Saving for Retirement in your 30’s

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Twitter storms are a daily occurrence, but it’s fairly rare to see one erupt around the subject of financial planning. However, that’s exactly what happened last week as this MarketWatch article¬†suddenly got the full treatment from angry (and witty) thirty-somethings on social media.

The anger was mainly directed at the idea, from Fidelity Investments, that by age 35 you should have twice your salary saved. Obviously this is meant as a general guideline, but it met with a considerable amount of vitriol from people claiming it is out of touch and unrealistic for many people, with the 2008 financial crisis, crippling student debt, and low-paying jobs cited as the factors making it difficult.

So how useful is this guideline? Are young people under too much pressure to prepare for the future, when they are struggling to live day to day?

If you are 35 today and planning to retire at 65, you have 30 years in which to save. Assuming you wish to replace 50% of your income in retirement you need to save 15% of your income per year. If you’ve already been saving and have a head start, then hitting your long-term target is going to be significantly easier.

Of course, these days many people are running up large amounts of debt just to complete their education. The first 10 years of work are often spent paying that off and getting into a position to start saving for the future. So if you are 35 and don’t have a big chunk of money saved you are not alone, and it is by no means too late. That said, if you are 25 and have the ability to save even a small percentage of your income for retirement you should seriously consider doing so. Even if the amount seems trivial, the extra 10 years of saving will make a significant difference by the time you are 65. The charts in this article do a good job of illustrating the benefit of starting saving early.

Remember that saving for retirement is one of three basics you should be looking to cover as soon as possible, along with building an emergency cash reserve and arranging basic insurance. It’s probably better to focus on accomplishing these three things, rather than trying to hit a specific number by age 35.