Much has been written about decade-long retirement savings goals. For example, T. Rowe Price recommends 3-6 times your annual salary. wearing socks for retirement By age 50.
But what about highly liquid cash held in savings accounts?
From a personal financial standpoint, the Big Five-O is a key year that puts you in your retirement on-deck circle. After all, that birthday is the day the IRS allows you to start making additional contributions to your tax-advanced account.
With that in mind, people may be tempted to invest as much as humanly possible, even at the expense of their savings. But for many, 50 can be an expensive year, with growing children, aging parents, and rising health care costs. The last thing in the world you want to see is an early withdrawal penalty on a 401(k) plan because they spent too much of their savings.
For most fifties, it’s all or nothing
A new survey of 1,000 adults by GOBankingRates found that people in their 50s are most likely to have small or large savings accounts.
About 45% of the 45-54 age group (i.e. early 50’s) and 32% of the 55-64 age group (late 50’s) have $100 or less. These are the highest percentages ever in both age groups. The second most common amount is the exact opposite. About 11% of the younger generation and his 25% of the older generation have more than her $10,000.
The rest of both groups are roughly evenly distributed somewhere in between.
Please complete the survey: Worried about the safety of your money in your bank account?
Evolution of Midlife Emergency Fund
Of course, there is no one magic number that strikes the right balance for everyone.
“The appropriate amount of cash to keep in a savings account for middle-aged people when they turn 50 depends on their personal circumstances and financial goals,” said Gabriel Lalonde, CFP. President of MDL Financial Group. “But as you approach 50, you need to have a solid emergency fund in place.”
But the word “solid” changes when you turn 50, and so does your concept of emergency.
Boilerplate advice from before it expires at 49
The IRS allows you to start increasing your 401(k) or IRA at age 50, the age when most people start sprinting toward their retirement goals. The clock starts ticking faster as middle age draws to a close. If you don’t have enough savings, you won’t have time to bounce back when you encounter major setbacks.
This reality proves that the smartest savers in our study have five-figure money ready for rainy days.
Lalonde said a standard emergency fund “should cover three to six months’ worth of expenses and be kept in a liquid savings account that can be easily accessed in case of unexpected expenses or unemployment.” Point out.
But at 50, that’s no longer enough.
“You should also set aside some cash reserves to provide stability and security against market volatility,” Lalonde said.
So how much is enough? Adjust for new worst-case scenarios
According to Fulton Bank, 50-year-olds should adjust their savings accounts from typical three to six months of spending to two to three years, and for good reason.
As you approach retirement, you may despise the idea that your large amount of cash will lose value through inflation, even though you can make the necessary gains on the stock market, but consider alternatives.
Imagine losing your job or experiencing a major setback when you should be recovering. If you’re one of the 60% or 70% of the 50-somethings surveyed with less than $2,000 in savings, you’ll have to start selling your investment portfolio immediately when you need it most to grow. .
If that happens during a market downturn like the one that has plagued investors over the past year, you’re going to sell at a loss. If you are forced to withdraw from a tax-protected account like a 401(k), you will incur additional losses and early withdrawal penalties.
Now that the finish line is in sight, that’s the worst case scenario that drives the calculations. So how much should a 50-year-old save if 2-3 years isn’t realistic?
“This should be between 5% and 20% of your portfolio, depending on your risk tolerance and investment strategy,” says Lalonde.
Learn more about GOBankingRates
Methodology: From December 7-12, 2022, GOBankingRates asked 1,000 Americans ages 18 and older across the country 19 different questions: (1) Which category do current financial institutions fall into? (2) Have you considered changing banks within the past year?; (3) Have you considered changing banks within the past year? (Select all that apply): (4) Which features, benefits, or other services were most important to you when opening an account with a new institution?; 5) Are you currently satisfied with all the banking products and services your bank/credit union offers?; (6) Do you ever have different types of accounts across multiple banks? check, but make a savings deposit at TD Bank). (7) What is your preferred method of banking?; (8) Which of the following is the biggest factor in staying with your current bank? (9) Which bank do you currently use or open? (10) What is the minimum balance in your checking account?; (11) How much do you currently have in your savings account?; (12) Signature (13) Have you considered using an app-only banking platform (a.k.a. neobank) in the past year (e.g. Current, Upgrade, Chime, Dave, etc.)? ). (14) How important is it to you that your bank is partnering with a cryptocurrency exchange/platform?; (15) How often have you completed a medical examination in the past year?; 16) When was the last time you visited the bank in person?; (17) Why did you choose to visit the bank in person? (select all that apply); (18) Think about banking (19) What services/products do you expect from banks and credit unions? (if applicable) (select all). GOBankingRates conducted the poll using PureSpectrum’s research platform.
This article was originally published on GOBankingRates.com: How much money should you keep in your savings account when you’re in your 50s, say experts?