Your future financial security depends on your commitment to investing throughout your lifetime. While it may seem really hard to find money to save when you have other pressing life expenses, you'll need some money to supplement Social Security in your old age since your benefits will only replace about 40% of pre-retirement income.
Unfortunately, many people simply aren't saving enough. To find out if you're one of them, watch out for these red flags that suggest you aren't putting away the funds you need.
1. You don't have a clear savings goal
If you don't know what you need to save to end up with enough money as a retiree, it can be almost impossible to determine if you are investing enough. And, unless you're just randomly putting a whole lot of money into a retirement account, chances are good you're not going to be on track for a secure future if you don't have a goal you're working toward.
The good news is, it's really simple to estimate how much you should be saving for retirement. A quick rule of thumb is to estimate you'll need 10 times your final income. So, if you expect to be earning about $70,000 at the time you retire, your goal would be to have $700,000 in your retirement investment accounts.
2. Your investment account balance is below where it should be for your age
Saving for retirement is something you're going to do throughout your life, so if you are behind based on the amount you should have saved at your age, this is also a big red flag.
Ideally, you should have the following amounts in your brokerage account or workplace retirement plan depending on your age:
- One year of your salary invested by age 30
- Three times your salary invested by 40
- Six times your salary by age 50
- Eight times your salary by 60
- 10 times your salary by 67
If you're behind on these targets, you are going to have to save more later on since you won't benefit as much from compound growth (which happens when investment returns are reinvested and earn money for you.
Say, for example, your goal is to have $1,000,000 by age 67. The table below shows how much you'd have to save each month based on the amount you have saved at age 40, assuming you make 10% average annual returns over your lifetime (this is in line with the stock market's performance over the last 50 years):
| $0 saved at 40 | $15,000 saved at 40 | $50,000 saved at 40 | $70,000 saved at 40 |
|---|---|---|---|
| $688.13 | $552.81 | $237.06 | $56.63 |
Data source: Author's calculations.
3. You aren't automating your investment contributions
If you want to make sure you're investing enough for your future, you should have automatic contributions coming out of your checking account on payday or directly out of your checks. Doing this maximizes the chances you'll steadily invest over time.
If you have to manually force yourself to contribute to a retirement account each month, there's a much greater chance you won't follow through or won't have the money at the end of the month to invest. Set up automatic contributions on payday through your bank or brokerage firm or sign up to make 401(k) contributions through your employer's HR department.
4. You aren't tracking your progress toward hitting your target number
Finally, if you aren't tracking your progress, then that's a major sign that you're not investing enough. You should check in around once every six months or once a year, see where your balance is, and make sure that you're still contributing enough to be on track to hit your goals.
The calculators at Investor.gov can help you to determine if your investments are big enough given your current balance, retirement timeline, and likely rate of return.
If you spot any of these signs that you're not making sufficient investments for retirement, you can make corrections right away by calculating your investing goal, setting up automatic contributions to target it, and tracking your progress over time. Get started today, as the sooner you begin, the easier it will be to hit your goals.
