If you’re someone who needs to set financial goals, then you may be in the process of trying to figure out what IRA or 401(k) balance to aim for. That’s hard to do when you’re years away from retirement and don’t really have a handle on what your future expenses might look like.
Now, you may be interested to know that baby boomers believe they’ll need more than $2 million to retire comfortably — $2,158,345.91 to be exact, according to a recent survey by New York Life. And if you’re thinking “Holy heck, that’s a lot of money,” you’re right.
Before we go any further, it’s important to emphasize that no one should get hung up on any single retirement savings target. Some people might indeed need over $2 million for an enjoyable retirement, but you may not be one of those people.
So if you’re already shaking your head wondering how you’re going to avoid being cash-strapped as a senior, don’t stress. For some folks, a $500,000 nest egg is more than enough.
But let’s say you want to push yourself to hit that goal of $2 million and change in retirement savings. You might think it’s next to impossible. But thankfully, you’d be wrong.
Growing wealth might be easier than expected
If you don’t start saving for retirement until your late 40s or early 50s, then attaining a $2 million nest egg may not be doable. But if you start saving from an early age and invest your nest egg in assets like stocks that have a history of strong returns, then you may find that $2 million and change is a reasonable target after all.
Over the past 50 years, the stock market’s average annual return has been 10% (before inflation), as measured by the performance of the S&P 500 index. So, let’s say you begin contributing $300 a month to a retirement plan at age 24 and do so through age 67. Let’s also assume you invest that money in S&P 500 stocks and ETFs that deliver a 10% average annual return during your 43-year savings window. All told, you’ll be looking at a balance of about $2,133,000, which is pretty much in line with the target above.
Run your own retirement numbers
As you can see from these calculations, it’s more than possible to retire with a lot of money even if you’re an average earner. In our example, you’re putting $300 a month, or $3,600 a year, toward retirement.
The median U.S. income in 2021 was $69,717. Contributing $3,600 a year to retirement savings means parting with 5% of that total, which is pretty reasonable.
But remember, you don’t have to push yourself to accumulate $2 million and change in retirement savings if you don’t feel you’ll need it. So while it’s a good thing to try to amass more wealth than less, you can also take some of the pressure off yourself.
The key is to save and invest for retirement consistently over many years. If you do that, there’s a good chance you’ll end up with a nest egg that can support your dream retirement, no matter how much money it actually contains.
