If you’re asking yourself “How much should I have saved by 30” then let me tell you this – you’re not alone.

No, for real, you’re really not. I just turned 31 this month and I still question if I saved enough by 30. Now I ask if I’m saving enough by 31. And next year I’ll be wondering if I saved enough by 32.

You know what’s worse than worrying if you saved enough? Not worrying about saving enough.

For me, saving money is always in the back of my mind, and I’m guessing that it is for you as well if you’re reading this article. Maybe you’re worried that you simply “started late” (although 30 is still very early) or maybe you’re wanting to retire at 35 and you simply want to know what to do for the next 5 years.

Regardless of your goal, you’re wondering if you’ve saved enough at 30. But the question is really this – what is your goal?

If you don’t know what your goal is then you can never know if you’ve saved enough, so that always has to be your starting point. When trying to determine your goal, these are the things that you need to consider:

What’s Your Time Horizon?

How much longer do you have that you’re going to be making money? If you’re not working, then you’re not saving. Sure, you might have some passive income coming in which is truly the dream for us all, but if you don’t, then you’re going to be simply depleting your savings.

The time horizon is imperative because not only does it tell you how long you’re going to have to actually save that money but it’s going to tell you how long you need to plan to live without income.

For instance, if you’re 30 and plan to retire at 65 and live to 90, then you have 35 more years to make money and once you retire you have 25 years to live off your savings.

If you’re 30 and plan to retire at 50 and live to 90 then you have 20 years to save and 40 years to live off that stockpile.

You see how these goals are related? It might seem very basic but it’s something that you need to strongly consider when planning your retirement.

How Much Do You Plan to Save?

“Andy, I’m reading this article because I need YOU to tell me how much to save!”

I know, I know, but what I’m asking is this – how much are you saving right now? Do you think you’ll be able to feasibly save that same amount the rest of your career? More? Less?

For instance, let’s walk through a few examples:

Do you get annual raises? If you get a 3% raise, are you going to spend it all? Save it all? Can you live without that extra money coming in?

Do you think you’ll get a new job at some point? Will that new job have a better or worse income? Maybe you want to retire at 60 but you think you can take a lower paying job at 50 that’s going to make you more happy but also hurt your savings rate.

Do you have room in the budget to save more money now? Can you reduce expenses in any way to squeeze out any extra savings?

If you have children then they’re likely going to move out at some point – will you be able to save more money then? Or, do you plan on having kids? If so, you’re likely going to have less to save. Trust me, I had a child about two years ago and even though I had a baby budget it was such a financial shock!

Take some time to really think about income and expenses for your life to go through retirement. It’s imperative to just get a ballpark so you have a general idea of what to prepare for.

What Do You Want Retirement Life to Look Like?

This is so important to know not only financially but mentally. You need to have something to retire to and not just be retiring away from something. Do you plan to retire early? If so, be prepared for major health premiums!

Do you want to travel a lot? How often? Maybe be a snowbird and go to Florida? Or just be a homebody and stay where you are now.

Are you wanting to help your children out financially with their kids’ colleges, etc.?

What goals do you have? Season tickets for a sports team? “Retire” to start your own business? Buy new cars and go on roadtrips?

You don’t have to have a super clear vision at the age of 30, but the more that you can plan for, the better your retirement goal is going to be.

Once you know the answers to some of these questions, you can really get going on this process. Something that I like to do is use the inverse of the 4% rule to back into what I think I’m going to need.

The 4% rule is a mathematically backtested rule of thumb that is a good barometer to use when you’re retirement planning. Note that I underlined mathematically tested (because it is) and rule of thumb (because nothing is ever guaranteed).

When you get closer to retirement then you likely will need to use a retirement planner to get a real retirement plan, but when you’re 30 and likely have multiple more decades in the workforce; using this is a great barometer.

The 4% rule says that you can withdraw 4% of your retirement savings every year, after adjusting for inflation, and never run out of your money as long as your investments are 60% in the S&P 500 and 40% in bonds.

To find out what your retirement needs are you can think about how much you’d plan to spend annually and then multiply that by 25, as that’s the inverse of the 4% rule. This will tell you what you need to have saved up and easily liquid to withdraw when needed.

Got it? Ok, good. So let’s dive into this thing.

For me to figure out how much I’d need to have saved up, I like to go line-by-line in Excel with common expenses that I think I’m going to incur as a retired person.

Not going to lie, this is a hard list to come up with, so I like to start by looking at my own personal budget (I use Doctor Budget) and then eliminating those expenses that are no longer valid. Below shows the list of all of my current expenses and those that I think will be relevant when I retire:

You can see that a lot of these became a “no” because I will not anticipate having these expenses in retirement. For instance, I will not have to pay for daycare in retirement and I refuse to retire with a mortgage, so those were immediately switched to a no.

