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We all dream of building wealth, saving more, and achieving financial freedom. But let’s be honest — overhauling your budget or making drastic lifestyle changes can feel overwhelming. What if I told you that small, incremental changes could lead to big results over time? Enter the 1% rule, a simple yet powerful concept that shows how tiny adjustments in your daily habits can compound into…
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Everybody’s “retirement number” is a little different. Some people will need to save a lot more or less than the average American to retire in comfort.
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However, many financial experts say you should save at least six times your annual income by age 50. So if you’re 50 years old and earn $80,000 a year, then ideally you have $480,000 or more in retirement savings.
Let’s go over some of the reasons you may need more or less money than that, as well as what you can do if you’re behind.
Here are just some of the reasons you may want to save more than six times your salary by age 50.
The guideline of saving six times your salary by age 50 is based on the assumption that you’ll retire at age 67. If you plan to retire earlier than that, you’ll probably need more savings to make sure your money lasts as long as you do.
An average 65-year-old who retired in 2024 can expect to spend about $165,000 on healthcare throughout retirement, according to Fidelity Investments. That’s a huge sum of money. If you have chronic health issues, or if you end up needing long-term care, then you’ll likely spend a lot more than that. Nursing homes and assisted-living facilities often cost more than $100,000 per year.
Healthcare is expensive — but so is living to age 90. The average 50-year-old is expected to live another 28 to 32 years, according to the Social Security Administration. If you’re in great health and have a lot of relatives who lived well into their 80s and beyond, then you may want to plan for a longer retirement than most.
Most people spend less money when they retire, because their lives are less active. However, if you plan to travel the world or enjoy other expensive hobbies, then you should aim to pad your retirement savings.
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Not everyone needs six times their salary saved by age 50 to retire in comfort. Here are a few potential reasons why.
The “six times your salary” rule assumes that all your income is coming from your savings and Social Security. If you’ll also be earning income from a pension, rental property, or any other source, then you can aim lower.
There are a lot of reasons why you might spend less money in retirement.
If you’ve paid off your mortgage, or you plan to downsize to a cheaper home, or you plan to live with family, then your housing costs will be lower (or nonexistent).
And if you plan to take it easy in retirement, then you may spend a lot less on gas, vacations, and entertainment.
Some people keep working into their 70s and beyond. It’s best not to plan on this, as many people are forced to retire earlier than expected due to health issues, the job market, or other factors. But putting off retirement for a few years can save you a huge sum of money in the long run.
Your Social Security benefits will also be bigger if you hold off on claiming them for a while. They max out when you reach age 70, so you don’t want to delay claiming benefits past that age.
First of all, don’t panic. Millions of Americans don’t even save six times their salary by the time they retire. That said, if you want to maintain your standard of living when you retire, it’s time to kick your savings into overdrive.
Aim to save at least 20% of your income, preferably in a tax-advantaged retirement account like a 401(k) or IRA. When you’re 50 or older, these accounts let you deposit more money than younger savers. Take advantage of these “catch-up contributions” and save as much as you possibly can.
If you’ve maxed out your 401(k) and/or IRA contributions for the year, you can open a regular brokerage account and invest through that.
Also make sure your retirement savings aren’t all sitting in low-growth investments like bonds or certificates of deposit. Ideally, at least half your portfolio will be invested in higher-growth assets like stocks. If you’re unsure what to invest in, consider something simple like a broad-market index fund. Then you’ll have both diversification and higher potential returns.
Most 50-year-old workers have at least 10 years to keep saving and to ride out any short-term losses in the stock market. Start saving aggressively now, and even if you fall short of your goal, you’ll be much better off.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.James McClenathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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Certificates of deposit (CDs) are one of the safest ways to grow your money. The current yields on CDs are nowhere near the long-term returns of the stock market. However, you can still earn a lot of money with CDs if you invest a large amount — and your returns are guaranteed.
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So what would it take to earn $10,000 by investing in CDs today? It depends on the CD’s interest rate, the term, and how much you invest. Let’s look at a couple of scenarios and see if CDs are a good place for your money now.
The longer your money is invested, the more it’ll grow. So let’s assume you invest in a 5-year CD — the longest term available at most banks.
The best 5-year CD rates are around 4.00%. At that rate, you’d need to invest $46,160 to earn $10,000 by the time your 5-year CD matured.
