Saving $1 million (or more) for retirement is a great goal to have. Putting that much aside could make it easier to live your preferred lifestyle when you retire, without having to worry about running short of money. However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you’re looking to be in the minority but aren’t sure how to get started on that savings goal, consider working with a financial advisor.
What Does the Average Retiree Have Saved?
The Federal Reserve’s Survey of Consumer Finances tracks retirement savings data for different age groups in the U.S. According to the most recent survey that was completed in 2019, the average retirement savings by age breaks down like this:
- $426,000 for those aged 65 to 74
- $357,000 for those aged 75 and older
As you can see, those numbers are well below the $1 million mark. They represent how much the average person 65 and up have saved in retirement accounts, including 401(k) plans and Individual Retirement Accounts (IRAs).
If you look at median figures, the numbers change even more. The median represents the middle number in a group of numbers. The Federal Reserve data shows that 65 to 74-year-olds have a median of $164,000 in their retirement accounts while those 75 and older have $83,000 saved for retirement.
These numbers are from 2019 and may not reflect any retirement gains (or losses) retirees have experienced in the last few years. The next Survey of Consumer Finances is set to be released sometime in 2023 and it may paint a very different picture of retiree savings with the impacts of the COVID-19 pandemic and higher inflation factored in.
What Is the Average Retiree’s Net Worth?
Net worth is a measurement of your assets against your liabilities. A higher net worth indicates that you have more assets than debts and that’s a good thing when it comes to retirement.
In terms of the average retiree’s net worth, the Federal Reserve data puts it at approximately $1.2 million for those aged 65 to 74. The average net worth drops to $958,000 for those aged 75 and older. The data measures a variety of assets and debts, including:
If you’d like to calculate your own net worth, you’d simply add up all of your assets and subtract your debts. You can use that number as a guide for measuring your own net worth alongside other Americans in your age group.
Is $1 Million Enough for Retirement?
Financial experts have long advocated saving at least $1 million for retirement. Whether $1 million is enough can depend on:
- Your desired retirement age
- How long do you expect to live in retirement
- Your preferred retirement lifestyle
- What you expect to spend on basic living expenses and healthcare
- When you plan to take Social Security benefits
For some retirees, $1 million may be more than enough to enjoy a comfortable lifestyle. Retirees who plan to relocate to another country, for example, may find that $1 million goes much further when it comes to paying for housing, utilities, food or health care. They might be able to retire on $500,000 instead.
On the other hand, $1 million may leave you with a savings gap if you would like to live a retirement lifestyle that includes plenty of travel, expensive hobbies or providing financial support to a child or grandchild. Health care can also take a big bite out of your savings if you have a chronic illness or you require long-term care at some point.
Long-term nursing care is generally not covered by Medicare. While you can apply for Medicaid to pay for long-term care, eligibility is determined by your assets. If your net worth is too high, you may have to spend down some of your assets before you can qualify. Purchasing long-term care insurance or a hybrid life insurance and long-term care policy can help you to prepare financially for that scenario.
How to Save $1 Million for Retirement
If you’d like to save $1 million or more for retirement, you’ll need a clear plan to reach your goal. Planning starts with doing some math to determine how much you need to save monthly or yearly to reach your goal, based on when you plan to retire.
Say, for example, that you’re 30 years old. You’d like to retire at 65 with $1 million saved. You make $70,000 a year, pre-tax and are starting with $0 in savings. Assuming you’re investing and earning a 7% annual rate of return on average, you’d need to set aside 10% of your income each year. That also assumes you plan to live until age 95 and spend $2,900 a month in retirement.
If you’re saving 10% of your pretax income each year, that works out to $583 per month. Now, what if you’re starting at age 35 instead? In that case, you’d need to bump your savings rate to 15% of your income or $850 a month instead.
Using an online retirement savings calculator can help you work out how much you need to save to retire with $1 million. You can also try some of these tips to boost your savings total:
- Enroll in your 401(k) if you haven’t already and aim to contribute at least enough to get your full employer match.
- Increase your 401(k) annual contribution rate by the same amount as any annual raises you receive.
- Max out your workplace retirement plan each year if possible and consider opening a solo 401(k) or SEP IRA if you’re self-employed.
- Supplement savings with a traditional or Roth IRA and a Health Savings Account (HSA), if you have one available through your high-deductible health plan.
