What Savings Rate You Need When Starting at Age 15, 25, 35 and 50

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Most of us are born procrastinators. That’s why we start saving late in life and hope to make up the difference by hitting the lotto or, if we must, by working longer. Neither is a great strategy.

The odds of hitting a Mega Millions jackpot are, of course, insanely long—around one in 176 million. Remarkably, one in three Americans say this is their best shot at financial security. Working longer has its issues as well, especially for low earners and those in physically demanding jobs.

(MORE: 1 in 5 Households Now Owe Student Loans)

Saving early and letting your gains compound for 40 years is really the best option. To make that point, this Forbes blogger offers an intriguing math question:

“If a wagon train averages 10 miles a day for the first half of the Oregon Trail, how fast does it have to travel the second half to average 20 miles a day for the entire journey?”

The knee-jerk response is, naturally, 30 miles a day. But, as you might imagine, that wouldn’t be worth writing about and isn’t even close to correct. The blog continues:

“If the trail is 2,000 miles long, to average 20 miles a day you would have to travel the entire trail in 100 days. But if you averaged 10 miles a day traveling the first 1,000 miles, you would have already used up 100 days. You would then have to travel the second thousand miles instantly to overcome your slow start.”

That might be apparent to a mathematician. But for most people it’s a surprise—and it describes the predicament of those who start saving late. They face an almost impossible task and are destined to downsize their expectations.

Fidelity Investments recently published a guide as to how much you should have saved by various points in your life in order to be on track. In an encouraging sign, young people seem to be getting started much earlier than their parents. According to a report in the Wall Street Journal:

“Of employees under age 25, 44% participated in their companies’ 401(k) retirement plans in 2011, up from 27% in 2003, according to data on millions of employees whose companies’ retirement plans are managed by Vanguard Group. Of those ages 25 to 34, 63% participated in 2011, up from 58% in 2003.”

For those who start late, though, retirement security is an uphill climb. Here’s Forbes’ analysis of how a late start affects your required savings rate:

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  • Start at age 15, and you need to save 8% of annual income for life.
  • Start at age 20, and you need to save 11.1% of annual income for life.
  • At age 25 you need to save 15.4%.
  • At age 30 you need to save 21.4%.
  • At age 35 you need to save 30.1%.
  • At age 40 you need to save 43.2%.

It just gets worse from there, so that if you do not start saving until age 50 you need to save every dime you make. This is just one person’s model, and it all becomes much more feasible if you ratchet down expenses. According to the analysis:

“Saving 100% of your lifestyle sounds impossible, but it is not. If you earn $100,000 after taxes, you must limit your lifestyle to $50,000 and save the remainder. This strategy will allow you to retire at age 65 with a lifestyle of $50,000.”

This exercise dovetails nicely with the Herculean assumptions in the Fidelity report. The point isn’t so much the precise nature of the savings rates cited, but how delaying even as little as five years changes the calculus.

MORE: What You Should Save by 35, 45, and 55 to Be on Target

24 comments
Kylethemanwithaplan
Kylethemanwithaplan

Not even close to correct.?.?.  ARE YOU KIDDING???

50 days (Half) traveling 10 miles per day gets you 500 Miles50 days (The other half) traveling 30 MPD gets you 1500 Miles
Added together you were able to travel the 2000 Miles in 100 days!

fatalerrorx2
fatalerrorx2

Part of the reason us younger people are starting to save for retirement earlier than our parents generation is because we know that defined company pension plans are already starting to be very much a thing of the past.  We'll be lucky to get a 401k company match, and we will most likely not be receiving medical benefits in our retirement, that will all be paid out of pocket.

Rachel_Black1D
Rachel_Black1D

Just to add a bit more perspective to the Mega Millions argument. While the odds of winning the jackpot might be 1 in 175m there are far more prizes available such as 1 in 3,904,701 odds of matching 5 numbers to win $250,000 or if the player chose to play with the megaplier that figure would be boosted to $1,000,000 (full list at www.alottery.com). There are also a whole load of smaller prizes which all add up for a regular players. You then need to take into account how much the odds reduce when you play on a regular basis - playing just twice essentially halves your odds. Yes, no-one should ever think that playing a lottery makes good financial sense but it is a low cost back-up plan.  

Angelica Walker
Angelica Walker

Implying 15 year olds have an income. Yes, I'm sure 8% of my $10/week allowance is going to help me out a lot.

Lynn Freeland
Lynn Freeland

It would be nice if you folks got out of NY every now and then. Like Mr. Mittens, you completely ignore the vast array of jobs that don't pay enough to live on let alone save for later. The wealthy "we create jobs" cronies of Mr. Mittens create jobs that keep people in poverty where retirement is the last thing you have to worry about.

shachomouf
shachomouf

Inflation does not stop when you retire. $50,000 now will not be the same $50,000 when you retire.

Matthew11
Matthew11

It becomes even harder when you factor in that most current investments average a zero or negative return meaning interest on the money you save becomes meaningless and given that the cost of living doubles approximately every 10 years the only way you can break even is by investing in those things that always stay current with inflation such as real estate, You maynot come out ahead but at least you won't fall as far behind.

dialate
dialate

The baby boomers who post this garbage really hack me off. Get with the 21st century.