You’d need to invest a lot more money in a 1-year CD to earn $10,000. That said, 1-year CDs have slightly higher APYs than 5-year CDs — around 4.30% at the high end.
You’d need to invest about $233,000 to earn $10,000 from a 1-year CD paying 4.30%.
Want to earn the same interest rate as a CD without locking up your money for years? Check out our list of the best high-yield savings accounts, which pay up to 4.50%.
You can always reinvest your money in new CDs once the old ones mature. In other words, you can earn $10,000 over a much longer time frame than five years.
We don’t know what interest rates will be in the future, but let’s assume they drop about 25 basis points (as some experts predict) and then remain stable.
At a 3.75% APY, you could earn $10,000 over 10 years by investing about $22,500 in a 5-year CD, then moving that money to another 5-year CD once the first one matures.
Certificates of deposit make sense if you have a large amount of cash that you need to keep safe for years while earning a low but guaranteed return.
For building your wealth, however, you’re probably better off investing in the stock market. Since 1957, the U.S. stock market (as measured by the S&P 500 Index) has gained an average of 10% per year.
Stock returns fluctuate, and losses are guaranteed to happen sometimes. But if the S&P 500 were to gain 10% per year over the next five years, it would only take an investment of $16,400 to earn an additional $10,000.
CDs are great for people who are looking to preserve their wealth, rather than build wealth. However, most of us will need a higher return than 4% per year to achieve our biggest financial goals, like saving for retirement.
If you’re new to stock market investing, consider opening a new brokerage account and purchasing a low-fee S&P 500 index fund. You’ll instantly be invested in 500 of the biggest, most successful companies in the U.S. And if the stock market’s past returns hold up, you’ll be on track to earn far more money than you could with any CD.
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Reaching 40 years old with $100,000 in a 401(k) is a solid achievement, but if you’re on schedule to retire at your goal age depends on factors like your preferred lifestyle, future savings rate, and expected expenses in retirement. Let’s break it down.
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Financial experts often use retirement savings benchmarks to determine whether someone is on track. A common guideline is to have two to three times your salary saved by age 40. That means if you earn $50,000 per year, a $100,000 401(k) balance is on the low end of the target. But if your salary is closer to $80,000 or $100,000, you may need to ramp up your savings.
Of course, these are just general guidelines. The real question is whether current savings habits will lead to a comfortable retirement down the road.
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You need to make an educated forecast of how much $100,000 will grow by retirement if it’s left untouched. The answer depends on investment returns. Historically, the stock market has averaged around 10% annually, but a more conservative estimate of 7% is often used for long-term planning.
Here’s how $100,000 could grow by age 65:
While these numbers look promising, most people will need more than this to retire comfortably — especially if they plan to rely on savings for 20 to 30 years. That’s why continuing to contribute to your 401(k) or IRA is crucial to building a solid retirement fund.
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If the goal is to retire comfortably, financial planners often recommend saving 15% to 20% of annual income, including employer contributions.
For example, if someone age 40 with $100,000 in their 401(k) earns $70,000 per year and contributes 10% of their salary while receiving a 4% employer match, their 401(k) savings would look something like this:
This assumes a 7% annual return and steady contributions. Increasing the savings rate — even by just a few percentage points — could significantly boost retirement funds.
How much someone needs in retirement depends on lifestyle expectations. A person planning to travel frequently or retire early will need more savings than someone who plans to live modestly in a low-cost area.
A 401(k) isn’t the only option for retirement savings. If someone also has an IRA, taxable investment accounts, or rental income, their overall retirement picture could be much stronger.
Social Security can supplement retirement savings, but it’s unlikely to cover all expenses. The average monthly benefit in 2024 is about $1,900, but actual benefits depend on lifetime earnings.
Entering retirement debt free can make a big difference. Paying off a mortgage, credit cards, and other loans before retiring can reduce the amount needed from savings.
If $100,000 at age 40 isn’t quite where someone wants to be, there are ways to catch up:
A $100,000 401(k) at age 40 is a solid foundation, but whether it’s enough depends on future savings and retirement goals. By increasing contributions, minimizing debt, and taking advantage of investment growth, there’s still plenty of time to build a comfortable retirement.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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