More on the Whole “We Don’t Have Enough Money to Save for Everything We Need” Thing

Photo credit: Rafael J M Souza, CC BY 2.0.

This week, Time’s Money section ran a story called “This Is How Much Money You Should Have in Savings at Every Age.” When you go read the piece, you learn two things:

  1. It’s written by Ellevest’s Sallie Krawcheck, so although the advice can apply to all genders it’s specifically focused on women’s needs — which is a nice flipping of the typical “this financial advice is for everyone but here’s one paragraph about how it might be different for women” article.
  2. We all need to be saving a lot of money. Like, an unfathomable amount.

Krawcheck recommends that you have 1x your income in a retirement account by age 30, but 3x your income by age 40 — so if you start working at 24, you’ll need to save 17 percent of your monthly pretax income every month for the next six years. Once you hit 30, you’ll need to bump that savings up to 20 percent of your monthly pretax income for the next ten years.

Those savings are, of course, in addition to your student loan repayments, your emergency fund, your home down payment, your big life milestones, the cost of starting a family (which, since this is a female-centric article, notes that you’ll need to put both money and time towards maintaining your career while parenting, whether you take time off or remain in the workforce), and the cost of funding your children’s education.

The article didn’t include anything about setting aside money for the day-to-day cost of living, but if you were curious about how much money you’ll need for all of that, well… did you see this chart?

The idea that we have more places to put our money than we could possibly save for isn’t all that new — we discussed it on The Billfold last month — and that chart doesn’t really contain any new information; Mark Perry at AEI notes that it’s an update of a chart they made last year, and we’ve been talking about soaring healthcare/education/housing costs for at least a decade.

But it is interesting to balance both the optimistic and the pessimistic view: on the one hand, we can turn Krawcheck’s list of goals into a series of actionable to-dos and start saving as much as we can; on the other hand, we can look at all of those red lines and feel like getting ahead of those lines is impossible. On the third hand, we can listen to this week’s Oh My Dollar! podcast and hear Lillian Karabaic tell us that we probably won’t be able to save our emergency funds in a way that beats inflation, so our funds will lose value every year and we have to be okay with that. If we worry too much about what we can’t control, it’ll be harder to move forward with the stuff we can control, e.g. building our emergency funds, figuring out if we need to cut costs, going after higher-paying jobs.

For the record, I’m 36 and I have $62,809.71 in retirement savings, which is a little less than one year of pretax freelance earnings but about twice my adjusted gross income, so… I have four years to save another $30K, if I’m following Krawcheck’s rules. I’m already planning to save $22,000 over the next four years by maxing out my IRA, which means all I need to do is come up with another $8,000.

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