Most people envision a retirement of financial freedom in which they do more or less as they please. For some, this means taking all of those overseas vacations they’ve held off on their whole lives, while for others it simply means spending more time visiting friends or family, or perhaps diving deep into their lifelong hobbies.
Whatever your personal vision of a dream retirement is, it will take money to do it. Social Security can be a good start, but with an average monthly retirement benefit of just $1,916.63 as of May 2024, it likely won’t get you where you want to be. This is why saving as much as you can in your retirement accounts is important.
To this end, here’s a look at how much each generation has saved for retirement, along with a look at how much they might really need. Of course, everyone’s personal financial needs are different in retirement, so averages are just a guidepost. But, for many, they can serve as a wakeup call that more work needs to be done.
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How Much Has Each Generation Saved for Retirement?
According to data from Fidelity Investments for Q1 2024, here are the average 401(k) balances reported by different generations:
- Gen Z: $11,300
- Millennials: $59,800
- Gen X: $178,500
- Boomers: $241,200
Overall, Fidelity reported that the average retirement balance was $125,900. However, this may give a skewed perception of the reality of retirement savings in America. This is because some mega retirement balances pull the average much higher. A better way to analyze the state of retirement savings may be to look at the median balance, which is the point where half of account balances are higher and half are lower. This number is just $28,900.
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How Much Might You Need for Retirement?
According to a study from Northwestern Mutual, here is the amount that each generation expects to need in retirement:
- Gen Z: $1.63 million
- Millennials: $1.65 million
- Gen X: $1.56 million
- Boomers: $990,000
Fidelity Investments has a separate recommendation for how much investors should have saved for retirement based on their age:
- 1X your current income by 30
- 3x your current income by 40
- 6x your current income by 50
- 8x your current income by 60
- 10x your current income by 67
This means that Gen Xers, for example, who are generally classified as being between 44 and 59 as of 2024, should have roughly between 4x and 8x their current income already saved for retirement.
Ways To Boost Your Retirement Savings
Any way you slice it, the average American is likely behind where they either want to be or should be when it comes to retirement savings, according to experts. But the good news is the sooner you identify your shortfall, the more time you have to boost it. Thanks to the power of compound interest, even if you start slow or fall behind in your savings, adding as much as you can to your investments and letting time work its magic can still get you to where you need to be. Here are some ways to get back on track.
Max Out Your Retirement Plans
Your 401(k) plan is one of the best ways to save for retirement. In addition to the tax deferral of earnings and the tax break you get on contributions, most plans offer an employer matching contribution. This is the closest thing to free money that you will find in the investment world, and it can help boost your account value quickly.
If you don’t have access to a 401(k) plan, there are still other ways to save in a tax-efficient manner, including a traditional or Roth IRA.
Slowly Boost Your Savings Rate
It admittedly can be hard to suddenly sock away 15% to 20% of your income; but, if you start slow and build up your contribution rate on a regular basis, you’ll get to that level before you know it.
For example, you can start by saving 5% of your money and then raising that contribution rate by just 1% per month or even per year. If you’re earning $50,000 per year, for example, your monthly contribution will rise from $208.33 in the first month to $250 in the next, a bump of just $41.67. Skipping a single meal out may be enough to cover that cost, and it will do wonders for your long-term savings.
Ensure You Have Enough Growth in Your Accounts
Some retirement savers fall behind because they don’t have enough growth in their accounts. While stocks can indeed be volatile and drops of 10% or more are frequent, over the long term, equities have proven to be a much better option than bonds, cash or other conservative options.
An important statistic to note is that the S&P 500 has never lost money over any 20-year rolling period, meaning the long-term risk may be less than you imagine.
Automate Your Savings
The best way to sock away money for your retirement is to automate your contributions. This way, you’re investing money every month even if you forget or feel like you don’t have enough money to set aside in any given month. After a few months, you likely won’t even notice the money coming out of your account, but your investment balance will be steadily rising.
