Retirement savings statistics usually highlight how badly people are doing at preparing for their future, but one stat in Transamerica's latest retirement survey bucks this trend: Approximately 30% of households have saved $250,000 or more for retirement already.
That's a sizable sum, but whether it'll fund a comfortable retirement depends in part on how close you are to exiting the workforce.
How far will $250,000 go in retirement?
The average household headed by an adult 65 or older spends about $47,579 per year, according to the Bureau of Labor Statistics. At this rate, a $250,000 nest egg wouldn't even last six years. Most of us can fortunately count upon Social Security to help us with some of our retirement costs so we don't have to rely solely upon our personal savings. But even with this help, $250,000 probably won't last a full retirement.
Most people will need $1 million or more to retire comfortably, but the only way to know what you'll need is to put together a retirement plan that takes your health and lifestyle into account. Once you have an idea of how much you need to save, you can begin to figure out how much you need to set aside each month to retire when you'd like.
The time until your retirement makes a huge difference in how you look at a $250,000 nest egg. The 11% of Gen Z and 25% of millennial households that have already stashed away a quarter-million or more for retirement, according to the survey, are in pretty good shape. They have a long time left in the workforce to continue contributing to their retirement, and the savings they already have can accrue a lot more interest before they need to spend it.
But looking at the 32% of Gen X and 45% of baby boomer households with $250,000 or more in savings, a quarter-million dollars feels a little less cushy than it did for the younger generations. Gen Xers and baby boomers will need their retirement savings sooner, and they have fewer years left to save. That could create some serious financial concerns for the 68% and 55% of Gen X and baby boomer households, respectively, that still haven't even reached $250,000 in savings.
But it's never too late to start moving in a more positive direction. Start from wherever you are right now and try some of the tips below to boost your retirement savings.
Strategies for getting to $250,000 and beyond
For some people, boosting their retirement savings is as simple as raising their monthly contributions. But this isn't always easy. If you don't have a lot of extra money, you may have to reduce your spending in other areas or consider taking on a side hustle to get the cash you need to make this happen. You could also consider working a little longer to give yourself more time to save.
Being strategic about where you stash your savings can also help you hold onto more of your cash. If your company offers to match a percentage of your contribution, your 401(k) is a great place to begin. Make sure you're setting aside at least enough to get the full match, whenever possible, and try to remain with the company until you're fully vested so you don't forfeit your company-matched funds.
If you max out your 401(k), you don't have access to one, or you decide it's not right for you, you can stash money in an IRA instead. Though you're only allowed to contribute up to $6,000 in 2021 ($7,000 if you're 50 or older), you have a much wider range of investments to choose from. You can also decide when you want to pay taxes on the funds. This can make a big difference in how much of your money you keep.
Health savings accounts (HSAs) are another option for those with a health insurance plan that has a deductible of $1,400 or more for individuals or $2,800 or more for families. Though these are designed to help people cover medical costs, your HSA contributions reduce your taxable income the same as contributions to a 401(k) or traditional IRA. Plus, if you use the money for medical expenses at any age, you won't pay taxes on it at all. You can stash an extra $3,600 here in 2021 if you have an individual health insurance plan or $7,200 if you have a family plan.
The right retirement strategy for you is one built around your needs and timeline. While the tips above can help you begin moving in the right direction, it's ultimately up to you to decide which strategies will work for you right now. If you haven't already created a custom retirement plan, now is the time to do so. Whether you have no retirement savings, $250,000, or $1 million, designing and executing a retirement savings plan is the best way to ensure you reach your goal.
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