How an Average Gen Xer Can Save $1.5 Million for Retirement

Americans are worried about not having enough money for retirement. A recent survey from Northwestern Mutual found that Americans believe that they will need an average of $1.46 million to live comfortably in retirement. That dream "nest egg" number has increased by 15% since last year, due to high inflation.

The most important factor that affects your retirement savings is time. If you have many years ahead of you to work, save, invest, and let your money grow, you are more likely to be able to build up a substantial nest egg for retirement. Don't feel bad if you're not saving enough; many Americans who are still approaching their prime career years can still make big progress.

Let's look at the retirement savings options for Gen X and see what it takes to save $1.5 million for retirement.

Gen X retirement savings: $108K saved, 15 years left

According to Northwestern Mutual's 2024 Planning and Progress Study, Gen Xers have saved an average of $108,600 for retirement. But this generation is the most pessimistic about their retirement prospects. Only 48% of Gen X believe they'll be financially prepared for retirement, compared to 49% of baby boomers, 56% of millennials, and 64% of Gen Z.

Is Gen X right to be so pessimistic? Let's crunch the numbers, with a few assumptions.

• Gen Xers are generally identified as being born between 1965 and 1980. So let's say a "typical" Gen Xer was born right in the middle, in 1972, and is 52 years old today.
• And let's say this 52 year old has the Gen X average amount of retirement savings from the Northwestern Mutual survey: $108,600.
• This Gen Xer's full Social Security retirement age is 67, so they have 15 more years to save and invest for retirement.

Let's see how Gen Xers can make the next 15 years count.

How to invest for retirement: 15 years away

15 years is not a long time horizon. Even if you have $108,600 saved, you're going to need to save and invest aggressively to be able to retire at age 67.

Let's look at a few examples based on how much you save per month.

If you save $500 per month

Let's say that you're starting with $108,600 saved for retirement, and you can add a total of $500 per month ($6,000 per year) -- that includes your 401(k), if you have one, and any other long-term retirement accounts like a Roth or traditional IRA.

Let's say you invest that money aggressively in a diversified portfolio of mostly stocks and ETFs for an average annual return of 8%. And let's say that you bump up your retirement savings contributions by 2% per year as you get pay raises at work.

After 15 years, you'd have $541,738 saved for retirement. At 4% withdrawals per year (the common recommendation), that's enough to generate $21,670 of retirement income per year. This is much better than nothing, but far short of the $1.5 million goal that most Americans have as their ideal retirement nest egg. Let's try again with bigger numbers.

If you save $1,000 per month

Let's say you can save $1,000 per month ($12,000 per year). Assuming the same 2% per year increase in retirement savings and the same average annual return of 8%, after 15 years, you'd have $738,979 saved for retirement. That nest egg would generate about $29,559 per year of retirement income (assuming 4% withdrawals per year).

Again, not bad! Getting better. Most people could actually live off of that income in retirement, especially if you get the average Social Security retirement check of $1,907 per month. But what if you want to live more comfortably in retirement? You still have time to save for it.

If you save $1,500 per month

Again, assuming that you start with $108,600 saved (at age 52), bump up your savings by 2% per year, and earn 8% average returns for 15 years, here's what happens if you save $1,500 per month ($18,000 per year): At age 67, you'd have $936,219 in your retirement nest egg. That's enough to give you about $37,449 of retirement income per year.

We're getting closer and closer to that "magic number" of $1.5 million. Want to see what it takes?

If you save $3,000 per month

If you can afford to save even more aggressively for retirement, it could still be possible for a 52-year-old to reach that $1.5 million retirement goal. Let's assume you already have $108,600, you increase your savings contributions by 2% per year, and you save and invest for the next 15 years with 8% average annual returns.

If you save $3,000 per month ($36,000 per year), by age 67 you would have $1,527,940 saved for retirement. That nest egg would generate about $61,118 per year of retirement income.

Bottom line

Gen Xers don't have to feel gloomy about retirement. If you have the average amount of retirement savings for your age cohort ($108,600), you still have time to save up a significant nest egg to support you in your golden years.