Americans have long struggled to save enough for retirement, which remains a problem today. According to the Economic Policy Institute, the average working household has just $95,776 saved for their golden years.
For many households, that's not much more than a year's worth of income. Fortunately, it's not too late for most working people to change their financial fortunes. There are realistic paths to retire with at least $1 million saved, though your path forward may depend on your situation.
This is a retirement service announcement. Here is what you need to know about ensuring that your retirement savings are on track for a happy ending.
Ready, set, take action
It's easy to kick the can down the road. Why worry about retirement planning now when it's potentially years away? Admittedly, most people have plenty going on in present-day life, including student loans, surging living expenses, and stubbornly high mortgage rates that push homeownership further out of reach.
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But procrastinating about your retirement will only come back to haunt you. You don't know how long your body or mind will function at peak level, and the math behind compounding only works against you as you age. Try not to feel overwhelmed; that's why you're reading this -- to do something about it.
The first step in planning your retirement is understanding where you are in the journey. Saving for retirement doesn't need to be complicated. It mostly boils down to how much money you have now and how many years until you retire.
Use the S&P 500 as your tool of choice
I said in the introduction that the average working household already has just under $100,000 saved for retirement. However, that can vary based on your age. For example, the 2023 Vanguard How America Saves Report states that the average retirement balance for someone aged 25 to 34 is roughly $30,000. The average 55-year-old has $208,000 saved.
Don't panic if you feel behind the eight-ball. You might make an impulsive mistake like taking on too much risk because you're trying to make up for lost time. The worst thing you can do is suffer a catastrophic loss close to retirement, when you're less equipped to rebuild a nest egg. If you can stomach the volatility of the broader stock market, which will encounter occasional declines called bear markets, consider index funds mirroring the S&P 500.
The S&P 500 is a basket of 500 of America's most prominent and successful companies. It's an excellent tool for two reasons. First, despite its volatility, the S&P 500 has consistently risen over the long term. It's one of the most proven wealth-building mechanisms in existence. Second, it averages enough of a return (10% annual return) that it can do some serious lifting for your nest egg if you give it time.
Evaluate your situation
Based on the S&P 500's history, investors should expect the fund to double every seven years on average. Knowing this, you can plug in your financials to uncover the road to a comfortable retirement. Hypothetically, imagine you're sitting on $250,000 at the age of 40. If this money was invested in the S&P 500, it could grow to a nominal $1 million by the time you're 54 years old, doubling twice over 14 years -- without investing another dollar.
Suppose you're 51 years old, and you're starting from scratch. You have more work to do than our first example, but it comes down to using math to build your roadmap. You can still retire at age 65 with at least $1 million, but you would need to invest $2,750 monthly to hit that goal.
For the young folks reading this, listen up, because you have an easier potential journey ahead than anyone. You can start from nothing at age 35, and you'll hit $1 million by 65 if you invest just $442 per month. That might sound like a lot now, but look at how much it costs when you wait until later.
Regardless of whether you're young or getting older, just starting or ahead of schedule... there is a path to a comfortable retirement available to you. Stop kicking the can down the road.
