligible for an employer match, do everything you can to contribute enough to earn it. Otherwise, you’re leaving free money on the table – and you’ll regret it later.
Most companies offer a 401(k) or a 403(b) but, in their absence (or in addition), you can also open your own Roth IRA retirement account. Each of these types of accounts makes it easy to save and invest, and your money will grow and compound until you’re ready to retire.
Ready to Get Started? Take This Step
Automate your retirement plan contributions so you’ll be sure to hit your goals. It’s like giving yourself an “easy button” so you won’t forget to pay your future self. Contributing 10% of each paycheck is ideal but shoot for at least 6% if you can’t do more just yet.
Your 30s: Your First Net Worth Goal
Thirty feels like a consequential year for many people, and it coincides with the first net worth goal you should have in your sights. By this age, it’s ideal to have saved approximately half your annual salary in your retirement account. For example, if you spent your twenties making $60,000 annually, you’ll want to have about $30,000 saved by the time you hit 30. This might seem like a lot but remember: you aren’t simply saving $30,000, you’re earning some of that through smart investing, too.
Consider this example, which makes hitting this goal feel a little less daunting: if you started investing $288 per month ($3,466 per year) at age 23, and your investments average 7 percent in returns each year, you’ll have $30,000 in your retirement account when you reach age 30.
Hoping to Catch Up? Take This Step
If you haven’t met your age 30 net worth goal, don’t panic. Focus on the numbers, do the math to determine a monthly savings plan that will get you there by age 35, and put that plan into practice. If you’re committed to hitting the goal more quickly, pick up a side hustle for a few years and devote all that extra income to your retirement savings.
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Your 40s: A Strategic Consideration
By the time you reach age 40, prevailing wisdom says you should have a net worth equal to about twice your annual salary. Hopefully, you climbed the salary ladder a bit in your 30s, too. If you’re making $80,000 annually, for example, your goal should be to have a net worth of $160,000 at age 40. This is also a smart time to consider additional strategies for building wealth.
Want to Diversify to Build Net Worth? Take This Step
Let’s say you’re working in a profession where pay bumps are hard to come by, or you simply haven’t been able to invest as much cash as you’d like to into your retirement account. A smart move may be to invest in real estate to help increase your net worth. Like many other types of assets, real estate will appreciate over time and offer you an alternative path for growing your net worth. Think of it this way: making a small down payment on a home will pay big dividends in the future as the value of your property increases over time.
Your 50s: Where the Magic Happens
By age 50, your goal should be to have a net worth that is about four times your annual salary. So, if you were earning $100,000 annually throughout your forties, your target net worth goal should be $400,000. It’s a big number, and it can leave you feeling overwhelmed, but remember the magic of compound interest. If you began investing in your twenties, you’ve been earning returns on the money you’ve invested for thirty years – and you’ve also earned returns on those returns. If you started saving a bit later, there’s still time to begin taking a more aggressive approach to help you catch up.
Ready to Head Toward the Finish Line? Take This Step
At this point in your career, your retirement may be just a decade or so away. This means it’s time to take stock of the kind of retirement you want to have – and whether you’re on track to achieve it. Hitting recommended net worth milestones is great, but it still may not allow you to plan the retirement of your dreams. Get serious about planning and make changes in your asset mix and savings plan to ensure you’ll meet your personal retirement goals. If you’re not working with a financial advisor yet, now is a smart time to enlist one.
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Your 60s: Keep Your Eye on the Ball
You’re approaching the finish line once you’ve reached age 60. At this point, your net worth should be equal to about six times your annual salary. Again, though, it’s important to remember that general recommended targets may not be in line with what you need for the retirement you’re envisioning. Your lifestyle, zip code, and retirement travel plans all play a role in determining what your personal net worth benchmark should be at this stage of your working life.
Ready to Lock in Your Dream Retirement? Take This Step
Ensure your retirement income will be about 85 percent of the amount you earned while working. If you’re looking forward to a quiet retirement, you may not need that much. If you’re planning to travel the globe, you may need more. Regardless of the number you’re personally shooting for, make sure you have your ducks in a row so there are no surprise dips in your income once you retire.
Where Are You on Your Net Worth Journey?
Breaking down your target net worth goals into manageable steps is a useful way to ensure your retirement plans remain steadily on track throughout each decade of your working life. I’ll reiterate once again, though, that every person is unique and these net worth targets may or may not be ideal for you. The best way to be sure you’re planning for what you need is to work alongside a fiduciary financial advisor whose experience and expertise can help you achieve the retirement of your dreams.
At Paces Ferry, our clients are at the center of everything we do. We practice transparency and full disclosure, and we honor our fiduciary duty above all. If you’re looking for a financial advisor in Atlanta, schedule an introductory conversation with us today.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.
