Key Points
-
A $2 million nest egg could buy you a comfortable retirement.
-
The amount you’ll need to save monthly hinges on how far away retirement is.
-
Your investment choices also make a difference.
Social Security most likely won’t be enough to cover your retirement expenses — or at least not without having to cut corners in a significant way. If you want to be able to enjoy your senior years, it’s important to build savings to supplement your monthly Social Security checks.
As of 2022, the last year for which there’s data available, the median retirement savings balance among people 65 to 74 was $200,000. With similar savings, you may only have limited financial wiggle room in retirement.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
On the other hand, if you’re able to save 10 times that much, or $2 million, your senior years could be quite comfortable. Using the popular 4% rule, a $2 million nest egg gives you $80,000 in annual income without inflation adjustments.
You may be wondering how much you might need to save each month to accumulate $2 million in retirement savings. The answer depends on how many years you have to save up and what your portfolio looks like.
How to reach $2 million in savings
The more years you have to save for retirement, the less money you might need to contribute to an IRA or 401(k) to get to the $2 million mark.
Let’s assume you’re 25 and want to retire at 65. If you start building your nest egg now, you might manage to get to $2 million with $650 in monthly contributions.
On the other hand, if you’re 30 and want to retire at 65, you have five fewer years to build savings. You might need to sock away about $970 a month to get to $2 million.
These numbers, however, assume one important thing — that you’re getting an 8% yearly return in your retirement portfolio. That 8% return is a bit below the stock market’s average. If you invest conservatively, you may end up with lower returns that would require you to contribute more money each month to get to the $2 million mark.
For example, let’s say you have 40 years to build your nest egg, but your portfolio only gives you a 6% return each year. In that case, you’d need about $1,080 a month to reach $2 million in savings by 65.
Know what a winning formula looks like
Whether your ultimate retirement savings goal is $2 million or a completely different number, there’s one basic formula that could increase your chances of getting to where you want to be: Start early and invest aggressively while time is on your side.
When retirement is decades away, going heavy on stocks makes sense despite the risk. If you invest too conservatively, you might fall short of your goals, even if you’re contributing a decent chunk of money each month and giving yourself a long savings window.
If you’re first starting the process of saving for retirement, figure out how many years you have until that point and how you intend to invest. That could help you determine how much money you should be socking away monthly to get to where you want to be.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.
The Motley Fool has a disclosure policy.