Once I did that, I simply went through and removed the “no” selections from my list so I only had the relevant expenses. The next steps were for me to go in and put in how much that I think I would need to budget for when I retire to live the retirement life that I want to have. To do so, I thought the easiest way would be for me to guess how much I would spend right now if I was retired and then adjust that for inflation.

The picture below shows this where I have done the math on estimated current spending for someone that’s 60 and how that would look 30 years from now using a historical inflation rate of 2.5%/year:

HOLY CRAP! I need nearly $3 million to retire and live this life?!

Yup, sure do, but let me caveat a few things:

1 – This is for 30 years in the future

2 – This is for a “rich” retirement life in my personal view. The retirement life I’d love to live.

3 – This is a conservative look. I always want to shoot for the stars and if I come up short, land on the moon. I am always conservative in all of my calculations for retirement.

If you want to download this simple budget calculator that I used above, you can do so by clicking here:

The next steps now are to make sure that you’re on track to hit your retirement goal. There are a couple of different ways to do this that I like to do.

The first method is something that is called Coast FIRE. Coast FIRE is the point where you don’t need to save any more money at all and you can simply coast into retirement by simply letting the money that you’ve already saved just compound. The way that you can do this is by going to Moneychimp and using their Present Value Calculator.

You can see that I’ve already done this below with the following inputs:

• Future Value – this is your retirement number that we calculated
• Years – time until you would start withdrawing on those funds
• Discount Rate – this is the annual rate of return that you would assume. The S&P 500 has averaged over 10% since 1950 so that’s the rate I used

If you had $168,412.19 saved and simply just let that money compound at 10% each year you’d never need to save another penny to hit your retirement goal…again, assuming you actually get 10% returns which nothing is ever guaranteed!

“But Andy, I don’t have that much saved. I only have $50K”.

Ok, no worries at all. This is when we switch over to a compound interest calculator, also at Moneychimp. Now you have to enter in a few other pieces of information that might require a little bit of thinking, specifically the amount that you can save each year.

As a starting point, let’s see if you just let that $50K compound each year for 30 years at 10%:

Ouch…way short of your goal by over $2 million. Pretty scary right? You’re probably going to have to save an absolute ton of money!

Wrong. Completely wrong.

Do you have to make saving and investing a focus? Yes, absolutely, but it’s not an earth-shattering amount to hit your goal:

Just under $12K annually, or less than $1K/month is going to allow you to hit your goal. Not bad!

I mean, if you’re married, that’s just yourself and your spouse maxing out your Roth IRA each year. I don’t think that’s too bad at all. That doesn’t even take into account anything that you might get from an employer match with your 401k or anything of the sorts.

Even if $12K does sound like a lot of savings, there are a few things that are worth thinking about:

1 – Your income is going to hopefully increase. When it does, can you save more? That’s going to help you hit your goal even faster.

2 – This is you accounting for saving 100% of your savings goal out of pocket – aka you’re not accounting for any pension, social security, etc. You might have other sources of income such as maybe you do something super part-time when you retire. Personally, I think I’ll likely work at a golf course a few hours each week just to be outside and be around people (and hopefully get free golf!)

Personally, one of my favorite things when seeing if I’m on track for retirement is marrying these two processes. My goal is to reach Coast FIRE by the age of 40. So, actively saving for the next 9 years of my life and then just coasting. Sure, I’ll likely keep saving because of the tax benefits and my company 401k match, but it’s just awesome to know that once you reach Coast FIRE you don’t have to save if you don’t want to.

The process to do this is basically the exact same that we walked through. Instead of having 30 years in the Present Value Calculator, you’re going to set it at 20 years since your goal is to reach Coast FIRE by 40 and then let that money ride for 20 years.

Ok, so you have 10 years to turn your $50K into $436,817. Can you do it? What’s it going to take?

To find out, go back to the compound interest calculator and do some “guess and check” by changing the “Annual Addition” amount until you find what it takes.

So, if you can save $17,512/year from 30-40, then you can hit the same end amount as if you were to save $11,418 from 31-60.

Saying it differently – if you could find a way to save an extra $6,094/year from age 30-40, then you’d in total need to save $161K less than spreading it out over the 31 years…

See what I’m hinting at? Even if you’re “on track” for your savings goal, find a way to save even just a little bit more – your future self is going to thank you a ton for it.

So, how much money should you have saved by 30? Unfortunately I cannot answer that for you, but this exercise should help get you on track. A little bit of planning is going to go an extremely long way for you.

And don’t forget – those 10% returns that I spoke of are nothing more than what the stock market has given you. If you want to pick some individual stocks, check out Andrew’s eLetter, where he puts his own cold-hard cash to work!