When it comes to saving for retirement, the common advice is to aim for $1 million. This number has been cited so often that investors may feel as if they’re failing if they don’t reach it. But that shouldn’t be the case. In fact, statistically, just 10% of Americans have saved $1 million or more for retirement. Don’t feel like a failure if your nest egg isn’t quite up to the seven-figure level.
Regardless of your financial position, however, you should strive to save and invest as much as you can. The larger your account balance, the more comfortable your retirement will be. Here’s a look at what average Americans have saved for retirement, what your personal savings goal should be and how you can build your balance faster.
How Much Has the Average Retiree Saved?
While not all Americans will need to save $1 million to retire comfortably, the unfortunate truth is that most Americans are behind their goals, whatever they may be. The Federal Reserve Survey of Consumer Finances records retirement savings data across different age groups in the United States.
According to the survey’s most recent data, which was compiled in 2019, here is the average amount of retirement savings for older Americans:
$426,000 for those 65 to 74 years old
$357,000 for those 75 and older
The data reveals Americans of retirement age have nowhere near $1 million in their accounts. And the truth behind these numbers may be even more bleak. While the average amount of savings may be in the $350,000 to $425,000 range, the reality is that some Americans have an abundance of savings while others have close to nothing. This skews the reported averages and pushes them higher.
According to the same Federal Reserve study, the median amount Americans have saved, for example, is much lower:
$134,000 for those 65 to 74 years old
$83,000 for those 75 and older
In other words, the wealth of a few millionaires and multi-millionaires skews the average readings higher, while the median paints a more accurate picture of what average Americans have saved for retirement.
What Should Your Personal Retirement Savings Goal Be?
Personal finance is exactly that–personal. The amount of money you’ll need to enjoy a comfortable retirement will vary greatly based on a number of factors. Here are just a few that you’ll need to consider:
The cost of living where you want to retire.
The type of lifestyle you want to have.
Your ability to set aside current wants for long-term needs.
The rate of return you can get on your investments.
Your ability to live on a budget.
The size of your Social Security and/or pension checks.
If you plan to retire in Jackson, Mississippi, instead of Los Angeles or New York City, for example, your cost of living will be considerably less. Similarly, if your idea of a happy retirement is sitting on your porch and reading instead of flying first class to Europe or traveling around the world every year on a cruise, you can get by with much less money. These are just some of the factors you’ll need to adjust for when creating your retirement budget.
One simple way to estimate how much you’ll need for retirement is to create an accurate annual budget and then multiply that by your life expectancy. So, for example, if you think you can live on $50,000 per year, you might want to accumulate $1.5 million.
However, this doesn’t take into account the earnings your account should be generating every year. If you can earn an annual return of 6%, for example, you’d only need to save roughly $700,000 to net a $50,000 in income for 30 years.
This doesn’t even take into account things like Social Security, which pays $1,837 on average every month, and potentially even more depending on your work record and when you filed for benefits. If you factor in that $1,837 per month–including an estimated cost-of-living adjustment of 3% annually–you’d only need roughly $260,000 saved.
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How Can You Get Closer to a $1 Million Nest Egg?
Planning for retirement savings inherently carries a certain level of risk. For starters, it’s hard to project how things will work out over a period of 30 years or more.
A long-term average investment return of 6%, for example, might start out with years of -10% and -12%. This could severely impact your long-term investment performance when you’re taking withdrawals every year. But this doesn’t mean you shouldn’t take concrete steps to give yourself the best chance for success. Here are some of the most important:
Budget as accurately as you can.
Set aside as much as possible in tax-advantaged retirement accounts like 401(k) plans, especially if you have an employer match.
Understand the power of compound interest, and how saving $100 today instead of spending it could translate to $500 or more in your retirement account.
Invest prudently and consistently, especially in down markets.
Aim to set aside at least 10% to 15% of your income for your retirement savings.
Invest all “windfall” sources of income, such as tax refunds, raises, and year-end bonuses.
While these steps won’t guarantee you’ll reach $1 million by the time you retire, they will definitely help you maximize your savings.
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This article originally appeared on GOBankingRates.com: How Many People Actually Have $1 Million Saved for Retirement?