How Much Should I Have Saved By Age 45?

Saving for retirement is a project that spans around four decades, and progresses through multiple stages. It’s not necessary to have saved enough to fund a comfortable retirement by age 25. Nor is it feasible to wait until you’re about to turn 65 to start putting money away. Mid-way through this process, by around age 45, is a significant milestone that can indicate whether or not you’re on track. The answer to the question of how much to save by age 45 depends on a variety of factors, including the individual and their unique financial situation, their income, and whether conventional retirement planning guidelines are used. A financial advisor can help evaluate how well you’re doing in preparing for retirement and can even put together a plan.

One way to look at retirement savings by age is to examine how much people are actually putting away. Vanguard’s “How America Saves 2023” report reveals that 45- to 54-year-old employees had average balances of $142,069 in the 401(k) plans that the company oversees. This only captures those holding or contributing to 401(k) plans, however, and doesn’t indicate whether these account balances are likely to be adequate to fund a comfortable retirement.

T. Rowe Price addressed retirement adequacy in a 2024 study that suggested a typical person should have 2.5 times to 4 times their salary saved by age 45. The assumptions used in this analysis were typical of conventional financial planning benchmarks, including:

• Retiring at age 65
• Saving in a tax-deferred retirement plan
• Generating 7% average annual investment returns
• Including estimated Social Security benefits
• Aiming for a retirement income from all sources equal to 75% of pre-retirement income

T. Rowe Price didn’t break down incomes by age, but assumed individuals of all ages had household income between $75,000 and $300,000, and that couples had between $100,000 and $400,000. For a 45-year-old individual bringing in $187,500, at the midpoint between the top and bottom earners, using T. Rowe Price’s benchmark, they should have saved between 2.5 and 4 times their salary, or between $468,750 and $750,000. A married couple earning a combined $250,000 should have saved between $625,000 and $1 million.

A typical retirement saver probably earns less than T. Rowe Price assumed. The Bureau of Labor Statistics reported that first-quarter 2024 median wages and salaries for people aged 45 to 54 total $67,756. This suggests, using the T. Rowe Price guideline of 2.5 times to 4 times earnings, a 45 year old should have saved between $169,390 and $271,024.

Now let’s consider a 45 year old who earns $135,512, or twice the BLS-reported median for that age. In that case, the indicated savings amount is between $338,780 and $542,048.

Next, look at a lower-earning worker with a salary of $33,878, half the BLS median for a 45 year old. This worker would need to have saved between $84,695 and $135,512 by that age.

Many factors will affect whether a given individual has saved enough by age 45. Some of these are known, such as their current income, and others are predictable, such as the age at which they plan to retire.

However, many elements are not easy to forecast. These include future investment returns, inflation and taxes. Major variations from the assumptions for hard-to-predict factors can change the outlook considerably.

One key assumption is how much income a retiree needs. This is where creating a retirement budget can be helpful. Many planners use 75% of pre-retirement income as a standard. However, this simple rule of thumb may not suit everyone. Higher earners, for instance, are likely to need lower percentages of pre-retirement income to cover their retirement expenses than low earners.

One careful study by a Morningstar researcher of retirees’ likely income needs was done in 2014, and found that income replacement rates ranging from 54% to 87% were likely enough for most retirees. It suggested that commonly used standards of 70% to 80% of pre-retirement income exceeded a typical retiree’s needs.

Black Rock and the Employee Benefit Retirement Institute reported in 2023 on a survey of more than 1,500 retirees across a wide range of income levels, asking about their retirement finances. It found that after 20 years of not working, most retirees still had 80% of their nest eggs, and a third had more than when they left the workforce. This highlights the difficulty of determining how much to save and the value of taking an individualized approach to financial planning. It’s also why some people choose to work with a retirement advisor.

In order to determine how much you should save by age 45, you have to make a number of important assumptions, some of which are difficult to do with much accuracy. However, if you’re like the typical 45 year old and one investment firm’s analysis is on target, you might want to have put away between $169,390 and $271,024.

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