You could end up retiring with a lot of money if you play your cards right.
Workers are often warned not to rely too heavily on Social Security and instead, take steps to build savings to bring with them into retirement. And your goal may be to amass a large nest egg -- one that supports your many retirement goals.
But are you aiming for $3 million in retirement savings? You may not be. After all, that's a pretty large number to target. But if you play your cards right, you could end up sitting on upwards of $3 million by the time your senior years roll around.
What will investing $400 a month do for you?
If you have access to an IRA or 401(k) plan, your goal may be to get as close as possible to maxing out your annual contributions. But even if you can't do that, if you can part with $400 a month over the duration of your working years, you can build serious wealth.
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In fact, if you sock away $400 a month over a 43-year period, and your invested savings generate an average annual 10.5% return, then you'll end up with $3.3 million. And that should be enough money to enjoy retirement to the fullest.
Of course, that begs the question: How do score an average yearly 10.5% return on your investments? The quick answer is that that return is by no means guaranteed. But if you load up on S&P 500 index funds and hold them for many years, there's a good chance you'll see a return in that ballpark.
From 1957 through 2021, the S&P 500 index graced investors with an average annual return of 10.5%. Now to be clear, that doesn't mean the index performed consistently well every single year during that period. In fact, it ended several years during that time in the red.
Rather, that average annual 10.5% return accounts for both strong years on the part of the index and years during which it underperformed. But if you're talking about investing in the broad market for 40-plus years, then there's a good chance your portfolio will enjoy a comparable return.
Commit to saving early on
Some people don't start focusing on retirement savings until they reach their 30s, 40s, or even beyond. But if your goal is to amass millions for your senior years, and you don't want to part with a ton of money on a monthly basis to make that happen, then you'll need to start early.
In our example, we used a 43-year savings window. That's reasonable if you start dedicating funds to your retirement savings at age 24 with the goal of retiring at 67, which is full retirement age for Social Security purposes if you were born in 1960 or later.
If you don't manage to start saving for retirement until age 30, and you can't swing more than $400 a month in your IRA or 401(k), then you may need to work until your early 70s to hit that $3 million target. The point, either way, is that it doesn't take a huge sum of money on a monthly basis to amass a lot of wealth. It just takes a lengthy savings window and the right investment.
FAQs
In fact, if you sock away $400 a month over a 43-year period, and your invested savings generate an average annual 10.5% return, then you'll end up with $3.3 million. And that should be enough money to enjoy retirement to the fullest.
How much money do you need to retire comfortably at age 65? ›
Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age. Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.
How much will I make a month with $1 million in 401k? ›
At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places.
What is the minimum nest egg to retire? ›
$1 million? $2 million? More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
What is the average retirement nest egg in the US? ›
What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
How much does the average 65 year old retiree have in savings? ›
According to data from the Federal Reserve's most recent Survey of Consumer Finances, the average 65 to 74-year-old has a little over $426,000 saved.
What percentage of retirees have $3 million dollars? ›
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
Can I retire at 62 with $400 000 in 401k? ›
With $400,000, if you buy an annuity at age 62 and then retire, you might expect monthly payments of around $2,400 for the rest of your life. This comes to about $28,800 per year in guaranteed income according to one estimate.
Can I retire at 65 if I have $1 million in a 401k and will receive $2500 monthly from Social Security? ›
Here, say that you have $1 million in a 401(k) or IRA, and expect to receive $2,500 per month in Social Security payments, a number right in the mid-range of possible benefits. Can you retire at 65? Well, it certainly depends on your standard of living. But for most people the answer is yes.
Can you retire on 1 million plus Social Security? ›
Yes, it is possible to retire with $1 million at the age of 65. But whether that amount is enough for your own retirement will depend on factors that include your Social Security benefits, your investment strategy and your personal expenses.
If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
What is the 4% rule nest egg? ›
The 4% rule is wonderfully simple. It states that an investor can withdraw 4% annually (adjusted for inflation) from a portfolio of 60% stocks and 40% bonds, and expect their savings to last at least 30 years. For example, consider a $1 million nest egg. John or Jane Doe should be able to withdraw $40,000 in year one.
How much Social Security benefit will I get if I make $50,000 a year? ›
Suppose you were born on Jan. 1, 1960, and had an average annual income of $50,000. As of May 2023, you would get a monthly benefit of $1,386 if you filed for Social Security at 62; $1,980 at full retirement age (in this case, 67); or $2,455 at 70.
What percentage of retirees have $2 million dollars? ›
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
What is the average social security check? ›
Overall total average payments for the state of California: Total number of beneficiaries: 6,166,205. Total benefits: $9,340,498,000. Average total benefits: $1,515.
How much does the average 70 year old have in savings? ›
How much does the average 70-year-old have in savings? We were curious, too, so we asked. Our 2023 Planning & Progress study found that the average amount of retirement savings for 70-year-olds in the U.S. is $113,900.
What is the average 401k balance for a 65 year old? ›
Average and median 401(k) balances by age
| Age range | Average balance | Median balance |
|---|
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
| 65+ | $232,710 | $70,620 |
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Average net worth by age
| Age of head of family | Median net worth | Average net worth |
|---|
| 45-54 | $247,200 | $975,800 |
| 55-64 | $364,500 | $1,566,900 |
| 65-74 | $409,900 | $1,794,600 |
| 75+ | $335,600 | $1,624,100 |
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In most cases, you will have to wait until age 66 and four months to collect enough Social Security for a stable retirement. If you want to retire early, you will have to find a way to replace your income during that six-year period. In most cases $300,000 is simply not enough money on which to retire early.
Can I retire at 65 with 100k? ›
“With a nest egg of $100,000, that would only cover two years of expenses without considering any additional income sources like Social Security,” Ross explained. “So, while it's not impossible, it would likely require a very frugal lifestyle and additional income streams to be comfortable.”
