How Much Money Should You Have Saved by 30 (And Other Ages)
To retire comfortably, you must know the size of the nest egg you’ll need at retirement and what you need to do to save that amount.
English
How much money should you have saved by 30 to retire comfortably?
That question may sound strange especially if you are still in your 20s and retirement seems a world away. But if living comfortably during retirement is an important goal for you, or if your aim is to retire before others, then the earlier you start planning for it, the better.
Considering how much money you should have saved by 30 and comparing it with what you have saved already is one way to discover if you are on track or not.
If you are, you will need to keep doing what you are doing right and if not, you will need to make adjustments.
In what follows, we will answer the question: how much money should you have saved by 30? If you are already past the 30 year-old mark, don’t stop reading. We will also consider other important ages like 35, 40, 45, and 55 so that no one is left out.
We’ll cover:
[Do you want to retire comfortably and accomplish your other financial goals? Download the Maly app to take control of your finances and supercharge your savings.]
To figure out how much you’ll need to have saved by 30 to retire comfortably, you must begin by considering how much you will need to have at the point of retirement (that is, your nest egg).
And to know how much you will need to have at the point of retirement, you must determine the income you need during retirement and the number of years you will spend in retirement.
As a rule of thumb, financial advisors suggest that you will need about 80% of your pre-retirement income in retirement. This is because your living expenses are expected to reduce during retirement – you will spend less money on things like transportation, clothing, etc.
According to a survey by Zayed University, the median annual income of those above 60 in the UAE is AED 120,000. Based on this, the income you will need in retirement is AED 96,000 per year (80% * AED 120,000).
Of course, we are using median and average figures to make the calculation easy. Once you understand the steps we are taking, you can ignore these figures and put ones that are more reflective of your situation.
According to Macro Trends, the national average for life expectancy in the UAE in 2023 is 78.46. Let’s round this down to 78 years.
Let’s also take the average retirement age to be 60 years. This means the average years spent in retirement is 18 years.
To continue with our example, this means that you will need AED 1, 728, 000 (AED 96,000 * 18) to retire comfortably in the UAE.
[Note: We have ignored the effects of inflation because the effect of inflation on wages before retirement (for example, average median income at 60 would have increased when you are 60) is expected to counteract the effect of inflation on the cost of living in retirement (what AED 80,000 will buy today is not what it will buy when you eventually retire). This makes the calculation process easier.]
If we assume an average rate of return on your retirement savings and your current age, then we can calculate what you will need to save every month to reach AED 1, 728, 000 at age 60.
According to Forbes, the average returns on an individual retirement account is 9%, a reflection of the historical average returns on the US stock market.
If you put your retirement savings with an investment company that accesses the US market, then we can assume a 9% average annual return (compounded quarterly). (As before, you can also assume different interest rates when you are doing your calculations).
Let’s also assume that you are currently 25 years old and that your average annual salary is AED 31,000, which is the median income for workers between 15 and 39, according to the Zayed University’s survey.
If we plug all these details into The Calculator Site’s compound interest calculator, we discover that you only need to save approximately AED 600 per month for 35 years to have a nest egg of AED 1, 728, 000 at 60.
With the information above, we can then answer the question we started with.
To meet your savings goals, you must have saved AED 36,000 (AED 600 * 12 * 5) at the age of 30. Notice that this figure is close to your annual income of AED 31,000. This is in line with some advisors who hold that at 30 you should have an amount equivalent to your annual salary (AED 31,000).
Again, all the assumptions we have made might not reflect your reality closely enough. That’s not a problem. Stick to understanding the steps we have taken and then change the numbers to reflect your reality.
[Note: We have focused solely on what you are saving for retirement yourself, intentionally ignoring pension, end of service benefits, social security, etc. You can see income from these sources as extra money to be spent in retirement and withdrawals from your retirement account as your main income.]
Now that we have done the hard work, we can start considering retirement savings by age.
If we still assume that you begin investing at 25, then your starting retirement savings balance at 35 must be AED 72,000 (AED 600 * 12 * 10) if you want to meet your target.
The figure is AED 108,000 at 40, AED 144,000 at 45, and AED 216,000 at 55. When you are ready to retire at age 60, your retirement savings must be AED 252,000.
The interesting thing to note here is that to have a nest egg of AED 1,728,000 at age 60, you only need to save a total of AED 252,000. The remainder is interest you will have earned from enjoying the benefits of compound interest.
