It's important to do your best to save well for retirement so that you're not overly reliant on Social Security to pay the bills once your career wraps up. But are you saving enough for your senior years?
Recent data from Northwestern Mutual found that Americans, on average, think it'll take a $1.46 nest egg to retire comfortably. But there's a huge disconnect between what Americans have saved and what they feel they need to save. That's because the average retirement plan balance among workers of all ages today is just $88,400.
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Of course, if you're in your 20s, an IRA or 401(k) balance of $88,400 is outstanding. If you're in your 50s or 60s, it's more concerning. So it's important to consider your personal circumstances along with that average and act accordingly.
Are you behind on retirement savings?
You may not have $88,400 socked away for retirement just yet. But that's not necessarily a terrible thing if you're on the younger side and still have many working years ahead of you.
Let's say you're 35 with a $44,200 balance in your IRA -- half of $88,400. You may still have another 30 years of work and retirement plan contributions ahead of you. If you sock away $500 a month during that time and your portfolio delivers an average annual 8% return, which is a bit below the stock market's average, you could end up with a plan balance of about $1.12 million.
On the other hand, don't be so quick to celebrate having more than $88,400 socked away if you're close to retirement age and your balance isn't so much higher. Let's say you're 62 with $99,000, and you intend to retire in five years. Even if you contribute $1,000 a month toward retirement savings from this point on, and even if you still manage to score an average annual 8% return in your portfolio (which could mean taking on an unhealthy level of risk), you may only end up with about $216,000.
You only need to worry about yourself
You may be curious to know what the average American has saved for retirement. But ultimately, that number shouldn't matter so much. A better use of your time and energy is to figure out what your ultimate retirement savings goals is based on your desired lifestyle and how much monthly savings it takes to get there.
You may have every intention of living frugally in retirement, which means you may get by just fine on $750,000 in savings -- about half of the $1.46 million Americans think will make for a comfortable senior lifestyle. If you're 37 years old now with $500,000 saved so far, a monthly $200 contribution over the next 30 years could get you to your savings goal (a little beyond, in fact), assuming an 8% yearly return in your portfolio.
So look at that $88,400 figure as an interesting piece of information and nothing more. Fixating on it too much could throw your retirement planning off course.
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