You may not need the same monthly income in retirement as you do during your working years. Once you're retired, you may no longer have a mortgage to pay, and you won't have to cover commuting costs unless you decide to hold down a part-time job.
Plus, once you're in retirement, you no longer have to save for retirement. So that puts less pressure on your month-to-month finances.
But still, it's important to try to set yourself up with enough income to pay your bills without stress and have money left over for hobbies and things you enjoy. In a recent Schroders survey, non-retired Americans think they'll need $4,947 in monthly income, on average, once they stop working in order to maintain a comfortable standard of living. If you feel similarly, you should know how much savings that might require you to accumulate.
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Are you on track to retire with a nice monthly income?
A monthly income of $4,947 translates into just under $60,000 per year. Meanwhile, the average monthly Social Security benefit among retired workers today is $1,920.48, or roughly $23,000 per year. So if we subtract $23,000 from $60,000, we get $37,000 a year that needs to come from savings.
Then, if we assume you'll withdraw from your savings at a rate of 4% per year, which is what financial experts have long recommended, it means you'll need a retirement plan balance of $925,000 to generate $37,000 of annual income. Whether a balance that size is feasible for you will depend on factors that include how many years you have between now and retirement, how much money you're able to contribute to a savings plan per month, and how your money is invested.
But even if you've saved no money for retirement to date, you may find that you're able to get to $925,000 in savings without breaking too much of a sweat.
How to build retirement savings efficiently
If you retire with $925,000, you'll have way more than the median $200,000 savings balance among Americans aged 65 to 74 as of 2022, according to Federal Reserve data. You might also end up with enough money to do the things you've always wanted, whether it's travel or spend your days on the golf course.
Contributing to a retirement plan consistently is a great way to meet your savings goal. But you'll also need to invest your money to grow it at a rapid enough pace to get to where you want to be. If you keep your nest egg in cash because it's safer than investing in the stock market, you might end up sorely disappointed with the balance you wind up with.
But let's say you're 35 years old with no savings, only you're ready to get serious about building some now. If you have 30 years until retirement and you're aiming for $925,000, saving about $680 a month will get you there if your portfolio generates an 8% average annual return. That's doable with a stock portfolio, though, since it's a notch below the market's average.
Of course, just because one survey finds that $4,947 is the magic monthly income number for retirement doesn't mean that's the amount you need. You should run your own numbers based on your goals and expenses. But if you're eager to use that number as a starting point, then you now have a game plan for building enough savings to make it feasible.
