How Much Should You Really Have Saved for Retirement by Age 40?

Key Points

• Most experts recommend saving around 3 times your annual salary by 40.

• The specific amount you should have actually depends on your goals.

• You should create a personalized savings plan based on your retirement timeline.

• The $23,760 Social Security bonus most retirees completely overlook ›

Among 35- to 44-year-olds, the average 401(k) balance is $103,552, according to a report by The Vanguard Group. The median balance is $39,958.

Is this a good amount, both for Americans as a whole and for you personally, if you have close to the average saved? If not, what specific amount should you have saved by your 40s if you want to make sure you are on track for a secure future?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Here's what you need to know to answer this question, along with some tips on how you can decide how much you need to have saved to set you up for financial success in your later years.

Image source: Getty Images.

How much money should you have saved by 40?

According to Fidelity Investments, you should have 3 times your income saved by the age of 40. Other experts also recommend this same magic number. The goal of hitting that target is to ensure you are on the path to having 10 times your income by retirement age, which is a good number to support yourself.

However, it is important to remember that these are generic numbers that apply to average workers, and they may not be the right numbers for you specifically. That's because everyone has different goals, starting points, and timelines for when they want to retire.

Say, for example, that you spent most of your 20s and 30s studying to become a high-earning doctor. You might have little or no money saved by 40, but if you're going to earn a hefty salary from here on out and save a lot of it, you could still end up OK.

When you want to retire also matters, too. If you make $50,000 a year and have $200,000 saved by 40, then you'd have more than the recommended amount and would appear to be in great shape -- but if your goal is to retire early at 45, you'll be pretty short of where you need to be.

Setting a personalized retirement savings goal

The reality is that while you can use these basic rules of thumb to get a rough estimate, you need to have a plan personalized to your specific goals, including when you want to retire and what you plan to do as a retiree. Fortunately, it's easy to create one. Here's how:

• Start by figuring out when you want to retire. This could be your full retirement age for Social Security. Or, it could be 62 when you first become eligible for Social Security or some other age, based on when your spouse is retiring or simply when you want to quit.
• Estimate the amount of money you'll need. There are different ways to do this. You could assume you'll need 10 times your final salary to retire. Or you could estimate the amount of income that you expect to need as a retiree and multiply that amount by 25 if you plan to follow the 4% rule.
• Use an online calculator to determine how much to save each month. The calculator at Investor.gov can tell you exactly how much you need to invest in your retirement plans each month to hit your target goal by your chosen retirement date.

Going through this process can help you figure out exactly how much you should be putting in your 401(k) or IRA, and it's a much better method than just using a generic rule of thumb that tells you how much to have saved by 40.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.