Whether your 50s seem far off, or just around the corner, it’s crucial that you’re working toward saving up for your retirement so that you are financially confident once you get there. In fact, a 2020 survey by the Transamerica Center for Retirement Studies found that fewer than half of retirees (47%) believe that they’ve built a large enough nest egg to fund their retirement years.
To help you keep track of your own savings as you get closer to retirement, experts at Fidelity Investments suggest having six times your income saved by your 50th birthday in order to retire by age 67.
“We came up with these as guidelines or goal posts for people to aim for,” Eliza Badeau, VP of workplace thought leadership at Fidelity and a retirement expert, tells CNBC Select. “The most important method here is to start early and save consistently throughout your career.”
If Fidelity’s benchmark seems like a tough hill to climb, below are three financial habits to develop by the time you turn 50 to help you achieve it.
1. Watch your spending
“In my experience, it is more about spending than income in many cases, so I would start there,” says certified financial planner Diahann Lassus, co-founder, president and chief investment officer of wealth-management firm Lassus Wherley, a subsidiary of Peapack-Gladstone Bank.
To take control of your finances as you near age 50, understand how much you spend per day, week, month and year and toward what. Making a budget is a good starting point that can help you see where your dollars are allocated and potential areas to cut back. If you often charge your purchases, make a habit of looking at your credit card statement every month.
YouTuber Aja Dang, who paid off $200,000 of debt in two years, used monthly budget spreadsheets, in addition to tracking her everyday spending through mobile personal finance apps like Qapital and in a planner. Each night, she would make a routine of writing down her expenses from that day.
“Controlling your spending gives you the opportunity to save for the future,” Lassus says.
2. Get an early start
When it comes to building a savings, the most important part is to start as early as you can. Saving money in your early years is essential to meeting your long-term goals, like retirement.
“Even if you start with small dollars, the compounding effect will provide an addition to those dollars that will make a significant difference,” Lassus says. “Whether you reach that ‘six times your income in savings by age 50’ or not, if you get started you at least give yourself a chance to reach your goals.”
Plus, making a habit of saving before you reach 50 not only helps with building a retirement fund, but also mini goals along the way, such as emergency funds.
When you build this safety net of savings early on, it’s takes the pressure off later so you’re not always worrying about how you might cover some big unexpected expense and can slowly build up your savings over time.
3. Pay yourself first
According to Fidelity, in order to have six times your income saved by age 50, you need to start investing 15% of your income in a retirement plan every year starting at age 25.
One of the best examples of “paying yourself first” is contributing to your 401(k) or a savings plan directly from your paycheck before it arrives in your bank account. “What it really means is using every option available to save and invest where it is relatively painless to do so,” Lassus says.
A lot of people just have their paycheck deposited into their checking account, paying their bills and waiting until the end of the month to move dollars into their savings.
“Unfortunately, there may not be anything left at that point,” Lassus says. “So, pay yourself first and avoid that torture of not having anything left at the end of the month for saving.”
Lassus suggests a specific target like 20%, but you should ultimately base it on your cash flow needs. The idea is to put your savings on autopilot so that you make sure your savings continue monthly.
If you have a 401(k) available, sign up and make sure you contribute enough to participate in any company matching if your employer offers it. Otherwise, that’s free money you’re leaving left on the table. “The key thing to long-term savings is contributing enough to get your employer match,” says Fidelity’s Badeau.
Making sure you match your employer contribution can also help you reach that 15% yearly contribution target that Fidelity recommends.
“We are seeing millennials and Gen Z hitting that 15% employee/employer contribution,” Badeau says. She notes that over the course of your career you can catch up to achieve 15% contributions if you aren’t yet there in your 20s and 30s.
Bottom line
Fidelity’s guideline to have six times your income saved by your 50th birthday in order to retire by age 67 can certainly seem overwhelming, but Badeau notes to take it one day at a time. For your 15% contribution goal, think 1% at a time.
And no matter how old you are, it’s just important to get started. Right now.
“When we use a rule of thumb like you need to have ‘six times your income saved by age 50,’ we need to make sure we recognize that this is a starting point,” Lassus says.
“We all have different needs in retirement, so the dollars required to generate cash flow to pay our ongoing expenses may vary regardless of our income during our working years.”