Retirement Planning: The Optimal Investment Percentage At 45

If you're 45 and wondering how much you should be investing in your retirement, the answer depends on a number of factors, including when you plan to retire, your desired income during retirement, and your current salary.

According to data from Edward Jones, if you're 45 and want to maintain your current $100,000 salary during retirement, you should have between $330,000 and $450,000 saved. If you're planning to retire early, you'll likely need assets worth 10 to 16 times your salary by the time you leave your job. However, if you have other sources of income, such as a pension or a part-time job during retirement, you may be able to get by with less.

It's important to start planning and saving for retirement early, but even if you're only starting in your 40s, there are still ways to increase your retirement savings. This may include starting your own business, adopting a retirement plan, and making catch-up contributions.

Retirement planning can be tricky, and it's always a good idea to consult a financial advisor to help you tailor a financial strategy to meet your individual goals.

How much should I have saved by 45?

It is important to make steady progress toward saving for retirement, no matter your age. While no estimate fits every situation, there are some general guidelines and benchmarks that can help you stay on track.

T. Rowe Price's suggested benchmarks are as follows: by age 35, aim to save one to one-and-a-half times your current salary for retirement; by age 50, aim for three-and-a-half to six times your salary; and by age 60, your retirement savings goal may be six to 11 times your salary. These ranges increase with age to account for a wide variety of incomes and situations.

According to the Federal Reserve's 2019 Survey of Consumer Finances, the average retirement savings for US residents aged 45 to 54 is $254,720. However, it is important to note that this number may not be indicative of how much you should have saved, as it does not take into account individual circumstances such as income, spending needs, and risk tolerance.

Some other rules of thumb for retirement savings are to save half of your salary by age 25, one year's salary by age 30, three to five years' salary by age 40, and around five years' salary by age 50. By age 45, you should ideally have saved three to four times your income. For example, if you earn $60,000 per year, your retirement savings by age 45 should be between $180,000 and $240,000. If you earn $100,000 per year, your savings should be between $300,000 and $400,000.

It is important to remember that these are general guidelines, and the amount you should have saved by age 45 will depend on various factors, including your income, expenses, and financial goals for retirement. Additionally, it is recommended to save 15% of your income per year, including any employer contributions, to achieve a comfortable retirement. If you are behind on your savings, you can increase your contributions, sign up for automatic contributions, and make other moves to build your retirement account.

How much should I save for retirement?

It's important to make steady progress toward saving for retirement, no matter your age. The amount you should save for retirement depends on a number of factors, including your age, salary, and desired income and lifestyle during retirement.

According to T. Rowe Price, by age 35, you should aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary, and by age 60, your retirement savings goal may be six to 11 times your salary. These ranges increase with age to account for a wide variety of incomes and situations.

Saving 15% of income per year (including any employer contributions) is an appropriate savings level for many people. This may include contributing to an individual retirement account (IRA) or making salary deferral contributions to a 401(k), 403(b), and/or 457 plan.

If you're starting your retirement savings later in life, don't worry—you can still catch up. For example, if you're 50 or older, you can make catch-up contributions to your IRAs and employer-sponsored retirement plans.

It's important to note that these are general guidelines, and the amount you should save for retirement will depend on your specific circumstances. A financial advisor can help you determine a more precise goal and create a financial strategy to meet your individual needs.

Other factors to consider

In addition to your salary and age, other factors that can impact your retirement savings include:

• Spending habits
• Financial market volatility
• Tax rates
• Lifestyle choices, such as travel or volunteering
• Retirement costs, such as long-term care insurance
• Other sources of retirement income, such as Social Security benefits, employer pensions, or spouse's income

How to invest for retirement at 45

If you're 45 and want to retire at 65, you should have six times your annual salary saved for retirement by now. If you're planning to retire early, you'll need assets worth 10 to 16 times your salary by the time you leave your job.

