You save to mitigate personal disaster.
Let’s zoom out from granular advice on maximizing returns on your taxable and retirement investments, or deep dives on the best CD rates or mortgage rates. At the most basic level, savings enable you and your family to enjoy the freedom associated with money and avoid the pain of debt.
There are two main reasons to set money aside: Insurance against bad financial weather and provision for your retirement. You might also save for a down payment on a house or for your wedding, but the first two are the must-haves.
Bad news: We’re not doing so well on either point. About half of Americans are at risk of lowering their standard of living in retirement, according to the Boston College Center for Retirement Research, while less than 20 percent of people feel very confident they’ll enjoy a comfortable retirement.
Only 39 percent of Americans would pay for an unexpected $1,000 charge out of their savings, according to a Bankrate survey. Americans are struggling to earn more than inflation, the return on savings can barely be felt, and credit card debt is piling up for families of all income levels.
It’s easy to get lost and fall behind. Your day teems with never-ending to-do’s of varying importance. You have to get the oil changed, buy health insurance, call the pediatrician, get the house ready for the in-laws, and so on. It’s difficult to prioritize properly funding hedges against disaster when you can barely get through the day.
Below you’ll find a helpful guide to how much you need in savings right now, and for retirement, over the course of your life. Of course, everyone’s situation is different, so think of this as less of an exact number and more of a guide that you can apply to your own life.
How much do I need in an emergency fund?
Let’s start with the emergency fund. The standard financial advice is that you should aim for three to six months’ worth of essential expenses, kept in some combination of high-yield savings accounts and shorter-term CDs.
An essential expense for me — say, my son’s health insurance — may be something you don’t have to worry about. Moreover, my rent might be less expensive than your monthly mortgage payment.
Broadly speaking, there are six costs to focus on: housing, transportation, food, health care/insurance, utilities and debt, with the first two carrying the biggest punch.
How much do I need in savings by age 30?
Households led by someone between the ages of 25 and 34 earn an average of $66,470 a year, according to the 2016 Consumer Expenditure Survey. If you take conventional wisdom, this household, which has on average one child, should have about that much stocked away in retirement accounts. Check out this calculator to get a more in-depth look into your specific retirement needs.
As for the emergency fund, they spend a monthly average of $1,550 on housing, $758 on transportation, $575 on food, $242 on health care and insurance, and $275 on utilities. Toss in an additional $56 a month for credit card debt, and that monthly essential spending costs $3,456.
(Credit card debt is used as a proxy for debt and assumes you’re paying a 4 percent minimum. Federal student loans are a huge source of debt, especially for millennials, but they typically give you flexibility in the event you lose your job.)
Multiply that by three to six, and you’ve got your emergency fund.
- Retirement savings goal: $66,470
- Emergency savings goal: $10,368 to $20,736
How much do I need in savings by age 40?
Those aged 35 to 44 earn an average income $92,576. Conventional wisdom states this couple should have three times that amount saved.
Their monthly spending consists of $1,908 on housing, $867 on transportation, $725 on food, $342 on health insurance, $358 on utilities and another $100 on credit card debt. That comes to a total of $4,300 a month.
- Retirement savings goal: $277,728
- Emergency savings goal: $12,900 to $25,800
How much do I need in savings by age 50?
This is the time you hit your peak earnings. It’s also when you’ll spend the most money in your life.
Those aged 45 to 54 earn an average yearly income of $99,423. Experts tell these stressed out folks they need six times earnings in their retirement accounts.
That might be difficult due to their spending. Housing costs actually go down slightly, to $1,833 a month, thanks in large part to paying off the mortgage. Nevertheless, you still owe $917 on transportation, $733 on food, $408 on health care and insurance, $383 on utilities and $112 on credit card debt. Or $4,387 a month.
- Retirement savings goal: $596,538
- Emergency savings goal: $13,161 to $26,322
How much do I need in savings by age 60?
Time to wind down. You’ve probably moved on from the most stressful period of your career, either voluntarily or not, and now you’re preparing for the last third of your life. That’s why earnings and spending start to fall.
Those aged 55 to 64 earn an average yearly income of $80,474. You’ll want to have saved at least eight times that for retirement.
Thankfully you need less in your savings account. You spend $1,550 on housing, $808 on transportation, $600 on food, $458 on health care and insurance, $350 on utilities and $100 on debt. That’s a monthly total of $3,867.
- Retirement savings goal: $643,792
- Emergency savings goal: $11,600 to $23,200
What you can do
These numbers can be somewhat misleading. By the time you hit 60, you’re expected to have retirement savings 30 times greater than your emergency fund. How is that supposed to happen?
Remember, your retirement saving has some advantages. The contributions you make aren’t taxed, and you might also get free matching money from your employer. The money itself takes advantage of compounding interest. Save 10 to 15 percent of each paycheck, including any match, and you’ll be on track.
Your emergency savings, meanwhile, is after-tax money that earns barely any return at all and you get no help from your job except for the paycheck. Kids cost $275,000 to raise (and that doesn’t include college), roofs break, family and friends need help, hips break and layoffs happen. Your emergency fund needs to weather all that.
Set up automatic contributions to your savings account — you’ll probably not even notice the money’s missing every two weeks. Bank any bonus or raise, try to live beneath your last salary, and when a debt is paid off, or an ongoing expense evaporates, put that money toward your emergency fund.
Constant vigilance is the only antidote to disaster.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.43% APR (with Auto Pay) to 7.21% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.43% – 7.21%1||Undergrad & Graduate|
|2.43% – 6.65%2||Undergrad & Graduate|
|2.43% – 6.59%3||Undergrad & Graduate|
|2.44% – 6.87%4||Undergrad & Graduate|
|2.46% – 7.08%5||Undergrad & Graduate|
|2.93% – 9.67%6||Undergrad & Graduate|