You'll read a lot on the internet about ways to save $1 million for retirement. But have you ever thought about why $1 million seems to be such a popular savings target?
My theory is that it's not only a nice, clean number, but a very large one at that. So it's easy to see why you might assume that if you manage to kick off retirement with a $1 million IRA or 401(k) plan balance, you'll be all set.
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But while $1 million is certainly a respectable amount of retirement savings, it might be time to rethink that number. And actually, Americans are already doing that. Recent data from Northwestern Mutual found that workers across all generations think it will take $1.46 million to retire securely.
But still, $1 million seems to be a popular number in its own right. And it's also one you don't want to get too caught up in.
There could be a more suitable number to work toward
I wouldn't blame you one bit for assuming that you should be saving $1 million for retirement. I write about retirement planning day in, day out, and there was a time when I thought a $1 million nest egg would serve me well, too.
Lately, though, I've changed my tune and no longer think $1 million in retirement savings will suffice for me. That's a personal decision, though, based on personal math. And it's important that you run your own numbers for retirement and land on a saving target that helps you meet your goals.
You might realize that if you retire with only $1 million, you can't travel as much as you're hoping to. In that case, you might aim higher -- say, for $1.5 million.
On the flip side, it could be that your retirement plans are simple. Maybe you want to live in your paid-off home and spend time growing vegetables in your garden and doing fun projects around the house. Maybe you don't like to travel and would rather stay close to home.
In that case, a $700,000 nest egg might be more than enough for you. And why should you stress about saving beyond that point if you don't need to?
It's a personal thing
There's no such thing as a one-size-fits-all approach to retirement savings. We all earn different salaries, we all have different expenses, and we all have different goals. So why should we all push ourselves to save the same amount -- whether it's $1 million or another specific number that becomes popular?
If you feel clueless about how much retirement savings you should have, my best advice is to sit down with a financial advisor, who can ask the right questions and help you come up with a goal to work toward.
And don't worry: That goal can change over time. But it's good to have a starting point. Working with a professional can get you there.
And hey, you may decide that your personal starting point is, in fact, $1 million. But that should be based on the numbers you have run -- not a number you keep seeing on the internet.
