Are there "catch-up" guidelines for those of us who got started late on retirement?

[AJSimon]

As the title suggest, I got started late on retirement investing. I'm turning 40 this year, opened my Roth last year in VTSAX (have maxed it out both this year and last). Also have an inherited IRA with about $20k in it (in an S&P500 index fund).My job doesn't offer a 401k - they've been talking about it for a few years, but haven't come through. When the market tanked earlier this year, I leaned on them to get it done, but they said it was the wrong time to invest while the market was down (basically, they're morons).

General guidelines appear to say you want to put away 10-15% of your gross income for retirement. My $6,000 Roth contribution gets me close to 15%, but not quite. What I want to know is if there is some general guidelines for how much additional income you want to invest to "catch-up" for 16-17 years that I wasn't investing at all. I know a more precise answer would probably include factors like my income, savings rate, when I want to retire, and with how much money, but I figure if someone can come up with a 10-15% figure without knowing any of that, then there should be a fairly broad answer to this question.

Thanks in advance.

[kork13]

First, are you married? I'll state upfront that married couples can fund a Roth IRA for EACH partner, regardless of if one person does not work. That would open up at least $12k/yr that you could to invest into -- if that's applicable, I'd definitely recommend it. But getting into your question....

Great question, and I'm glad you're asking it -- alot of folks think that if they don't start saving for retirement until their 40s, they're condemned to eat dogfood in a crummy state-"funded" (-ignored) retirement home. WRONG! You've got 25+ years to prepare for a great retirement! Just get to work, earn as much income as you can, buckle down on your spending, and start saving!

Quite simply, no -- there aren't many (any?) good rules-of-thumb for folks in your position, besides "save as much as you can, as regularly as you can, for as long as you can." I've actually looked around about this specific question before, and really the only one I've ever come across that seems remotely reasonable is this: To retire at Social Security full retirement age, with personal savings to cover 80% of pre-retirement income, you need to start saving: 10% starting from age 20; 15% from age 30; 25% from age 40; 50% from age 50. I'll admit that I haven't done the full math to prove this out, but my gut says it's probably at least functional to get someone moving in the right direction.

You do correctly note each of the factors involved to determine what you personally need to save, and the math isn't very difficult. Personally, I'd recommend just running that math out -- you'll get a more successful result than from following some random ROT from some random finance writer's blog....

BUT, because I'm a finance nerd, I went ahead and did the math in the background... I didn't come to quite the same numbers as that ROT, but I was happily surprised that it was fairly close. My estimates say you'd need to save about 30% of gross income to cover 80% of pre-retirement income. Either way, 25%-30% of gross will definitely get you headed down the right path.

[AJSimon]

First, are you married? I'll state upfront that married couples can fund a Roth IRA for EACH partner, regardless of if one person does not work. That would open up at least $12k/yr that you could to invest into -- if that's applicable, I'd definitely recommend it. But getting into your question....

Great question, and I'm glad you're asking it -- alot of folks think that if they don't start saving for retirement until their 40s, they're condemned to eat dogfood in a crummy state-"funded" (-ignored) retirement home. WRONG! You've got 25+ years to prepare for a great retirement! Just get to work, earn as much income as you can, buckle down on your spending, and start saving!

Quite simply, no -- there aren't many (any?) good rules-of-thumb for folks in your position, besides "save as much as you can, as regularly as you can, for as long as you can." I've actually looked around about this specific question before, and really the only one I've ever come across that seems remotely reasonable is this: To retire at Social Security full retirement age, with personal savings to cover 80% of pre-retirement income, you need to start saving: 10% starting from age 20; 15% from age 30; 25% from age 40; 50% from age 50. I'll admit that I haven't done the full math to prove this out, but my gut says it's probably at least functional to get someone moving in the right direction.

You do correctly note each of the factors involved to determine what you personally need to save, and the math isn't very difficult. Personally, I'd recommend just running that math out -- you'll get a more successful result than from following some random ROT from some random finance writer's blog....

BUT, because I'm a finance nerd, I went ahead and did the math in the background... I didn't come to quite the same numbers as that ROT, but I was happily surprised that it was fairly close. My estimates say you'd need to save about 30% of gross income to cover 80% of pre-retirement income. Either way, 25%-30% of gross will definitely get you headed down the right path.

This is quite helpful - thank you. I will attempt to crunch my personal numbers and see if I can get my own percentages, but yours do seem like a nice set of guardrails.

[Jluke]

25 times expenses is also a number to strive for in retirement savings.

if you spend 40k per year, then 25 x 40k is 1 million.

why 25? Because one rule of thumb is to withdraw 4% of that per year. Starting around age 65.

no pressure.

[ua_guy]

As the title suggest, I got started late on retirement investing. I'm turning 40 this year, opened my Roth last year in VTSAX (have maxed it out both this year and last). Also have an inherited IRA with about $20k in it (in an S&P500 index fund).My job doesn't offer a 401k - they've been talking about it for a few years, but haven't come through. When the market tanked earlier this year, I leaned on them to get it done, but they said it was the wrong time to invest while the market was down (basically, they're morons).

General guidelines appear to say you want to put away 10-15% of your gross income for retirement. My $6,000 Roth contribution gets me close to 15%, but not quite. What I want to know is if there is some general guidelines for how much additional income you want to invest to "catch-up" for 16-17 years that I wasn't investing at all. I know a more precise answer would probably include factors like my income, savings rate, when I want to retire, and with how much money, but I figure if someone can come up with a 10-15% figure without knowing any of that, then there should be a fairly broad answer to this question.

Thanks in advance.

I think you've got the right idea. Start maxing contributions now. If you're able to save more in other savings, investment/brokerage accounts, that works too. There is no rule that says you must use only an IRA or tax-deferred account for retirement savings and investments. So if you're able to save more like 25-30% of your income, that would certainly be "catching up".

As far as I know, federal "catch up" rules seem to apply after age 50. On a 401k, anyway, it's only an extra $6500 that you can contribute beyond the usual annual limit (which is $19,500 for 2020).

Age 40 is a fine time to start thinking about retirement. Better now than later. There are some people who save and retire early in their 40's. Nothing that says you can't start saving now and retire comfortably by 60! There are so many ways to set yourself up for some R&R after your working years. Having a paid off house or living situation is a huge factor and greatly reduces your expenses in retirement--and is a potential investment vehicle in and of itself (reverse mortgage?). Be sure to factor in other potential sources of retirement income - Social Security, if you've paid into that. Any company-funded pension. If you can find an employer that helps or supports retirement savings, even better. If the typical retirement age is 65 or 67, you've got 25 years or better to build a nest.

You are correct that "the numbers" all depend on what your vision is for retirement.