Workers are often warned not to rely too heavily on Social Security and instead, take steps to build savings to bring with them into retirement. And your goal may be to amass a large nest egg -- one that supports your many retirement goals.
But are you aiming for $3 million in retirement savings? You may not be. After all, that's a pretty large number to target. But if you play your cards right, you could end up sitting on upwards of $3 million by the time your senior years roll around.
What will investing $400 a month do for you?
If you have access to an IRA or 401(k) plan, your goal may be to get as close as possible to maxing out your annual contributions. But even if you can't do that, if you can part with $400 a month over the duration of your working years, you can build serious wealth.
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In fact, if you sock away $400 a month over a 43-year period, and your invested savings generate an average annual 10.5% return, then you'll end up with $3.3 million. And that should be enough money to enjoy retirement to the fullest.
Of course, that begs the question: How do score an average yearly 10.5% return on your investments? The quick answer is that that return is by no means guaranteed. But if you load up on S&P 500 index funds and hold them for many years, there's a good chance you'll see a return in that ballpark.
From 1957 through 2021, the S&P 500 index graced investors with an average annual return of 10.5%. Now to be clear, that doesn't mean the index performed consistently well every single year during that period. In fact, it ended several years during that time in the red.
Rather, that average annual 10.5% return accounts for both strong years on the part of the index and years during which it underperformed. But if you're talking about investing in the broad market for 40-plus years, then there's a good chance your portfolio will enjoy a comparable return.
Commit to saving early on
Some people don't start focusing on retirement savings until they reach their 30s, 40s, or even beyond. But if your goal is to amass millions for your senior years, and you don't want to part with a ton of money on a monthly basis to make that happen, then you'll need to start early.
In our example, we used a 43-year savings window. That's reasonable if you start dedicating funds to your retirement savings at age 24 with the goal of retiring at 67, which is full retirement age for Social Security purposes if you were born in 1960 or later.
If you don't manage to start saving for retirement until age 30, and you can't swing more than $400 a month in your IRA or 401(k), then you may need to work until your early 70s to hit that $3 million target. The point, either way, is that it doesn't take a huge sum of money on a monthly basis to amass a lot of wealth. It just takes a lengthy savings window and the right investment.
FAQs
Data from the Federal Reserve's most recent Survey of Consumer Finances (2022) indicates the median retirement savings account balance for all U.S. families stands at $87,000.
How much money do you need to retire comfortably at age 65? ›
Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age. Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.
Can I retire at 67 with 300k? ›
If you've managed to save $300k successfully, there's a good chance you'll be able to retire comfortably, though you will have to make some compromises and consider your plans carefully if you want to make that your final figure.
What age can you retire with $3 million? ›
Yes, retiring early with $3 million is possible. If you plan to retire at 55, you will have to account for 11 additional years of expenses and 11 fewer years of income compared to retiring at 66. However, with careful planning, $3 million can provide a comfortable retirement starting at 55.
What is an average Social Security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
Can I retire at 55 with 300k? ›
On average for a comfortable retirement, an individual will spend £43,100 a year, whilst the average couple in retirement spends £59,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 7 years, and a couple in 5 years. So, on paper, it doesn't look like enough.
Can a retired couple live on $50,000 a year? ›
Take your estimated monthly expenses (be sure they're realistic) and divide that number by 4% to figure out how much income you'll need in retirement. You'll need $1.25 million ($50,000 ÷ 0.04) going into retirement if you estimate that you'll need $50,000 a year to live comfortably.
What is the maximum Social Security benefit? ›
The maximum Social Security check
Your maximum benefit if you file at full retirement age – between 66 and 67 – is $3,822 per month. Your maximum benefit if you file at age 70 – the age when extra benefits stop accruing – is $4,873 per month.
How much money should a 70 year old have to retire? ›
Our 2023 Planning & Progress study found that the average amount of retirement savings for 70-year-olds in the U.S. is $113,900. When we asked this group how much they need to retire comfortably, their answer was much higher at $936,000.
How to retire at 60 with no money? ›
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
In this situation, your nest egg would last around five years and four months. Remember, the above figures don't account for interest or investment income, which help your nest egg last longer. That said, your rate of return on $250,000 would provide an additional $10,000 per year if you estimate conservatively.
Will hackers get my $3 million retirement savings if I keep it all at one investment firm? ›
One thing financial advisers point out is that your money is safe and insured at the institutional level. The industry is highly regulated, and companies invest a lot of money in security. Your own password hygiene and home security is probably most important.
What percentile is a $3 million net worth? ›
The 95th percentile, with a net worth of $3.2 million, is considered wealthy, facilitating estate planning and possibly owning multiple homes. The top 1%, or the 99th percentile, has a net worth of $16.7 million and represents the very wealthy, who enjoy considerable financial freedom and luxury.
Can a married couple retire on $3 million dollars? ›
Bottom Line. Most people will be perfectly capable of supporting a $5,000 monthly retirement budget on $3 million, as long as it's adequately liquid and properly diversified.
How much does the average American retire with in their 401k? ›
The average 401(k) balance by age
| Age | Average 401(k) | Median 401(k) |
|---|
| 30s | $160,517 | $69,718 |
| 40s | $344,182 | $151,274 |
| 50s | $558,740 | $247,338 |
| 60s | $555,621 | $209,382 |
3 more rowsIn 2022, the average (median) retirement savings for American households was $87,000. Median retirement savings for Americans younger than 35 was $18,800 as of 2022.
How much should the average person retire with? ›
1. 80% of your preretirement income. Over decades of helping people plan for retirement, the financial planning industry has figured out that most retirees can live on less than they earned during their working years. “Replacing 80% of your income means your lifestyle can essentially stay the same,” Hindert says.
Can you retire with 500k in us? ›
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
