You may have recently seen the recommendation from retirement experts that you should save two times (2X) your annual salary by age 35[1], and if you wondered — like a lot of people on Twitter did [2]— how that’s even possible, let’s break it down....
I recently retired early at age 38[3], but only 10 years ago, at age 28, I had a net worth of essentially zero[4]. If you’d told me then that by 35 I’d have many times my income saved, I wouldn’t have believed you. But as the growing FIRE (financial independence retire early) movement is showing us, that level of saving is possible for many people if you make it your focus. Our culture is not good at teaching people to save money, and with some of the roadblocks out there like higher-than-ever student loan debt, rising home prices and decreasing pay and benefits in many fields, it’s easy to believe that you can’t save money. But if you think of saving as a skill you learn, it’s easier to decide for yourself that you’re going to learn to do it, even when it’s hard — and to ask for help. And here’s some of that help — totally doable ways you can stay on target saving for retirement: Take advantage of 401(k) employer matches and escalations If you have a job that offers a 401(k) with employer match, you have a huge opportunity to save quickly for retirement. The most common 401(k) scheme has a 3% employer match when the employee contributes 6%. In an average scenario, starting to save with a salary of $33,500 at age 25, increasing 3% a year to $45,000 at age 35, with modest 5% annual market returns, you’d have $40,424 saved in your 401(k) by age 35 if you put away the 6% required to get the full company match, amounting to $84 per paycheck. That already puts you at 90% of your annual salary saved by age 35. You can get even closer to the 2X goal if you take advantage of the escalation option most plans offer, to increase your contributions by 1 percentage point each year to coincide with pay increases, so you don’t even notice the increased withholding. In this scenario, starting with a 6% contribution at age 25 that increases one point each year, you’d have $64,091 saved by age 35, nearly 1.5X your income, without ever feeling a real pinch. If you want to get really ambitious and increase your 401(k) withholdings by 2 percentage points each year, still less than the 3% average wage increase, allowing you to save without decreasing your standard of living, you’d have $87,758 saved by age 35, 1.95X your annual income, putting you right on target for where experts say you should be. If you don’t have a 401(k) option or don’t get an