Posted at 6:02 PM ET on November 20, 2020
USA TODAY retirement columnist Rodney Brooks talks to Jeanne Thompson, vice president of Fidelity Investments, about what it takes to save a million dollars in retirement.
If there was a magic savings number that guaranteed financial security throughout retirement, saving for this stage would be much easier. But this magic number cannot exist because everyone is different. You may want to spend your retirement traveling the world and living in a big city, while someone else may want to spend their senior years spending time with their family and staying locally.
Still, it helps to keep in mind the goal of saving when it comes to your 401 (k) or IRA, and to that end, it can be helpful to know what made the average American retire. And to this end, Schwab has an answer. A recent study found that the average adult in the United States between the ages of 55 and 75 has an impressive $ 920,400 at his disposal.
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Now, to be clear, $ 920,400 is not necessarily the savings goal you should aim for. To give you an idea of what this means in general, let’s imagine that you have decided to follow the 4% rule when defining a withdrawal strategy. The rule is a bit outdated, but it is a normal starting point.
Using this rule, $ 920,400 will bring you nearly $ 37,000 in annual savings income alone. Keep in mind that this is just one source of income that you may be familiar with. You’ll probably also get Social Security, which pays the average recipient a little over $ 18,000 a year today. You may also have a small pension or plan to stop working part-time as a senior.
As such, it is fair to say that $ 920,400 is a respectable savings goal to pursue. And believe it or not, getting to it can be easier than you think.
Save early to live well as a senior
Reducing nearly $ 1 million can seem like a daunting task. But in fact, if you start early enough, you may be surprised at how seamlessly you achieve this goal.
Let’s imagine that you start financing a retirement plan at the age of 30 and that you retire at the age of 67, which is the full retirement age for social security if you were born in 1960 or later. Let’s also assume that you are investing heavily in your 401 (k) or IRA in equities, and so your plan generates an average annual return of 7%, which is slightly below the stock market average.
How many monthly savings do you think you will need to reach $ 920,400? Believe it or not, only $ 480.
And this number suggests that you do not start saving for retirement until the age of 30. If you start saving five years earlier, you will reach $ 920,400 by contributing only $ 335 a month into your retirement plan.
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On the other hand, if you wait until the age of 45 to start saving, you’ll need a pretty daunting $ 1,570 a month to reach $ 920,400 in time to retire. That’s why it’s crucial to prioritize your savings early in life – whether you’re looking for a $ 920,000 egg nest and a change or a different number. No matter what your goal of saving, the earlier you start working to achieve it, the more likely you are to succeed, so find out what you want your retirement to look like and use it as a motivation to focus on your long-term savings starting right away.
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