How much money should you have in your brokerage account before age 40?



By the time we turn 40, a lot of people are starting to think about what life will be like in retirement. This includes a thorough review of your brokerage accounts.

At 40, you still have a few decades of retirement savings left, which means you don’t (necessarily) have to worry about every little detail of your retirement lifestyle. In other words, while you are still relatively young, you can probably get by with a rough estimate of your future personal financial needs when evaluating your current investment and savings accounts.

A simple, but very generalized rule of thumb, used by some experts, says that saving 10 times your pre-retirement income will allow you to retire at 67 without changing your lifestyle. This would give you a saving roughly equal to 45% of your expenses, with Social Security making the difference.

Based on this calculation, you would need about three times your saved income at age 40 to achieve this goal.

Evaluate your existing savings

Once you know how much you should have saved to meet your retirement goals, you can assess your accounts.

The first thing to look at is where your 401 (k) is, if you have one. (Some employers offer 401 (k) retirement accounts, but you can’t open it yourself.) If your employer offers a 401 (k) account, this is probably the first place you put your savings – retirement, for two reasons:

  1. Many employers will offer a contribution equivalent to 401 (k)
  2. 401 (k) accounts have higher maximum annual contributions than IRAs

The amount you save in your 401 (k) beyond your employer’s requirements will depend on your savings and tax strategy. If you are maximizing your 401 (k) each year but want to save more for retirement, an IRA or traditional investment account would likely be your next step.

The amount of money you should have in your brokerage accounts, including your IRA and regular investment accounts, will be your reference number – at 40, that would be 3 times your income for our rough estimate method – minus whatever you have in your 401 (k).

Let’s take an example: if you earn $ 60,000 per year, then the 3x estimate would be $ 180,000. If you have $ 100,000 in your 401 (k) then you should have at least $ 80,000 in your brokerage accounts to be on track to achieving your goal. However, if you don’t have a 401 (k), your brokerage account balance should be $ 180,000.

If you want to be more realistic

It’s important to keep in mind that generalizations like the 10x rule are best used as quick, dirty estimates – not solid strategies for planning your retirement. This is because the reality of retirement is much more complicated than such a simple estimate takes into account.

For one thing, the 10x rule makes a very important assumption: that a large portion of your retirement income will come from Social Security. Unfortunately, if you’re only 40 now, Social Security may not be around when you retire.

The easiest way to estimate your retirement figures without social security is to use the 4% method. The 4% method says that you should have enough retirement savings to be able to live on a 4% return each year. For example, a person who needs $ 60,000 per year ($ 5,000 per month) in retirement would need: $ 60,000 / 0.04 = $ 1.5 million in savings.

Using the 4% method gives you a number that should provide you with at least 25 years of constant income. Ideally, however, your savings will generate an annual return at least equal to what you withdraw, which means it can last much longer.

Of course, since you won’t be retiring for a while, you should also consider the impact of inflation on your savings. To do this, take the total amount of your savings and put it into a good inflation calculator to get an idea of ​​how much extra you will need to save to offset the expected rate of inflation before you retire.

Whichever method you choose to assess your retirement progress, don’t be too dismayed if you’re a little behind where you should be. With decades of income ahead of you, you have plenty of time to fill your savings gaps.


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