- Take advantage of the Retirement Saver’s Credit if you’re eligible, which can free up more money that you can save.
- Choose low-fee investments to maximize your returns and review the fees you’re paying in your 401(k) or IRA regularly.
- Use found money, such as tax refunds or rebates, to add to your retirement savings.
- Fine-tune your budget as much as possible and pay down debt so you have more money to save.
Those are just a few things you can do to increase your savings efforts if you’d like to retire with $1 million. What you decide to do should be unique to what your individual financial goals are and how much money you think you need for your goals. You may benefit from working with a professional who can outline what a plan looks like to hit your individual goals.
The Bottom Line
The majority of retirees are not millionaires but it’s possible to reach $1 million in savings if you’re strategic in your approach. Getting an early start can be one of the best ways to reach your goal, as you’ll have more time to benefit from compounding interest. Comparing different investment options and understanding your risk tolerance is also essential if you’d like to achieve millionaire status by the time you retire.
Retirement Planning Tips
- Consider talking to a financial advisor about whether retiring with $1 million is realistic or if you should be aiming for a different savings number. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s free tool matchesyou with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you expect Social Security benefits to be part of your retirement picture, it’s important to understand how much you might be able to collect. You can receive your full benefit amount when you retire at your normal retirement age, but it’s possible to take benefits as early as 62. Doing so, however, can shrink the amount you’re able to receive. On the other hand, you can increase your benefit amount by waiting until age 70 to apply. Deciding when to take Social Security benefits is another topic you may want to discuss with your financial advisor.
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I am a financial planning expert with a deep understanding of retirement savings, investment strategies, and financial planning principles. I've gained extensive knowledge through years of practical experience and staying abreast of the latest trends and research in the field. Now, let's delve into the key concepts discussed in the article about saving $1 million for retirement.
Retirement Savings Statistics: The article emphasizes the importance of saving $1 million for retirement and mentions that only around 10% of retirees achieve this goal. The Federal Reserve's Survey of Consumer Finances provides valuable insights into retirement savings data. According to the 2019 survey, the average retirement savings for individuals aged 65 to 74 is $426,000, and for those aged 75 and older, it is $357,000. Median figures, which represent the middle number in a group, are significantly lower, indicating a wide distribution of savings.
Net Worth Calculation: The concept of net worth is introduced, highlighting its significance in assessing financial health for retirement. The average net worth for retirees aged 65 to 74 is approximately $1.2 million, dropping to $958,000 for those aged 75 and older. Net worth includes various assets and debts such as retirement accounts, bank balances, property equity, and more.
Factors Influencing Retirement Needs: The article discusses factors influencing whether $1 million is enough for retirement. It notes that adequacy depends on factors like desired retirement age, expected lifespan, preferred lifestyle, basic living expenses, healthcare costs, and the timing of Social Security benefits. The flexibility of this amount is evident, as $1 million may suffice for some retirees, while others may face a savings gap due to specific lifestyle choices or health considerations.
Long-Term Care Considerations: Long-term care is highlighted as a potential expense not covered by Medicare. The article suggests preparing financially for this scenario through means such as long-term care insurance or hybrid life insurance and long-term care policies.
Strategies to Save $1 Million: The article provides a clear plan for individuals aiming to save $1 million for retirement. It emphasizes the importance of starting early, setting aside a percentage of income, and considering factors like investment returns and retirement age. Various strategies are suggested, including enrolling in a 401(k), increasing contribution rates, maximizing workplace retirement plans, utilizing IRAs and HSAs, taking advantage of tax incentives, and managing expenses to increase savings.
Individualized Retirement Planning: The bottom line emphasizes that while the majority of retirees may not be millionaires, strategic planning and an early start can make reaching the $1 million goal achievable. The importance of comparing investment options, understanding risk tolerance, and seeking professional advice tailored to individual financial goals is highlighted.
Retirement Planning Tips: The article concludes by recommending individuals consult a financial advisor to assess the realism of retiring with $1 million and to determine personalized savings goals. It also touches upon the importance of understanding Social Security benefits and making informed decisions regarding when to start receiving them.
In summary, achieving a $1 million retirement savings goal requires a combination of early planning, strategic investment, and an understanding of individual financial needs and circ*mstances.
