How much should you have saved for retirement by 50?

Your 50s are a vibrant chapter in life. You’re probably earning more than you did a decade or two ago and have more time to pursue the activities that bring you joy. You also may be thinking about life after you leave the workforce, which may be only a few years away. So, this is a great time to gain clarity on your retirement savings, capitalize on timely opportunities and reduce your future risk.

Generally, you should aim to have 6 times your annual salary when you come into your 50s, and up to 8 times by your 60th birthday.

Keep in mind that this is a ballpark figure and assumes that you are retiring at age 65. You may need more or less, depending on your financial situation and goals for retirement.

The recommendation for five to six times your salary serves as a general guideline. Your plans and goals for retirement are unique to you, and so is your target retirement savings amount. Determining your target amount starts with getting a clear understanding of how much you will need to cover your expenses in retirement. Consider these factors:

If you plan to retire early, you will need to fund a longer retirement. That will require a higher-than-average amount of retirement assets.

The rule of thumb is to plan on replacing about 80% of your pre-retirement income. But if you envision a significant lifestyle change like traveling extensively or paying for your grandchildren’s college tuition, you may need to increase your target savings amount.

If you plan to move after you retire, be sure to research the cost of living and applicable tax laws of where you plan to live. You'll want to plan for a cost of living relative to where you are now.

Estimates suggest a median wage-earner who was born in 1970 and retires at age 67 will have about 32% of their pre-retirement income replaced by Social Security benefits. You can determine how much Social Security income you can expect with the calculator on their website (you must create an account or sign in to access the calculator).

Many of your retirement income sources will be taxed once you start withdrawing the money in retirement. Even Social Security benefits may be subject to taxation. A high tax bill could have a substantial impact on your nest egg.

In the Thrivent 2022 Retirement Readiness Survey*, respondents said that the most valuable piece of advice they would have given their younger selves would be to learn about tax implications for their retirement savings. Learning about your tax liability now could help you prepare for the future.

You might feel you’re late to the retirement planning game in your 50s. And you’re not alone. Our survey found that only a slight majority of people between ages 50 and 65 say they’ve done a “good amount of planning” for retirement, and they say they still have a ways to go.

Consider the following strategies to maximize your savings efforts in your 50s.

Throughout your 50s and beyond, you have the advantage of making catch-up contributions as an extra boost to your retirement savings. You're eligible to make catch-up contributions if:

• You are at least 50 years old or will be before the end of the year
• You participate in a retirement plan that allows catch-up contributions (401(k), 403(b), IRAs, etc.)
• You've already met your regular contribution limit for the year

Catch-up contributions may lower your taxable income. Contributions to traditional retirement accounts are made with pre-tax dollars so increasing them decreases your taxable income. If it's significant enough, the change could shift you to a lower tax bracket, saving you even more on your current year's tax bill.

Adding catch-up contributions into your budget can help ensure your nest egg will meet your needs when you leave the workforce.

Employer-sponsored plans, like a 401(k), 403(b) or 457(b), let you make pre-tax contributions that will grow on a tax-deferred basis until you begin making withdrawals in retirement.

• 2023 limit including catch-up contributions: $30,000
  

Check to see if your employer-sponsored retirement plan has an employer match program. The matching contribution is generally a percentage of your annual contribution to your plan, and capped at a percentage of your salary. Think of it as free money and take advantage of it, if you can.

Your employer may offer a Roth version of one of these retirement plans, like a Roth 401(k). The main difference is the timing of taxation. You fund Roth accounts with money you’ve already paid taxes on, so you won’t have additional tax liability once you start taking withdrawals. Paying taxes up front could be advantageous if you think you'll be in a higher tax bracket when you retire.

If you don’t have access to a plan through your employer or just want to maximize your savings opportunities with a supplemental option, consider opening an individual retirement account (IRA).

• 2023 limit including catch-up contributions: $7,500

You can choose between a traditional or Roth IRA, or have both.

• Traditional IRAs: Your contributions are made with pre-tax dollars and may be tax deductible, so you’ll pay tax on the money you withdraw in retirement. There are no income limits to participate. With a traditional IRA, you must begin making required minimum withdrawals (RMDs) by the time you reach age 72, 73, or 75 (depending on your birthdate).

• Roth IRAs: Your contributions are made with after-tax dollars so there is no additional additional tax liability when you begin withdrawing money. Roth IRAs have income limits for making contributions. How much you’re able to contribute depends on your tax filing status and your annual salary.² Roth IRAs have no RMDs.

Are you on track for retirement?

Whether retirement is far away or fast approaching, now is a good time to plan for it. Our calculator is an easy way to start.

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Many people look to investing to help accomplish their retirement savings goals. But investing at this stage of your life requires some thought. The closer you get to retirement, the more market volatility can impact your funds, and you want to avoid wild swings in your account balance.

Your investment strategy depends on your retirement objectives and tolerance for risk so be sure to gauge your comfort level before investing. Common investing options include:

• Stocks: Stocks can be a great way to build long-term wealth, but they can be subject to market fluctuations and volatility. This  makes them appropriate for long-term investors with a higher risk tolerance.
  
• Bonds.  Bonds often are considered stable investments that can provide diversification. They’re typically a good fit for conservative investors. However, bonds are not guaranteed and can lose value, especially when interest rates are rising.
  
• Mutual funds. Since mutual funds consist of pooled money from many different investors and spread your money across a variety of investments, these versatile options  can provide diversification and flexibility.  You may want to consider a target date fund, which ties your investments' risk tolerance to the number of years until you retire.
  
• Exchange-traded funds (ETFs). Like mutual funds, ETFs enable investors to purchase an interest in a diversified portfolio of securities. Unlike mutual funds, ETFs trade like stocks on an exchange, which means they can be bought and sold throughout the day. ETFs typically track the performance of an index like the S&P 500 and have lower fees than mutual funds.

Remember, that an investment strategy requires time and attention.  Market ups and downs have a way of knocking your asset mix out of alignment, so you’ll need  to rebalance your portfolio at specific intervals to avoid getting off track.

 If you’re not exactly where you want to be with your retirement savings, you’ve still got some time. And the more disciplined you are today, the better chance you’ll have of making your dream retirement a reality.

Retirement planning can be complicated, so it might be helpful to work with a professional who can guide you along the way. A Thrivent financial advisor can talk with you about your needs and create a customized retirement income plan especially for you—no matter where you’re at in your journey.