The words "rich" or "wealthy" mean different things to different people. Some people may feel rich if they can comfortably afford all the necessities in life, while others won't feel truly wealthy unless they hit billionaire status.
On average, Americans think it takes $2.27 million to be considered wealthy, according to a survey from Charles Schwab. That's a lot of money, but most Americans are optimistic they will reach that milestone eventually; 60% say they believe they will be wealthy someday, and 17% say it will happen within the next five years.
That's a lofty goal, considering roughly half of baby boomers have no savings at all, according to the Insured Retirement Institute.
Sitting on $2.27 million in the bank may make you feel rich, but the truth is more money doesn't necessarily translate to financial security -- especially when you're saving for retirement. For some people, $2.27 million will be far more than they need to enjoy a long retirement, but others may need even more than that to make ends meet. How much you'll need to feel wealthy in retirement depends on your individual situation.
What does it really take to retire rich?
How much money it takes to be able to retire wealthy depends on your definition of wealthy. Are you planning on buying a beach house on every coast and traveling the world? Or would you prefer to stay closer to home so you can relax and enjoy time with family?
The first step to figuring out how much you need to save to retire rich is to create a retirement budget, which will give you an estimate of how much money you'll likely be spending each year during retirement. Some people spend roughly the same or even less than they did while they were working, but each situation is different. Especially if you expect to go all out during retirement and fulfill all your expensive bucket list dreams, you might be spending significantly more than you are now.
Another important factor to consider is how many years you expect to spend in retirement. While nobody can predict exactly how long they'll live, spending a few more years in retirement than you anticipated can cost hundreds of thousands of dollars. Take a look at your health and family history, and use that to estimate your life expectancy. It's not the most enjoyable thing to think about, of course, but it can help ensure you're as financially secure as possible for the rest of your life.
Once you have these considerations in mind, input your information into a retirement calculator to see how much retirement will likely cost you. If you've crunched the numbers and the result is an astronomical figure, that doesn't mean you can't retire wealthy; it just means you'll need to work a little harder to reach that goal.
Making sacrifices now to retire wealthy later
Say you really want to save $2.27 million by the time you retire. That's a huge goal, but depending on how much you have saved, how long you have until retirement, and how much you're willing to sacrifice, it can be achieved.
If you're 30 years old with nothing saved for retirement, you'd need to save around $1,200 per month earning a 7% annual return on your investments to have around $2.27 million saved by age 67. By getting off to a late start (say, age 40), you'd need to save even more -- to the tune of $2,500 per month, all other factors remaining the same.
Again, if you're willing to make sacrifices and cut costs so you can save that much every month, you can retire with well over $2 million by retirement age. But it's also important to be realistic with your goals and exactly how much you're willing to sacrifice. You may want to live a luxurious retirement lifestyle, spending $100,000 per year on lavish vacations and expensive hobbies. But if it means giving up nearly everything but the bare essentials for the next several decades, is it really worth it? That's up to you to decide.
That's not to say you shouldn't save anything for retirement, however. Even if you plan to live a modest life in your golden years, you still need to save as much as you can. You may not need $2.27 million to get by, but you'll likely need at least a few hundred thousand dollars saved to live comfortably. You still might have to make sacrifices to save as much as you need, but you may not need as much as you think to be financially secure in retirement.
Becoming wealthy is a common desire, and you don't necessarily need to launch a billion-dollar business or win the lottery to be rich. Whether "wealthy" means retiring with $500,000 or $2 million in the bank, you can retire rich if you're willing to make sacrifices and save diligently.