You Won't Believe What Little Money Near-Retirees Have Saved

It's not a secret that the more savings you bring with you into retirement, the more comfortable your senior years could be. But recent Northwestern Mutual data on Americans' retirement savings paints a pretty discouraging picture.

A 2023 survey found that Americans in their 60s have an average of $112,500 socked away for retirement. And while that's certainly better than having no savings at all, it's a sum that may not go very far.

When a large number gets whittled down

An IRA or 401(k) balance of $112,500 would be pretty sweet if that money only needed to last for a year or two. But some people end up with a 20-year retirement -- or much longer.

In fact, because your retirement savings might need to last for decades, experts have long advised taking withdrawals to the tune of about 4% per year. But if you're looking at a balance of $112,500, that results in only $4,500 of annual income.

For most people, that $4,500 should come on top of Social Security benefits. But the typical senior today only collects about $23,000 per year from the program. So adding $4,500 only brings that total to $27,500.

Chances are, that's not going to make for the retirement of your dreams. It may not even be enough to cover your basic expenses without having to cut corners, like downsize your home.

Save early to set yourself up for success

People in their 60s today are approaching retirement at a disadvantage. Many weren't told to start saving independently early in their careers because back then, pensions were more common.

But if you're in your early 20s and have recently joined the workforce, you should know from the start that a workplace pension is something the typical private sector employee generally isn't privy to. And you should make an effort to consistently fund a retirement plan so you're able to grow your money nicely over time.

Over the past 50 years, the stock market has rewarded investors with an average annual 10% return. So if you're investing with a brokerage account for almost that long, it's conceivable that your returns will be comparable.

So, let's say you save and invest $200 a month for retirement over a 45-year period (say, age 22 through 67) and your portfolio gives you a 10% return during that window. That could result in a balance of $1.725 million. Yes, you read that correctly.

And OK, so you may not be able to start saving for retirement at age 22. That could mean starting right out of college, and you may need a year or two of full-time work to get on your feet.

But let's whittle that savings window down to 40 years instead of 45. You're still looking at a total of over $1 million by the time retirement age arrives, assuming that same $200 monthly contribution and 10% annual return. You're also looking at more than nine times what the typical near-retiree has saved today. So while it's not an easy thing to start funding an IRA or 401(k) plan at a young age, the upside could be huge.