Please ensure Javascript is enabled for purposes of website accessibility

Americans Say the Price Tag for Retirement Security Is $1.9 Million

By Christy Bieber – Aug 20, 2020 at 6:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are the results of a recent survey correct -- and is saving that much possible?

Financial security comes at a high price, at least according to most Americans. A recent Schwab survey of workers who are investing in 401(k) plans reveals that, on average, these investors believe they need to save $1.9 million for their retirement. This hefty sum is a big increase compared with last year's survey, when 401(k) participants on the whole believed $1.7 million would buy them financial security in their later years. 

This raises two big questions: Are these workers right, and how much would you actually need to invest to hit this target? 

Jar labeled retirement savings with coins stacked up next to it.

Image source: Getty Images.

Will $1.9 million provide sufficient retirement security?

Although $1.9 million may seem like a huge amount, it won't necessarily produce as much retirement income as you think. 

If you follow the 4% rule, it would give you about $76,000 annually. That's a lot, especially since you'll get Social Security benefits, too. But you have to take inflation into account. If you're planning to retire next week, or next year, a $1.9 million nest egg will give you $76,000 of buying power, or close to it. Chances are good that's all you'd need -- or perhaps even more than you'd require for a comfortable life. 

But if you're not retiring for 30 years, rising prices mean your money won't go nearly that far. In fact, for those retiring in three decades, the inflation-adjusted value of a $1.9 million nest egg would be $760,908. That'll provide buying power at around $30,436 annually in today's dollars. When combined with Social Security, that might be plenty. But you may prefer a higher income, depending on your earnings and your expectations for retirement spending. 

How much do you need to save to get to $1.9 million?

If you decide $1.9 million is a good target, how much would you need to save to get you there? It depends on your age when you start investing as well as the returns you earn. Assuming an 8% average annual return, this is how much you'd need to set aside per year to reach your target by 65:

  • If you start investing at 25, you'd need to invest $7,350 per year.
  • If you start at 35, you'd need $16,750 per year. 
  • If you start at 45, you'd need $41,600 per year.

Obviously, these are big numbers, which puts this $1.9 million goal out of reach for many people who delay investing until their 40s or beyond.

But if you're serious about saving such a large nest egg, you start when you're young or in middle age, and you work hard to max out tax-advantaged retirement accounts, it's a target you very likely could hit. 

Should you aim for $1.9 million?

Your decisions about retirement are personal, and made with your goals and financial situation in mind. For many people, saving $1.9 million is a good target. But if you're still a long way from retirement, you have a high income now, and you want a more lavish lifestyle into your later years, you may very well need more.

The key is to determine your savings goal and start working toward it ASAP. Making an individualized plan and sticking to it gives you the very best chance of retiring with enough to enjoy your later years. 

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.