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
Key takeaways. There is no one-size-fits-all plan when it comes to how much you'll need to retire, but there are a few common benchmarks. 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.
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.
How much money does a married couple need to retire at 62? ›
It's recommended that most couples save at least seven to eight times their combined annual income to retire comfortably. This number may seem daunting until you remember that savings compound over time.
Can I retire with $3 million at 65? ›
Summary. $3 million should be more than enough to fund your retirement, even if you choose to retire early. A number of factors are at play when determining how long $3 million will last, including your investment strategy and retirement lifestyle.
What is the average Social Security check if you retire at 65? ›
According to the SSA, the estimated average yearly benefit for recipients aged 65 in constant 2001 dollars is as follows: 2020: $15,313. 2021: $15,269. 2022: $15,230.
How much does the average 65 year old retiree have in savings? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2024, your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.
Can I retire at 62 with $400,000 in 401k? ›
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
How to retire at 60 with no money? ›
Get a Part-Time Job or Side Hustle. If you're contemplating retirement with no savings, then you may need to find ways to make more money. Getting a part-time job or starting a side hustle are two ways to earn money in your spare time without being locked into a full-time position.
How much does the average retired person live on per month? ›
Retirement Income Varies Widely By State
| State | Average Retirement Income |
|---|
| California | $34,737 |
| Colorado | $32,379 |
| Connecticut | $32,052 |
| Delaware | $31,283 |
47 more rowsOct 30, 2023
If you're getting Social Security retirement benefits, some members of your family may also qualify to receive benefits on your record. If they qualify, your ex-spouse, spouse, or child may receive a monthly payment of up to one-half of your retirement benefit amount.
Is $5000 a month a good pension? ›
To maintain your lifestyle in retirement, most financial planners recommend aiming to replace 80% of your pre-retirement income. For example, if you earned $75,000 per year ($6,250 per month) before retirement, you should aim to have a post-retirement income of $60,000 per year ($5,000 per month).
Can I live off interest on 3 million dollars? ›
Living off the interest of $3 million is possible when you diversify your portfolio and pick the right investments. Here are six common investments and expected income for each year: Savings and money market accounts. Savings accounts are one of the most liquid places to hold your money besides a checking account.
Is 3 million net worth rich? ›
The 95th percentile is considered wealthy, with $3.2 million household net worth, so even more spending power, which means estate planning and possibly more than one home. And the 99th percentile is very wealthy, with $16.7 million in net household worth, Schmidt says.
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.
What is the average 401k balance for a 65 year old? ›
What is the average net worth of a 65 year old retiree? ›
The average American net worth is $1,063,700, as of 2022. Net worth averages increase with age from $183,500 for those 35 and under to $1,794,600 for those 65 to 74. Net worth, however, tends to drop for those 75 and older.
Can I retire at 65 with 100k? ›
“With a nest egg of $100,000, that would only cover two years of expenses without considering any additional income sources like Social Security,” Ross explained. “So, while it's not impossible, it would likely require a very frugal lifestyle and additional income streams to be comfortable.”
Can you retire on $2 million at 65? ›
Bottom Line. Retiring at 65 seems like a typical target, but it takes careful planning and a sufficient nest egg to pull off. If you accrue $2 million during your career, you can pay yourself $80,000 annually without touching your principal, which translates to a healthy monthly budget.
