The more money you're able to retire with, the more you might manage to enjoy your senior years to the fullest. And it may or may not surprise you to hear that Americans, on average, think it will take $1.46 million to retire comfortably, according to a recent survey by Northwestern Mutual.
At the same time, older Americans nearing retirement clearly have a huge gap to fill if $1.46 million is indeed the magic number. That's because the average baby boomer today only has $120,300 saved.
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That's more than the average $88,400 saved by the general population. But it's unfortunately not a whole lot of money in the context of what could be a 20-year retirement or more.
If you're looking to retire with well more than $120,300 to your name, the good news is that meeting that goal actually isn't so difficult. You may even manage to amass $1 million or more by the time your career comes to an end.
You can do much better than $120,300
The less savings you bring with you into retirement, the more reliant you might become on Social Security down the line. But with the average retired worker today collecting roughly $23,000 a year in benefits, it's clear that you'll need savings on top of Social Security to cover your expenses without worry.
Now you don't necessarily need a $1 million nest egg to pull off a comfortable retirement. Similarly, just because a single survey points to $1.46 million as the optimal savings target doesn't mean that's what you need for your senior years.
But it's probably a good idea to retire with more than what the typical boomer has today. And to that end, you should aim to do two things:
- Start saving early on
- Invest in the broad stock market
The more time you give your savings to grow, the more you can benefit from compounded returns in your investment portfolio. And while you should absolutely feel free to hand-pick a portfolio of stocks if you have the time and knowledge to do so, you can also do quite well for yourself by loading up on S&P 500 index funds. This allows you to effectively invest in 500 different companies without having to research each one individually.
The results might astound you
Let's imagine you're 27 years old and have the goal of retiring at age 67. That's actually full retirement age for Social Security purposes for someone your age.
If you save and invest $300 a month over the next 40 years and your portfolio delivers an average annual 8% return, which is just below the stock market's average, you could end up with roughly $933,000. Make it $350 a month, and that total balance rises to about $1.09 million. And if you're able to save $470 per month, you could hit the $1.46 million target noted above.
Again, this doesn't mean you have to aim for $1 million or more. But if it's doable, why not?
The fact that baby boomers today are looking at a $120,300 retirement is a mixed bag. On the one hand, it's good that many older Americans are approaching their senior years with some money saved. But it's unfortunate that the average balance isn't higher. If you're much younger, though, you have a prime opportunity to retire with a lot more money than $120,300 -- and enjoy your senior years without financial worries.
