It may not surprise you to learn that retirement can cost hundreds of thousands, if not millions, of dollars. That's true even if you live a relatively frugal life. But what is surprising is how many seniors fail to save enough to cover all their retirement bills.
The proof is in the numbers. Below, we'll take a look at how much the average senior has saved, according to a recent Clever survey, along with how that stacks up to actual retirement costs. We'll also talk about what to do if you don't feel you're saving enough.
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How much has the average retiree saved for retirement?
The average retiree has a nest egg of about $170,726 in 2023, according to Clever. This is down quite a bit from the $191,659 average from last year. High inflation rates and poor investment growth undoubtedly contributed to this, forcing some to withdraw more than they had anticipated.
Still, nearly $171,000 is certainly not a small amount of money. It's enough to last most people at least a few years, especially when paired with Social Security, a pension, or other government benefits. But it's still a far cry from what most retirees actually need.
One common approach to retirement savings says you should save 10 times your annual income for retirement. Median annual income in the U.S. as of the first quarter of 2023 is about $57,200. So 10 times this annual income would be $572,000. And those who earn more than this may want to save even more if they plan to maintain their current lifestyle in retirement.
Based on this, the typical retiree's $171,000 in savings is less than a third of what they'll need to cover their expenses. Again, most will still receive some money from Social Security or other sources, but it's likely that many could wind up running out of savings prematurely. Then, they may have no choice but to rely upon their children for financial support or return to the workforce. That's obviously not ideal, which is why it's important to save as much as you can for retirement while you're young.
What to do if you don't think you're saving enough
In order to know if you're saving enough for retirement, you first need to decide upon a savings goal. You can use the above estimate as a starting point, but remember to take your own income and spending habits into account. You may want to save more or less based on how you imagine your lifestyle in retirement.
Next, you need to figure out how long you have to save for that goal and how much further you have to go. For example, if you're 25 and hope to retire at 65, you have 40 years left until retirement. If you hope to save the $572,000 average discussed above and you don't have any savings yet, you'll need to save about $178 per month, assuming an 8% average annual rate of return.
If you have enough extra cash on hand, all you have to do is ensure it makes its way into a retirement account each month. But things are trickier for those who need most or all of their monthly income for their living expenses.
When you're not able to save as much as you'd like to each month, there are a few things you can try. First, you can look for ways to reduce your spending or increase your income to free up additional cash for retirement savings. This could mean cutting back spending in some areas, negotiating a raise, or switching employers if you can find a better-paying job elsewhere.
You could also consider delaying retirement. This gives you additional time to save and also reduces the length of your retirement. Fewer years spent in retirement means you'll be able to get by on less money. But you still need to prioritize saving as much as you can while you're young. Some people are forced to retire earlier than they planned due to poor health or caretaking requirements, so delaying retirement doesn't always pan out.
It may not be easy to save more for retirement, but do your best. And set aside some time each year to review your savings strategy. Over time, you may spot additional opportunities to grow your wealth or reduce your spending.
