How Much Should You Save for Retirement?

For Members Over 40

According to the Social Security Administration, its retirement benefits are only designed to replace approximately 40% of the average worker's wages. That means the remaining 60% of your retirement income will need to come from other sources such as your IMRF pension, other retirement savings accounts, personal savings, and/or other investment earnings.

So, how much should you be saving for your retirement?

Industry Benchmarks and Rules of Thumb

One major investment firm recommends that you aim to save at least 3x your salary by age 40, 6x by 50, 8x by 60, and 10x by 67. So, if you are earning $60,000 by age 40, you should have $180,000 banked for retirement. If you reach 67 years old and are earning $75,000 per year, you should have $750,000 saved, based on this rule of thumb.

Another major investment firm says that saving 15% of your income per year is an appropriate savings level for many people.

If you are reading these benchmarks and thinking "I am nowhere near that," you are not alone.

How Do Others Your Age Stack Up Against These Benchmarks?

Most Americans are not saving sufficient amounts of money for their retirement years. This is true for all ages ranging from millennials to baby boomers. Research from one of the major investment firms shows the following average contribution rates and retirement savings balances for others in your age range:

Ages 40 to 49 –

• Average 401(k) balance: $93,400
• Contribution rate (% of income): 8%

Ages 50 to 59 –

• Average 401(k) balance: $160,000
• Contribution rate (% of income): 10%

Ages 60 to 69 –

• Average 401(k) balance: $182,100
• Contribution rate (% of income): 11%

Ages 70 to 79 –

• Average 401(k) balance: $171,400
• Contribution rate (% of income): 12%

In its 20th annual survey, the Transamerica Center for Retirement Studies found that millennials had median retirement savings of approximately $23,000. The median retirement savings for Gen Xers was $64,000 and for baby boomers it was $144,000.

Similar findings come from the Economic Policy Institute: It estimates that those ages 32 to 37 have saved around $31,644, and those 38 to 43 have saved around $67,270. For ages 44 to 49, the average retirement savings are $81,347, and those 50 to 55 have saved an average of $124,831.

Though these may seem like healthy amounts, all of these numbers are well below even the most conservative goals.

What Can You Do to Bulk Up Your Retirement Savings?

As an IMRF member, there is a unique savings vehicle available to you, to help supplement your retirement savings. IMRF's Voluntary Additional Contributions (VAC) program is just one of many savings options available to you, but it is low-risk and offers higher interest rates than many other retirement savings options.

VAC is a particularly attractive savings vehicle in the current economy, with the stock market experiencing a historic decline and economists predicting a recession, due to its consistently high interest rate.

With VAC, you can elect to save between 1% and 10% of your reported earnings in an account that currently earns 7.25% interest. The interest is credited at the end of the year, based on the opening balance at the beginning of the year. Contributions are after-tax and do not reduce your taxable income as in a 457 or 403(b) plan.

VAC is a great way to build the personal savings members will need to supplement their pensions in retirement.

For more information on IMRF Voluntary Additional Contributions, click here.