Do You Feel Behind on Retirement Savings? Here's Why You Might Be Fine

Many Americans worry about saving for retirement. A recent survey from Northwestern Mutual found that the average American believes they will need $1.46 million to retire comfortably -- but the average U.S. retirement savings is only about $88,400. This can feel like a huge, insurmountable gap between "how much you need to retire" and "how much you can easily save."

But building retirement savings doesn't have to happen overnight. And there's some new data that shows many people aren't in such bad shape for retirement, after all. Here are a few encouraging reasons why many Americans might turn out to be in surprisingly decent shape for retirement.

1. Depending on your age, you have plenty of time

The younger you are, the richer you are in time. Even if you have less money, you have more years ahead of you for your investments to grow. This is a priceless advantage! Don't underestimate it.

Gen Z is known for being gloomy about their personal finances. Recent surveys have shown that 25% of Gen Zers believe they'll never be able to retire. I sympathize with Gen Zers who have been hit hard by the pandemic and rising inflation -- but they're young! Gen Z has several decades to work, save, and invest.

Let's say you're a 25 year old who has $0 saved for retirement -- you're just getting started in your career. If you want to retire at age 67, you have 42 years left to invest and watch your nest egg grow. Let's say that you make the following money moves:

• You save $300 per month for retirement in an individual retirement account (IRA)
• You invest in a diversified portfolio of stock and bond ETFs
• Your investments earn about 8% per year on average

After 42 years, you'd have $1,095,277 saved for retirement! And that's assuming that you never save more than $300 per month.

2. Your income could go up in the future -- making it easier to save

When you're young and just starting out in your career, you might be making the lowest salary that you'll ever earn. Ideally, as you progress in your working life, you'll become more valuable to employers, you'll learn new skills, you'll find new paths to get promoted and get pay raises. The money you make as a 22-year-old could be the lowest income you'll ever have.

I don't mean to be blasé about the challenges of lower-income workers. Some people really are stuck in a predicament where their paycheck never keeps up with the cost of living. But if you're upwardly mobile in your career with valuable professional skills, you really could find that it's easier to save significantly more money for retirement at age 40 than it was when you were in your 20s.

3. If you're in an expensive stage of life, you can save more later

Life goes through many seasons. Right now, my family's lifestyle is more expensive than ever. I've got two teenage kids, two cars, and lots of takeout dinners to pay for. But the thing is...I can afford it, and I'm grateful. Taking good care of my family brings me joy, even though it's expensive. I'd rather have a house full of people and laughter than just a cold, joyless bank account balance. And someday when I'm an empty nester, my life will be less expensive.

I'm glad I took my kids on vacations when they were small, even if some personal finance gurus might have said that I couldn't afford it at the time. I'm glad I bought my kids all those little after-school treats and toy Matchbox cars that they asked me for at the grocery store. Spend some money while you can on the people who are important in your life. There might be quieter, more frugal times ahead.

4. People tend to spend less as they get older

A 2022 study from the Rand Corporation found that once Americans turn 65, their spending declines. This happens at all levels of wealth; it's not just a matter of some older adults having more or less money. There seems to be something about getting older that makes people spend less.

This means that your retirement might be less expensive than you think. You might not want or need to spend as much money in retirement as you do during your prime working, earning, and spending years. Being frugal in retirement might feel more satisfying.

5. You will have Social Security representing about 40% of your final paycheck

Too often, retirement savings advice is dismissive of Social Security. Over the years, I've heard too many affluent Business Guys say, "Don't count on Social Security." I don't like this cynical attitude. Social Security will be there for us if we as Americans collectively decide that it should be. It's one of the most successful, longest-lasting social programs in U.S. history.

And yes, Social Security has some funding issues, but they can be fixed. Even if future generations of retirees have to accept lower payments or a delayed retirement age, there are ways to make the numbers work. As of January 2024, the average Social Security retirement check was about $1,907. That's real money! You don't have to save every dollar for your retirement all by yourself.

Bottom line

Don't get discouraged about saving for retirement. It's easy to get hung up on "not being a millionaire yet," but most Americans aren't millionaires. Just keep saving, investing, and letting your money grow. Year after year, decade after decade, you can build significant wealth to help you have a comfortable retirement.