If you're reading this, the odds are good you've got at least a little money tucked away for retirement. But have you saved as much as you feasibly could?
It's difficult to say. There's always room to add a few more dollars to your retirement account. There also comes a point, however, where adding any more to a fund for the future creates a cash crunch right now.
To figure out if your retirement savings are normal for your age, ahead of your peers, or behind them, you have to know how much they've saved up. Fortunately, brokerage and insurance outfit Northwestern Mutual gathers such data and recently published updated results.
The good news is, most Americans could grow a sizable stash of cash meant to fund a nice retirement. The bad news is, nobody seems to actually have anywhere near enough yet to do so.
The bad news
The data is not encouraging. Overall, people living in the U.S. have an average of $89,300 saved up for retirement. People in their 20s average about $35,800 worth of savings, whereas people in their 70s average $113,900.
| Age Group | Average Retirement Savings |
|---|---|
| 20s | $35,800 |
| 30s | $67,400 |
| 40s | $77,400 |
| 50s | $110,900 |
| 60s | $112,500 |
| 70s | $113,900 |
| Average | $89,300 |
Data source: Northwestern Mutual.
Take these averages with at least a small grain of salt. Although Northwestern Mutual doesn't dish out these details in its 2023 annual Planning & Progress Study, we know the size of retirement funds can be all over the map, ranging from a few thousand bucks to several million. On balance, though, the aforementioned averages are probably in the ballpark for most people living a typical life and earning a typical income in the United States.
And that's a bit of a problem.
See, while the average savings of $89,300 isn't exactly chump change, it's also far from being anywhere near enough to fund the retirement most people envision for themselves.
Image source: Getty Images.
The specifics: Although the amount of money people have saved up varies widely with age (the older you are, the more you've been able to accumulate), almost everyone agrees on one important number. That is, most of the investors Northwestern Mutual queried for this study said they'd need just under $1.3 million to retire comfortably.
Folks in their 50s pegged the figure at $1.56 million, while people in their 70s said the number was only $936,000. Even those outliers, however, bookend a relatively narrow range, with the consensus squarely in the middle of that continuum.
Obviously, almost everyone is well short of any of these suggested amounts of retirement savings. The further away they are from retirement, the further away they are from their respective target.
The good news
Don't get discouraged if you're also nowhere near the consensus figure of $1.3 million, particularly if you're in your 20s, 30s, or even your 40s. Also, don't be discouraged if your retirement savings are below the average for your peer group. You've still got time to catch up, and even still reach the $1.3 million mark.
On the other hand, don't tarry if you're behind, and don't act too timidly when you're taking steps to shore up your savings.
There are four simple ideas anyone behind on their retirement savings plan can and should embrace today.
1. Aim to put 15% of your income toward retirement
The rule of thumb for maintaining your standard of living in retirement is to save between 10% and 15% of what you earn while you're working. This is a case where it might be best to set a stretch goal, though, especially if your savings aren't yet where they need to be for your age.
2. Get serious about cutting unnecessary expenses
If the previous goal (saving 15% of your income for retirement) seems out of reach given your current budget, it might be time to take a long, discerning look at your current expenditures. Canceling your cable TV service, eating out less often, foregoing sporting events or concerts, and doing your own nails are just some of the things you can do to come up with a few extra hundred bucks every month.
3. Max out all your possible 401(k) and IRA contributions
If you're going to be offered a tax break or free money from your employer just for adding to your own retirement savings, it doesn't make sense not to do as much of it as you possibly can by maxing out contributions to individual retirement accounts.
4. Actually invest in stocks for growth
Finally, you might be shocked at the number of people who make sizable contributions to a retirement savings fund, but then never do anything productive with it. The interest earned on cash deposits won't keep up with inflation, while shorter-term bonds may only keep pace with inflation. The only way to turn a little into a lot over time is by investing in growth stocks.
Do know that even if you do everything you can all the way until the day you retire, you still might not get to the $1.3 million mark. That's OK, though. Falling short of a lofty target is still better than hitting a meaninglessly low target. If you can save up even just half of that amount -- $650,000 -- you're still doing well, and still doing better than most.
That's enough to conservatively generate over $20,000 worth of annual dividend and interest income, which isn't a bad little supplement to whatever Social Security income you may be due. Whatever dividend stocks you may own in retirement can also still continue to appreciate in price while they're dishing out income.
The key is just doing something ... anything.
