No matter how you look at it, retirement's not cheap. You'll likely be spending tens of thousands of dollars per year, which adds up quickly over the decades. And if you're planning on traveling, renovating your home, or picking up expensive new hobbies during your senior years, retirement could be even more expensive.
How much retirement will cost varies widely from person to person. Some people may only spend a few hundred thousand dollars over several decades, while others may need well over $1 million just to make ends meet. While everyone's needs will be different, this is how much the average worker thinks retirement will cost.
How much will retirement cost?
Across the board, most Americans think retirement will be an expensive period in life. Nearly 40% of workers who have calculated their future retirement costs think it will take at least $1 million to retire comfortably, according to a recent survey from the Employee Benefit Research Institute, and 16% of those people believe retirement will cost at least $2 million. Only 8% of workers believe they'll need less than $100,000 to get through retirement.
The number of workers who estimate they'll need at least $1 million in retirement is increasing steadily, too. In 2019, only one-third of workers estimated their retirement costs at $1 million or more, according to the survey, and just one-quarter of workers did so in 2016. With retirement costs on the rise, more people may be aiming to become retirement millionaires in the coming years.
Saving $1 million or more is a lofty target, and it's not an easy goal to achieve. But it can be done if you're willing to work for it.
Becoming a retirement millionaire
The first step toward saving a significant amount of money for retirement is double-checking that your financial goals are aligned with your retirement goals. Some people may need more or less than $1 million to retire comfortably, so rather than blindly saving toward a goal that sounds good on paper, crunch the numbers to make sure you'll be saving enough.
Run your numbers through a retirement calculator to see just how much you should be saving for retirement and how much you need to save each month to get there. Try to be as accurate as possible with your inputs, because these inputs will directly affect how much you should save. For example, rather than assuming you'll only be spending, say, 75% to 85% of your pre-retirement income during your senior years, create a retirement budget to see what your costs will really look like.
It's important to consider, too, how COVID-19 could affect your retirement plans. If your savings have taken a hit recently, you may choose to delay retirement by a few years to give your investments more time to recuperate. By going that route, you may not need to save quite as much as if you'd retired earlier.
Once you have an idea of how much you should save by retirement age and what you need to be stashing away each month to reach that goal, start saving as soon as possible. Time is your most valuable asset, and the longer your money is able to sit untouched in your retirement fund, the faster it will be able to grow. You may need to make some budget cuts to find extra cash to save, but every little bit counts. Even a few extra dollars per week can add up significantly when that money has plenty of time to compound.
Saving for retirement is never easy, but it's even more challenging if you want to retire a millionaire. By saving early in life and being willing to make financial sacrifices, though, you'll give yourself the best shot at reaching your retirement goals.