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Is It Enough To Retire With $1 Million?

Molly Grace5-minute read
February 03, 2022

It’s the (literal) million-dollar question: How much money will you need to support yourself through retirement?

While there’s no blanket rule for how much a person should have saved, and everyone’s situation is different, the truth is that for many Americans, even a million dollars – which is, make no mistake, a lot of money – might not cut it if you want to have a comfortable retirement.

If you’re thinking that the odds of you saving enough money to become a millionaire are slim to none, know that:

1. You’re not alone in feeling that way; and

2. There are things you can be doing now to help ensure that you have some sort of financial cushion to fall back on in retirement.

While doing the math and seeing how much you’ll need to have saved can feel overwhelming, remember that a journey of a million dollars begins with a single cent. It may seem like an impossible amount of money right now, but the sooner you start saving, the closer you’ll get to your goal.

So, how do you figure out how much you’ll need to save, and what can you do if you’re behind? Let’s take a look.

How Much Money Do You Need To Retire Comfortably?

How much money a person will need in retirement depends on a few different factors, some of which are hard to know for certain so far in advance, such as what your typical yearly spending will be at that stage in your life or what your healthcare costs will look like as you age.

However, retirement planning experts have come up with some good rules of thumb to help give you an idea of how much you’ll need and how much you should be saving.

The financial services company Fidelity says that retirees can expect to spend between 55% – 80% of their annual pre-retirement income annually, with higher earners likely needing a smaller percentage than those with lower incomes.

So, if your annual income was $60,000 in the years before you retired from the workforce, experts say you should plan to have around $48,000 for each year you’re retired.

However, while cost of living goes down in retirement for many people, some may be surprised to see theirs go up.

If you plan on doing a lot of travelling or you anticipate having medical costs that won’t be covered by insurance, you may want to aim to save more.

Using Investing And Compounding Interest To Your Advantage

Keep in mind that the total amount of money you’ll need and how much you need to save are two different numbers, as long as you’re investing your money through retirement accounts like a 401(k) or an IRA.

Compounding interest allows your money to grow; you make interest on the money you invest in the account, and then that money plus the interest you’ve already earned makes interest, and so on. The amount of money you’ll generate will depend on the rates of return for the different investment vehicles you put your money into, such as stocks or bonds.

Let’s look at an example:

Say you put away $50,000 into an investment account and let it grow for 30 years. You don’t make any additional deposits to the account. The returns you’ll see will depend on your asset allocation and what the economy is doing, but let’s assume you have a steady, 7% interest rate – the rate that’s commonly used in investment projections.

If that rate holds steady, after 30 years your original $50,000 investment could grow to $380,000.

Here’s another example:

Say you’re just starting your career and your company offers a 401(k) with a 50% employer match. You make an initial investment of just $1,000, and you commit to contributing $100 each month. With the employer match, that’s $150 each month going towards your retirement savings. You have around 45 years to grow this money.

With an average rate of return of 7%, by the time you’re ready to retire, you’ll have $535,000. It’s still a ways away from the mythical $1 million, but it’s nothing to sniff at, either.

Now, that’s assuming nothing changes. If you receive raises or get better paying jobs throughout your career that allow you to save more, you could potentially retire with well over $1 million in the bank.

Am I Saving Enough For Retirement?

So, how much do you need to put away each month to be on track for retirement? The answer to that depends a lot on how much time you have before you plan to retire.

Many experts suggest putting about 15% of your salary toward your retirement savings each year, but that’s generally for people who start saving in their 20s.

If you’re closer to retirement and haven’t started saving, you’ll want to save more aggressively, if you can.

If you haven’t saved anything for retirement, having something is better than having nothing. If 15% is too steep for your budget, save as much as you comfortably can.

Additionally, be sure to take advantage of a 401(k) employer match if your company offers it. If you have the money to contribute to your 401(k), an employer match is an easy way to give your savings a significant boost, at no extra cost to you.

Managing Your Retirement Income

Just as important as saving for retirement is making sure you have a plan for that money come retirement, so you don’t end up burning through your nest egg before you’re done needing it.

It will take some planning and basic math, but soon-to-be retirees should take the time to sit down and map out their expected retirement spending and how much money they’ll have to work with each year.

Think about what your goals for retirement are. For example:

  • Do you want to travel the world?
  • Will you spend lots of time with your grandkids?
  • Are you going to move somewhere new to spend your golden years?

Be sure to factor in your goals into your retirement planning.

Though not as fun as thinking about all the travel you plan to do in retirement, you should also think about how much you’ll want to allocate as part of an emergency fund, how much you think you might need for healthcare costs and how long your savings will likely last (so you don’t end up outliving your savings).

Getting Started

Whether you’re just starting out in the workforce or you’ve been working for a while but haven’t gotten around to saving, there’s no time like the present to begin preparing for your future retirement.

It’s like that old proverb says, “The best time to plant a tree was 20 years ago. The second-best time is now.”

Start putting money into your 401(k). If your company doesn’t offer any type of retirement account, you can open your own IRA with a variety of different advisors, including robo-advisors that do all the work for you automatically.

If you can’t bear to part with 15% of your paycheck, start with a smaller percentage and try to work your way up, gradually increasing your contributions over time.

Don’t let big, scary numbers (like $1 million) intimidate you so much you don’t even bother trying to save.

Having something of a nest egg is better than having nothing, and by starting today, you’re one step closer to reaching your retirement goals.

Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.