Back in the day, they 401K's USED to give you a return. However, thanks to corporate matching, the bankers figured out they don't have to give a return at all to get investors...if you'd actually care enough to look at your prospectus, you'll find no 401K has given any return for the last 10 years, even during the boom years, and it isn't going to change any time soon.

Thanks to that and high and under-reported inflation rates, it no longer makes sense to save at all, ever. There are no longer any investments left that return more than the rate of inflation. If you do, you're the idiot giving up the diminishing value of your dollar to the government programs who receive the printed money. So its either start a small business (thanks to legislation from your generation, its basically impossible to stay afloat with obscene taxes and no access to loopholes the big players enjoy), or work until you can't work anymore, and then beg.

So stop posting this horrible advice, and go back to the hole you came from, built on the backs of Chinese slave labor. The only sure retirement plan for young people nowadays is sitting in the gun cabinet.

loriedarlin
loriedarlin

Does this assume you make the same amount with only cost-of-living adjustments throughout your career? What if you get consistent merit raises and promotions? Then... alas, I find the numbers are a bit different. I'm sure to maintain a comfortable lifestyle, a CEO could probably save plenty in two years. Your analysis does not state the obvious assumption that your target audience are entry-level for life.

The only reason I bring this up is to not totally discourage young people with lots of student loan debt. Depending on student loan interest rates, it often pays (literally) to pay those off faster before saving for retirement - you pay those off sooner and save that would-be accrued interest, you can then put that much more towards retirement later.

Nathaniel M. Campbell
Nathaniel M. Campbell

"If you earn $100,000 after taxes..."  What planet are you living on?  The median household income in the U.S. (*before* taxes) is $52,000.  If you take half of that and sock it away, depending on how big your family is, you may be trying to live below the poverty line in perpetuity.

When is TIME going to offer money advice for people who live in the real world?

garotadagavea
garotadagavea

So, tell us Mr. Kadlec, how much the financial funds paid you for this advertising piece?

GitZeit
GitZeit

How does one get these savings rate? My current rate is .80% it's awful. 

Gary McCray
Gary McCray

What a crock, with the economy already in a shambles and Corporate greed and over pricing for everything going further to destroy it, such presumptive responsibility on the part of individuals is ludicrous.

Responsible individual savings only works in a responsible and stable economy, not one that is going to Hell in a hand basket.

All the individual fiscal responsibility in the World can't stand against the self destructive tide of Corporate (and Government) greed.

Nathaniel M. Campbell
Nathaniel M. Campbell

"If you earn $100,000 after taxes...."  What planet are you living on?  The median household income in the U.S. before taxes is  about $52,000.  Does that mean you should sock half of it away, so that you live on $25,000 a year now and for the rest of your life?  Depending on the size of your family, that's below the poverty line.

Does TIME have any money advice for people who live in the real world?

ihaveaniceusername
ihaveaniceusername

Right. I'm 26 and I put 4% into a 401K and another $50 each paycheck into a savings account and that's ALL I can manage to put away. My first $33K job pays the rent and I had to pick up a second job just to pay utility, grocery, and medical bills - not to mention student loan bills and I don't owe nearly as much as other people my age. I'd love to be able to put away 15% away, but after working 65 hours a week, that's not even a possibility.

Whoever determines these figures clearly doesn't understand the cost of living or how low salaries negatively impacts how much you can save. I only put money away because I know I'll need it later, but even putting so little away is making me scrape by even now.

Alex
Alex

Well, this is discouraging.

livinglegend571
livinglegend571

@Rachel_Black1D 


Really? Low cost back up plan? Are you sure you really understand the math behind this concept? If the odds of you winning are 1 in 3,904,701 it means that if you play the game 3,904,701 times, you will win once. At $2.00 each, you would invest almost $8 Million dollars to win this prize. You would have to spend $350 million to win the top prize.


Talk to ANYONE who knows investing and they will tell you the lottery is statistical way to lose money, not win it. 

Janet Kimberly
Janet Kimberly

Love my job, since I've been bringing in $82h… I sit at

home, music playing while I work in front of my new iMac that I got now that

I'm making it online… 

Tim L
Tim L

 You don't.  These are models that were put together back when we actually had interest rates that did something.  Hell back in the 80's a CD was big profit.  Today you are lucky to get 2% over 7 years.

Talendria
Talendria

I was going to say something similar, and then I remembered that the world has been going to hell in a hand basket since forever yet people still manage to save money and perpetuate the species.  Bon courage!

livinglegend571
livinglegend571

@ihaveaniceusername 


My first job paid $29k before taxes and I was able to save over $9k during my first year. A single person can live on $15k if you choose to leave cheaply. If you need help doing this, do yourself a favor and read "The Total Money Makeover" by David Ramsey. Cut costs and live like a broke college kid. It works. 

LucasKaKa
LucasKaKa

like Jesse said I am blown away that anyone can profit $6227 in 1 month on the network. did you look at this(Click on menu Home)