Chances are, you've seen the advice floating around that advises 35-year-olds to have twice their annual salary in savings if they plan to retire by 67 "and live a similar lifestyle."
If you are 35 years old and you have just one year's annual salary shored up, congratulations a million times over — you're well ahead of the game.
In 2017, the median salary for Americans aged 35 to 44 was $50,752 annually, based on figures from the Bureau of Labor Statistics. By contrast, the Federal Reserve found that the same age demographic had a median $5,000 in a savings account. All Americans, on average, had just over $33,766 saved, and one-third had $0 saved for retirement in 2016. Obviously, the double-your-salary-by-35 figure isn't realistic for many working people in the U.S. — especially those in their mid-thirties.
"This was predicated on a Fidelity study that assumed that you've been saving 15% of your income directly to retirement every year starting at age 25 [through] age 65, and it was looking more at how a 65-year-old today would get there if they had a constant saving throughout their working career," explains Alison Norris, a strategy manager and CFP at SoFi. "It was not taking into account that this is 2018 and circumstances are far different than they were when a retiree was 35."
Today's 35-year-olds have come of age amid the housing bubble and with a greater student loan burden than today's 65-year-olds could ever imagine. With that in mind, here are more realistic goals Norris says you should work toward — en route to that golden, double-salary nest egg.
1. Have a growing net worth.
If you're desperate to focus on one savings metric in order to assess your context, Norris advises comparing your net worth to your expenses, rather than comparing your income to your savings.
"Otherwise, you're really penalizing those who have worked hard to get a higher salary throughout the recent years, and that's the opposite behavior that I would want to promote as a financial planner." (Think about it: You can only pinch pennies so much! If you've worked hard and fought for a higher salary over the years, that victory deserves to be part of your financial narrative.)
Use whatever earnings you have, and aim to "increase your net worth by a few percentage points every year by investing wisely and making recurring deposits into your accounts," she suggests. Analyze how much you're contributing to a 401(k) or other investment vehicles, what you're putting into a short-term savings account, and if that is growing over time.
2. Be paid your value.
The everlasting struggle! Laws that bar prospective employers from asking job seekers about their salary histories acknowledge the perpetuating cycle of being underpaid. If you start out underpaid, it becomes exponentially difficult to catch up to your market value.
For example, Norris says, "Let's assume a 35-year-old woman works for an additional 30 years and has a salary that increases 5% year over year. Making an additional $5,000 today would net her roughly $330,000 more over the remainder of her career than if she didn't ask for that raise. But if she waits 10 years before making the same $5,000 ask, she'll lose out on ~$200,000 of lifetime earnings."
That's an unspeakable amount of money for most people — enough to pay down all kinds of debt, put money down on a home, and be well on the way toward a stable retirement.
No one is born knowing how to negotiate. But the more you practice and get in the habit of researching, the easier negotiating will be, and the better the chance you won't be chasing bills down the line when you most need them.
"People get scared by the word 'negotiation,' but it's just a conversational skill," Norris assures. "Raise decisions often don't happen in isolation, so approach your boss months before decisions are made. Bring examples of how your work has benefited the company, using language that expresses shared goals and your excitement to continue adding value."
Also, understand that benefits comprise of 30% of your total compensation, she advises. Discuss boosting your base salary, but "don't neglect stock compensation, insurance, vacation days, and the multitude of other factors that impact your quality of life."
3. Be able to float yourself for three to six months.
A sweet goal in your mid-thirties is to have a greater degree of relief from everyday stressors. A financial cushion is essential as you move into middle age. (Especially for younger adults today, many of whom will never experience a pension.)
"Depending on how many income sources you have in your family, you generally want to be between three and six months of expenses," Norris says. "If you just have one income source — you're the sole provider — closer to six months is a better rule of thumb. And if you have a two-income household or you have a couple of different jobs, three months may be a better frame of reference."
See the rest of the story at Business Insider