And this leads us to the next point.
The average savings rate (amount saved towards retirement divided by monthly income) recommended by many financial experts is 10% of your monthly income. But notice that in the case before us, your savings rate is approximately 2% of your monthly income.
This is one of the benefits of saving money for retirement when you are young. You are saving far less than those who have started late to get the same nest egg at retirement (60).
To show how this works, let’s consider the case of someone who also needs the same amount at retirement but started saving at 30 instead of 25.
This worker will have to save approximately AED 960 at the end of every month, which is a 3.1% savings rate. You will have an extra 1.1% (3%-2%) of your income to spend or save even while achieving the same result at retirement.
Relatedly, starting early can help you retire earlier than the average person (a goal now shared by Millennials and Gen-Zers). For example, if you started saving at 25 and you save the same amount as someone who started at 30 (AED 960), you can retire at 55 while the other person can only retire at 60.
Let’s track back to the amounts you need at various ages.
Suppose you are already 30 and you have not started saving for retirement. In other words, you have not saved AED 36,000 in an individual retirement account (IRA) or any other brokerage or investment account.
Does this mean that all hope is lost? Not at all.
As we have seen, the main implication is that you probably have to start saving a higher amount to meet your retirement goals. In the case we are considering, it means saving AED 960 instead of AED 600 at the end of every month.
What if you are already 35? Now you will need to save AED 1,560 at the end of every month. 40? You will need to save approximately AED 2,610 at the end of every month.
The main point here is that you should not panic. While it is best to start early, it is still better late than never. Even at 40, you can still meet your target provided you are willing to work at it by saving more every month.
To accomplish this, below are some tips to help you save more money in Dubai:
Remember also that these savings tips will only be useful if you have embraced sound personal finance principles. Top on that list is the need to have a budget and be committed to living within it.
In fact, the 50/30/20 budgeting rule requires that you save 20% of your income monthly. If you don’t need up to that to meet your retirement needs, you can always use the extra money for other purposes (emergency fund, starting a business, investing in stocks, bonds, and mutual funds, and making down payment on real estate, etc.).
The important point is that a budget helps you organise your finances so that you are the one controlling your money instead of the other way around. “A budget is telling your money where to go instead of wondering where it went,” said John C. Maxwell, a motivational speaker and award-winning author.
Saving money in the UAE is hard. Though the common challenges (keeping up appearance, credit card debt, etc.) are solvable, people are often in need of tools/resources that can help them make it work.
Warren Buffett said that you should save before you spend instead of spending before you save. This is one strategy that many people have found useful.
At Maly, we help you put this into practice through our automated savings plans. With this, you can allow us to automatically deduct a specific amount from your bank account (checking account or savings account) into your Maly savings card at a regular interval (daily, weekly, monthly).
Because this is done automatically, you are “forced” to exert the discipline needed to spend according to your budget. In essence, you are spending what remains after you have saved what you need for your financial future.
If you have extra cash you want to save, you can also do a direct deposit from your bank account into your Maly savings card.
If saving before spending sounds nice, what about saving while spending.
With Maly, you can round up your purchases to the nearest 1, 5, or 10 dirhams and save the remainder. For example, if you purchased groceries worth AED 445, you can round it up to AED 450 with AED 445 paid to the store and AED 5 added to your Maly savings card.
These amounts may look insignificant but they can add up and improve your account balance significantly at the end of the year.
The Maly savings card is just one of the possible multiple Visa cards we can provide to users. You can create a prepaid card (virtual or physical) for each of your main expense categories (groceries, child’s allowance, clothing, online subscriptions, transport, etc.) and load them with a certain amount, helping you to track your spending habits.
You can even create multiple savings cards for different purposes. For example, one can be emergency savings (where you can keep six months’ worth of your living expenses), another can be savings for short-term goals (vacation) and a third one for saving for long-term purposes (starting a business).
To help you save, you can set spending limits so that you (or anyone using the card – say your child or partner) don’t spend beyond what you have budgeted for that expense category.
When you combine these three innovative approaches, you will be able to save more and save consistently to achieve your financial goals – of which retiring comfortably is undoubtedly one.
[Do you want to start saving for your financial goals? Download the Maly app to automate your savings, save while you spend, and to manage your expenses with multiple visa cards.]
Download the Maly app by clicking on one of the buttons below and get started in just a few minutes
