Over on Twitter, some people are roasting MarketWatch for an article originally published in January that says you should have double your salary saved by the time you’re 35.
I understand why people are poking fun at it. As MarketWatch notes in its rudely-titled follow-up, “the response highlighted just how anxious people feel about their financial responsibilities and the obstacles that outweigh saving for retirement.”
Putting such a large number on something is sure to scare people, particularly when you consider one in three Americans have less than $5,000 in retirement savings while one in five have none at all, according to Northwestern Mutual’s 2018 Planning & Progress Study. “It’s certainly possible but in my experience not typically done,” says Roger Whitney, a Texas-based Certified Financial Planner, about saving double your salary.
In fact, even diligent savers would be hard-pressed to meet that threshold. Here’s an example provided by Danielle Schultz, an Illinois-based Certified Financial Planner:
Let’s consider Mary: who begins working at 25 years old, earns $60,000/year to start [and] gets a 2% raise every year. [She] contributes 10 percent of her salary ($6,00/year or $500/month to start), and this increases by two percent every year as she gets a raise. [Her] employer matches three percent of her salary, so a total the first year is $7,800 going into her retirement plan.
Let’s also say she’s invested pretty aggressively—ok, for a young person—and she earns seven percent per year on the money.
In 10 years, at age 35, Mary would have $116,712 saved and invested. Her salary would have risen to $73,189, so yes, it’s within the realm of possibility. In order for Mary to have double her salary saved ($146,378), she’d need to be saving a total of $9,800/year, increased each year by two percent.
It’s also the minimum rate I’d recommend she save for retirement. In 35 years she would have around $1 million—not really a fortune, but more than a lot of people have. That plus Social Security might get her through, although hopefully Mary will improve her earnings beyond two percent per year and be able to save much more. 35 years gets pretty fuzzy for the projections business, but I think you can see why saving early at at least 10 percent is pretty important.
That said, the article is fairly inoffensive—I’ve even written something similar to it! Because despite the possibility that the figure will be off-putting to some people, it’s also … true. Yes, saving double your salary by the time you’re 35 will help you achieve a stress-free retirement.
Of course, it’s not possible for many people. That “stress-free” retirement is more a figment of the past (it wasn’t really true for that many people in older generations, either) than a guarantee for workers now. As I wrote previously, these numbers are just a way for you to have a frame of reference for how much money you’d like to have so you can work toward it.
Like everything, there’s no one-size-fits-all rule that will apply to everyone when it comes to your personal finances. It’s true that money experts—the people at places like Vanguard and Fidelity—use double your salary as a benchmark, but that’s all it is. It’s the best-case scenario. Personal finance experts also say you shouldn’t take on debt you can’t afford and to never buy coffee on the way to work, but obviously people don’t follow those “rules,” either. Just like you probably don’t eat your five servings of fruits and vegetables per day or abstain from drinking and tobacco to maximize your health.
“I think this rule of thumb wouldn’t apply to everyone. There are so many variables to consider, it is impossible to give broad, blanket advice,” says Kathleen Grace, a Florida-based Certified Financial Planner and managing director at United Capital. “For example, what kind of health care coverage will they need in the future? Will they work part time during retirement? What is the cost of living where they will retire? Will they have debt in retirement? Are they planning on selling their house to fund retirement?”
How to Save Double Your Salary
So what can you do? Basic personal finance rules apply. If you have a 401(k), contribute up to the employer match, and then some (or open an additional account). If you don’t have a 401(k), open an IRA or a Roth IRA. Cut out extraneous expenses, automate as much as you can and be aggressive when pursuing jobs and asking for a bigger salary.
“Being able to save means you have to control your costs so that they total less than what you earn,” says Schultz. “So, if you can’t save, you either need to slash expenses, earn more, or some combination of the two.” There’s no getting around those simple facts.
You’ve heard all of this before, right? And you’re saying: I have to save for retirement, pay off student loan debt, save for my wedding and a house and pay for my kids. All on stagnated wages or gig economy work. It’s just not enough.
But that doesn’t mean you should just give up. First, make a plan. Start small and keep building—$10 per month, then $25, whatever you can manage. Don’t get discouraged because you don’t compare to arbitrary measures. Don’t vote for people who want to strip workers of the few rights they have, make saving for retirement harder and take away health care from the most vulnerable, all to the benefit of multi-millionaires and international conglomerates.
Focus on what you can control, and make minor lifestyle changes that can boost your bottom line. “The best investment someone in their 20s and 30s can make is in themselves,” says Whitney. “In their skills, experiences and professional networks. All of these wouldn’t show up on a balance sheet but could help slingshot someone towards something better.”
To go back to the health analogy, you can’t control everything—some conditions are hereditary, others are caused by accidents or other outside forces. But still, we eat as healthily as we can and exercise even though we hate it to mitigate problems as best we can. Most people don’t just throw their hands up in the air and give up because they’re going to get sick someday. The same needs to happen with your finances. You can’t control everything, but you can make conscious decisions to save some money that can help you down the road.