• Start your own business: If you've always dreamed of starting your own business, now might be a great time to pursue it. This will produce additional income and also allow you to establish and fund a retirement plan through your business.
• Take advantage of catch-up contributions: If you start your retirement savings program later in life, don't worry. If you're 50 or older, you can make catch-up contributions to your IRAs and employer-sponsored retirement plans.
• Consider other sources of retirement income: Depending on your situation, the money in your 401(k) or IRA may not be your only source of funds during retirement. Other sources include Social Security benefits, employer pensions, or retirement savings or benefits based on your spouse's income.
• Balance or rebalance your portfolio: Your asset allocation for your retirement nest egg should be reassessed periodically. As you get closer to retirement, you may want to shift to less risky investments.
• Think about other retirement costs: You may have to choose between paying for your child's college education or saving for retirement. Financial advisors recommend prioritizing retirement savings, as there are other options to help children pay for college, such as loans and scholarships.
• Start investing early: If you're in your 20s or 30s, start investing now. Take advantage of compound interest and contribute to a company 401(k) or an individual retirement account (IRA).
• Make a plan and stick to it: Work out how much you need to save for retirement and create a plan to get there. There are many online tools and calculators that can help you with this.

Retirement savings tips for 45-54-year-olds

If you're in this age bracket, you may be at the midpoint or in the second half of your career, when your income is higher, and so are your financial obligations. This can make retirement planning tricky. Here are some tips to help keep your retirement savings on track:

• Start your own business: If you've dreamed of starting your own business, now is a great time to pursue it. This will produce additional income and allow you to establish and fund a retirement plan through your business. Small business owners can fund retirement accounts designed for the self-employed.
• Catch-up on contributions: If you started your retirement savings later in life, you can make catch-up contributions to your IRAs and employer-sponsored retirement plans if you're 50 or older.
• Understand the impact of marriage or divorce: Getting married or divorced can significantly affect your retirement savings. If you're getting married, your financial projections can include your spouse's assets and income, as well as shared expenses. However, it may be wise to continue saving at a higher rate if possible. In the case of divorce, you may be required to share your retirement assets with your spouse, or vice versa.
• Consider other sources of retirement income: Besides your 401(k) or IRA, there are other funding sources to consider, such as Social Security benefits, employer pensions, or retirement savings based on your spouse's income.
• Balance your portfolio: Periodically reassess your asset allocation for your retirement savings. As you get closer to retirement, you may want to shift to less risky investments.
• Think about other retirement costs: You may have to make choices between saving for your child's education and funding your retirement. It's generally recommended to prioritise retirement savings, as there are other options to help children pay for college, such as loans and scholarships.

The ideal amount of money to have saved for retirement at this age depends on various factors, including your desired retirement age and income. For example, according to Edward Jones, if you're 45 and earning $100,000, you should aim to have between $330,000 and $450,000 saved. By age 54, the recommended savings increase to between $585,000 and $735,000.

How to catch up on retirement savings

While there is no one-size-fits-all answer to the question of how much one should invest in retirement at 45, there are some general guidelines and strategies that can help you catch up on your retirement savings. Here are some tips to help you boost your retirement savings:

Max out your retirement accounts:

Employer-sponsored retirement plans such as 401(k)s offer features like employer matching, tax-free or tax-deferred contributions, and investment growth. For 2024, you can invest up to $23,000 into your 401(k) and an extra $7,500 as a "catch-up contribution" if you're 50 or older.

Look for savings in your monthly budget:

Review your monthly budget and identify areas where you can cut back on expenses. For example, cancel unnecessary subscriptions, cook meals at home instead of dining out, and shop around for better deals on insurance or other services.

Increase your income:

Consider taking on a side hustle or renting out any extra space you have to bring in additional income. This can make a significant impact on your retirement savings over time.

Turn your home into a wealth-building tool:

Focus on paying off your mortgage as quickly as possible while also investing a significant portion of your income for retirement. This will give you a valuable asset separate from your retirement savings and allow you to supercharge your investing.

Delay retirement if possible:

If you're healthy and enjoy your work, consider delaying retirement to give your savings more time to grow. Working longer can have a substantial impact on your retirement nest egg, especially when combined with consistent saving and investing.

Work with a financial professional:

Consider meeting with a financial advisor or investing professional to create a personalized plan for your retirement goals. They can help you make the most of your savings and investments based on your unique circumstances.

Remember, it's never too late to start saving for retirement. Even if you're behind on your savings, you can take control of your financial future by making a plan and taking advantage of the tools and strategies available to you.

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