Retirement savings are a long-term game. Most of us start saving about three decades before we ever touch the money. Consistently saving and investing your money is the best way to grow your wealth and achieve a comfortable retirement. But you might not know how much you should have in your IRA at different ages. And hey, it’s tricky to figure that out. That’s why I’m here to help today.
Your IRA is one of the best tools you’ve got for reaching your retirement goals. No matter what type you have — traditional, Roth or SEP — they’re all great ways to tuck money away for your future. (If you don’t have one yet, Investor Junkie has selected Betterment as our favorite pick for IRA accounts for beginner investors. But you can check out all our favorites here.)
Milestones make it easier to save and easier to see when you’re getting off track. Studies show that setting specific goals that have a timeline and are measurable are easier to reach. So knowing you’re working toward a certain retirement number, and having milestones to reach by certain ages, makes saving easier overall.
Of course, people at different income levels will be able to achieve different exact numbers for their savings. Someone making $40,000 a year probably won’t be able to save as much as someone making $100,000 a year. Then again, someone making $40,000 might not need as much saved as someone making $100,000 a year. Personal finance is exactly that: personal. Our suggestions below are outlines, not hard and fast rules for everyone.
IRA Contribution Limits
First of all, let’s take a look at the limits of an IRA contribution. You can contribute only $5,500 a year to your IRA (no matter the type). Plus, you can have an IRA only if you make under a certain amount. In 2017, that amount is $117,000 for a single filer or $184,000 for a married couple.
IRAs operate on an April-to-April calendar. That means you can make contributions for the previous year until April of the current year.
How Much to Have Saved in Your IRA by Age
Investing is the single best way to increase your money and to grow long-term wealth. However, it’s impossible to predict what the market will do from year to year. That’s why we’ve focused on the thing you have individual control over: how much you save in your IRA.
Most people start saving for retirement around this time. Starting early is wonderful for your long-term financial health and prosperity. Compound interest favors the young. The more time you have to save, the more your interest grows. And the more money you have in retirement.
When you’re just starting out you don’t have to invest the maximum amount every year (though you should if you can). Anything you put away now will help you later. Start by opening an account with $1,000. From there, see if you can add in an additional $2,000 by the end of the year.
By the time you hit 30, you should have $25,000 in your IRA. If you open an IRA at 25 with $3,000 and max it out from age 26 to age 30, you’ll hit $25,000 easily.
By 40, you should be maxing out your IRA each year. By tucking away $5,500 a year, you’re steadily building a comfortable retirement for yourself. At this age, you want to have $80,000 in your IRA.
Starting at 50, you can contribute an extra $1,000 a year to your IRA. That makes the limit $6,500 a year. This is a big help to those who are on the lower income side of things or those who got started saving late.
By 50, you should have $135,000 saved in your IRA. According to our plan here, you’ve just spent the last two and a half decades maxing out your IRA. This put you in a great spot to retire somewhere in the next 10–20 years.
At this point, you’re in the last two decades of your working years. Hopefully you’ve been able to build a cushion throughout the first half of your career. If you haven’t, you need to start saving now. If you’re just beginning, max out at $6,500 every year to recover some of that lost time.
Throughout your 50s most people face new financial responsibilities. Children head to college, medical costs might go up, and you might want to pay off a house mortgage before you retire.
So we’ll stick with putting $5,500 a year in your IRA and not the maximum legal contribution of $6,500. Another decade of saving $55,000 puts you at a cool total of $190,000 in your IRA.
Traditional retirement age is 65, but that’s changing. People are living longer than before. And the recession changed the game for millions of people. If you lost money in the recession or were just starting out and worked for low wages, you’ll need to work past 65 to retire comfortably.
In your last few working years, you should up the ante on retirement contributions. Hit that $6,500 from 65 to 68 to give yourself a little extra cushion in your retirement.
By working just a few years more, you have the opportunity to make up some ground you might have lost earlier in your career. By 68, as you wrap up your working years, you should have saved $237,000 in your IRA.
An IRA Is Only One Part
Remember, an IRA is just one part of the retirement savings plan. Most workers also have a 401(k) or a 403(b). You’ll be eligible for Social Security, and some of today’s workers will also have a pension.
And remember all these numbers are simply your savings. With market returns of even 5% (a conservative number), you’ll have well over what you’ve actually saved by the time you start extracting money from your accounts.
By doing your best to max out your IRA each year, you build a strong foundation for your retirement. For most workers, $5,500 a year isn’t too great a number to save. What you save now will be what you live off later. So do your future self a favor and start saving in your IRA now.