If there were a universal savings figure that guaranteed financial security in retirement, building a nest egg would be a simpler thing to do. But there's no such magic formula, and the amount of money needed for a secure retirement can vary greatly from person to person.
Imagine your retirement goals include settling down in a small town, starting a home baking business, and spending time with your nearby grandchildren. Your retirement might cost a lot less than someone who plans to live in a major metro area, go to the theater every week, and travel internationally multiple times a year.
Still, it may help to get a sense of what today's workers think is a good retirement savings target to aim for. And Transamerica has an answer. In its 21st annual Retirement Survey of Workers, workers estimate they'll need a median savings balance of $500,000 in order to feel financially secure during retirement.
That said, while Gen Xers and Gen Zers think they'll be set with $500,000, baby boomers think they'll need a median $750,000 for a comfortable retirement. And millennials are confident they'll get by with a median $300,000.
How much money will you need in retirement?
No matter what generation you fall into, you may agree that $500,000 is a smart retirement savings target. Or you may feel differently. And there's no right or wrong answer.
In fact, rather than following the opinions of the masses (or, in this case, the several thousand people Transamerica surveyed), a better bet is to ask yourself these questions to determine how much savings you should aim to retire with.
1. What will my monthly Social Security benefit amount to, and can I raise it?
Each year, you'll get an earnings statement from the Social Security Administration that contains an estimate of your future benefit. The further along you are in your career, the more accurate that estimate will be, but even if you're younger, you can use it as a starting point to see how much income Social Security will provide.
You should also know that there are steps you can take to raise your Social Security benefit. Delaying your filing until the age of 70, for example, will result in a higher monthly payday for life. Either way, getting a handle on what benefit you may be in line for should help you determine how reliant you'll be on your savings -- and how much money to put away.
2. Am I setting funds aside for healthcare?
Chances are, healthcare will be one of your greatest retirement expenses, if not your single greatest one. But if you're socking away money to pay for your future medical needs, it could take some pressure off your nest egg.
Many workers have the option to put money into a health savings account, or HSA, and if you're enrolled in a high-deductible health insurance plan, that option may be available to you as well. The money you put into an HSA can be carried forward indefinitely, so if you max out those contributions and don't take withdrawals from your account, you may not need to save as aggressively in a 401(k) or IRA.
3. Where do I want to live in retirement?
A $500,000 nest egg will go much further in certain parts of the country than in others. While your personal lifestyle choices will also play a role in how quickly you spend down your savings, the place you decide to call home will dictate how much you're likely to spend.
Put in a little time researching affordable states for retirees. Keep in mind that some states impose a tax on Social Security benefits, while others do not.
Can you retire on $500,000?
You may find that a $500,000 nest egg serves you quite well in retirement. Or you may find that it falls very short. Rather than fixating on the results of a single survey, use that $500,000 as a starting point, but adjust it to meet your own needs.
Another good bet is to think about what your ending salary might look like, and aim to have roughly 10 to 12 times that sum socked away before your career comes to a close. If you're in your 50s earning $50,000 a year, that $500,000 savings estimate may be reasonably spot on for you, whereas if you're in your 40s earning $100,000 already, it's probably not.
Ultimately, saving for retirement is a personal matter. Consider all of the factors above when setting a savings goal for yourself, and just as importantly, push yourself to do whatever you can to meet it.