It’s fair to assume that you’ll need a decent chunk of money in personal savings to retire in a comfortable manner. To put it another way, retiring on Social Security alone is not a good idea.
If we’re lucky, and Social Security benefits aren’t cut, you can expect them to replace about 40% of your pre-retirement income. But if you retire on those benefits alone, it will be akin to taking a 60% pay cut. And that may not be ideal.
As such, it’s a great idea to push yourself to build as much retirement savings as you can. But just how much money do you need to sock away?
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A recent survey by Western & Southern Financial Group found that Americans think they’ll need an average $1,027,501 to retire. But should you be aiming for a $1 million nest egg? And what if that’s just not doable?
It’s really just a random number
You’ll often hear $1 million tossed around as a magic retirement savings figure. But the reality is that fixating on that number isn’t going to serve you well.
The reason? If you plan to live an extravagant lifestyle as a retiree, then you might fall short with only $1 million in savings. And if you plan to live frugally, you might get by quite nicely on a nest egg worth $300,000. So instead of fixating on $1 million as the ultimate retirement savings target, think about your personal needs and ask yourself questions like:
- Where will I live? If it’s a relatively inexpensive part of the country, you may not need as much income?
- What sort of home will I live in? Downsizing could cut your costs substantially.
- How will I spend my days? Traveling the globe is apt to cost more money than pursuing hobbies close to home, volunteering, and spending more time with family.
- Am I looking to work at all? There can be benefits to holding down a job in retirement beyond just the paycheck, but also, if you’re earning some money, it makes you less reliant on the funds you have saved.
- How’s my health? If your health is solid, you not have to spend as much money on healthcare costs as someone who already has a host of known medical issues.
Setting a retirement savings goal is something each and every person should do on an individual level. And so rather than focus on $1 million, figure out what your financial needs look like. You may find that your personal target should look very different for one reason or another.
Is a $1 million savings balance doable?
If you commit to saving for retirement early on and spend many years funding your nest egg, then yes, you can turn a series of modest contributions into $1 million. Socking away a mere $300 a month over 42 years will leave you with over $1 million if your investments generate an average annual 8% return, which is a bit below the stock market’s average.
At the end of the day, you may decide that you do, in fact, need $1 million to pull off your dream retirement. But don’t assume that’s the optimal savings target for you.
The $21,756 Social Security bonus most retirees completely overlook
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