As if saving for retirement isn't challenging enough, it's also more expensive than ever to retire comfortably. With rising costs of living, longer life expectancies, and not being able to depend as much on Social Security benefits, today's workers can only rely on themselves to make sure their money lasts the rest of their lives.
So how much, exactly, does retirement cost? It depends on the person. Some may choose a frugal lifestyle and can get away with less, while others may spend more than they did while they were working.
That said, the average worker thinks it takes about $1.7 million to retire comfortably, according to a survey from Charles Schwab. That's not an amount you can save overnight -- or even over a few years.
Regardless of how much you should be saving for a nest egg, it's easier to save more when you start earlier. That's especially true the more you're trying to save. If you have a goal of $1.5 million, here's what you'd have to save each month depending on the age you begin.
Earlier is better when saving for retirement
Let's start with some assumptions. First, no matter what age you begin saving, you plan to leave the workforce for good at age 67. We'll also assume that you're investing in the stock market and earning a 7% annual return.
Here's what your total savings would look like -- as well as what you'd need to save each month -- depending on the age you start:
|Begin At||Amount Saved per Month||Total at 67|
When you start in your early 20s, saving $1.5 million is relatively achievable. But the longer you wait to begin, it becomes exponentially more difficult -- if not impossible.
That's not to say you can't save this much if you're off to a late start, but you'll need to work hard and make sacrifices. Not everyone has an extra $4,000 each month to put toward their later years, but saving as much as you can is better than nothing.
How to save more when money is tight
You may realize that you have to save a lot for retirement, but if you're strapped for cash, that may sound impossible. It can be overwhelming to think about how much you need to save in a relatively short time, but it helps to take it day by day and save what you can.
The first step to saving more is to find areas of your budget where you can make cuts. Nearly 60% of American workers say they're living paycheck to paycheck, a survey from Charles Schwab found, and yet according to that same survey, the average household spends nearly $500 per month on unnecessary expenses. In other words, while the majority of people feel like they have no cash to spare, it could be they're just spending more than they think on things they don't need.
The best way to see whether you're overspending on nonessentials is to start tracking your spending. That's not difficult -- several apps will do it for you automatically. And once you have an idea where all your money is going each month, try to find areas where you can reduce spending.
The first costs to go should be the ones that are completely unnecessary, such as a gym membership you never use or subscription services you keep forgetting to cancel. Next, trim some of your other nice-to-have expenses. Cut back on dining out, shopping, and entertainment costs, for instance, or bike to work instead of driving to save on gas. Take a cheaper vacation or delay expensive travel plans.
Finally, see if there's any way you can spend less on essentials. If you're serious about significantly cutting back, that could mean downsizing to a smaller home or selling your vehicle. Or it could be as simple as sealing your windows and doors to prevent air leaks -- doing so could save 10% to 20% on your heating and cooling bills, according to the U.S. Department of Energy. You could also downsize your house, trade your car in for a cheaper one, or move to an area with a lower cost of living.
Individually, these cutbacks may not seem to make any difference at all -- especially when you're aiming to save upward of $1 million by retirement age. But combined, they can have a larger impact than you may think. And no matter your goal, you won't know how much you're able to save until you get started.