How Much Should I Have Saved for Retirement by Age 55

“Am I on track to meeting my retirement goal?” That’s a burning question for many Americans, especially those whose retirement date is coming into view. For those nearing age 55, considered to be the start of the final glide path to retirement, it’s a critical milestone that could determine what, if any, steps need to be taken to get or stay on track to achieving their retirement goal.

Financial planners often suggest that by age 55, you should have saved a substantial portion of your nest egg to ensure a comfortable retirement. However, in practice, there is no one-size-fits-all answer to how much, as individual circumstances vary significantly, including your current savings rate, lifestyle expectations, retirement goals, and expected expenses.

Why It’s Risky to Use General Rules of Thumb

If you follow general rules of thumb, you have probably heard that you should aim to have saved somewhere between 10 to 15 times your annual income by the time you retire. That estimate is based on the widely used assumption that you’ll need to replace about 70 to 80% of your pre-retirement income to maintain a similar standard of living.

Based on those guidelines, it’s suggested that you have at least eight times your annual income saved by age 55.

However, today’s retirees are finding that rules based on decades-old averages and assumptions don’t necessarily account for 21st-Century realities, such as rising healthcare costs and expanding life expectancies. Of course, it also depends on exactly when you expect to retire, how much you have saved, and at what age you plan to start your Social Security benefits.

To get a more accurate idea of how much you should have saved by age 55, consider the following steps:

Crystalize Your Vision of Retirement

It begins with knowing what it is you want to have happen. The more clearly defined your goal, the more motivation you will have for achieving it. To ensure you save enough, your goal needs to be clear, and your planning assumptions must be realistic. Although your time horizon may be off in the distance, your vision needs to be tangible with defined lifestyle needs. Your vision will likely change over time, which is why it is essential to review your retirement plan regularly. When you lose sight of your target, you are less likely to hit it.

Determine What it Will Cost

With a clear vision and well-defined goals, you can then attach a price tag. The mistake many people make is that they try to use some general rule of thumb, such as calculating their retirement income need as some percentage of their current income. Your income calculation should be more deliberate, based on a realistic spending plan.

It’s also risky to assume that your expenses will decline in retirement. That’s not necessarily true anymore. When you consider the increasing costs of health care, long-term care, and even the possibility that you may be caring for your aging parents for a while, these can throw any budget out of whack. Plan for a cushion and factor in the increasing cost of living. With an average inflation rate of 3%, your cost of living will double in 20 years. You will also want to factor in an expanding life expectancy. People who reach age 65 today have a 50% chance of living past age 90.

Know Where you are Today

In addition to a clear vision, you need a clear picture of where you are today in relation to your goals. A thorough assessment of your financial situation, including your current savings, future savings capability, risk tolerance, and other priorities, will determine your retirement savings requirement.

Don’t Set It and Forget It

Another significant mistake people make is not checking to see that they are still on track to meeting their retirement goal. If there is one thing we have learned over the last decade, it’s that the economy and the markets can change very quickly. If you experienced the pandemic-induced shutdown of the economy and the steep market crash of 2020, you also know your financial circumstances can change rapidly. For many people, their retirement targets moved, but they didn’t make the necessary adjustments. That’s why you can’t set and forget your retirement plan. Instead, you should take frequent snapshots of your financial circumstances and where you stand in relation to your goals.

Your retirement plan should be adjusted based on your evolving needs and priorities. When done regularly, the adjustments are typically small, just enough to keep you on track. When you always know where the target is, you’ll know if your aim is true.

By following these steps, you will have the vision, the goal, the cost, and the motivation to get your plan on track. Determining the actual amount you need to save will require some calculations that can be done using a retirement income calculator (available all over the internet). However, it’s highly recommended that you work with a financial advisor with the tools, resources, and objectivity to guide you to your retirement goal.