The average American household thinks it needs nearly $1.3 million to retire comfortably. Unfortunately, most Americans approaching retirement aren't anywhere close to that number.
While workers have a lot of opportunities to catch up on their savings in their late 50s and early 60s, most of these near-retirees may find their retirement accounts coming up short of their goals. That could mean a different reality in retirement than they originally envisioned. But smart investors can beat the average and build a better life for themselves in their golden years.
Here's the average retirement savings for Americans aged 55 to 64 years old, and how you can get ahead of your peers.
Image source: Getty Images.
The average 55- to 64-year-old doesn't have nearly enough saved for retirement
The typical household with individuals between the ages of 55 and 64 held just $185,000 in their retirement accounts in the second half of 2022, according to survey data from the Federal Reserve.
Importantly, that number represents the median household. The median is arguably more representative of the population than the arithmetic mean, as very high net worth households can skew the averages much higher than the reality for most Americans. For reference, the mean retirement account balance for 55- to 64-year-olds was $537,560.
Even that higher number is well short of most retirement savings goals, though. And when you add the median stock investment holdings to the median retirement accounts savings, the total number is still too low. The average 55- to 64-year-old had just $111,000 in stock holdings outside of retirement accounts, according to the Federal Reserve.
If you want to get to $1.3 million by the time you retire, you'll need to do things differently.
Some steps you can take to supercharge your savings
Your late 50s and early 60s represent one of the best opportunities you'll have to supercharge your retirement savings.
For one, they're often your highest-earning years. Higher earnings usually means you'll have more disposable income and more you can save. A higher wage could also mean a bigger 401(k) matching contribution, helping you save more for retirement.
Additionally, you may be able to cut some expenses you no longer have in your late 50s or early 60s. At that age, many people's children have become independent adults. College education expenses could be in the rearview mirror by then. That could free up a lot of cash.
Adult children also means you should reassess how much life insurance you need, if any. Unless your spouse would be completely unable to afford your current lifestyle without supplemental income, it may be wise to cash out any whole life insurance policies or let any term life insurance policies lapse. Over 18% of 55- to 64-year-olds had a life insurance policy with cash value as of 2022. Cashing that out would provide an average of more than $84,000 to invest for retirement.
Image source: Getty Images.
If you've lived in your home long enough, you may have fully paid off your mortgage too, wiping out another major expense. All the extra available cash means you should be able to save a lot more for retirement.
The IRS encourages extra savings for those age 50 and older by offering catch-up contributions in retirement savings accounts like the 401(k) or IRA. Those generous extra savings could provide a substantial boost to your retirement account balances. The maximum contribution, including catch-up contributions, for a person aged 55 to 64 years old in 2024 is a whopping $30,500 for a 401(k) plus an additional $7,000 in an IRA.
While you might not be able to max out your retirement accounts every year, you should be able to make substantial progress toward your goals in your late 50s and early 60s. If you want to retire with a nest egg much bigger than the average person, you'll need to go above and beyond with your savings.
