Retirement Savings Research: Are You on the Right Track?
Listen to Best in Wealth Podcast Episode 176
A recent Charles Schwab survey of 401k participants found that they believed they needed to save at least $1.9 million for their money to last through retirement. When Schwab did this survey in 2019, the target retirement savings was $1.7 million. People are projecting needing $200,000 more over a short two years! So let us pretend that your number is $1.9 million for retirement. What will it take to get there for the average person? What are some tips to help you get on track? Listen to this episode of Best in Wealth to learn more!
Outline of This Episode
- [1:36] Teach your kids financial literacy
- [4:43] How much do I need to save for retirement?
- [7:51] How to reach $1.9 million by retirement
- [9:55] The median retirement savings across different age groups
- [16:57] My top tips to help you achieve your savings goals
- [21:56] Are you ready to get focused and disciplined?
How to reach $1.9 million by retirement
While the prospect of having $1.9 million seems daunting, you know that saving early and often will increase your chances of reaching this goal. A 401k or 403B is a great way to start saving and can help you build your nest egg. These plans are capped at $19,500 in 2021 unless you are over 50, then you can contribute an extra $6,500.
You can also contribute to a Roth IRA/IRA, which can be up to $6,000 annually (or $7,000 if you are 50+). What about a Backdoor Roth IRA or the Mega Backdoor Roth IRA? It is highly technical but that is one of the reasons we all need trusted advisors, right?
The median retirement savings across different age groups
Every three years, the Federal Reserve examines the changes in US family finances, including how much people have saved in retirement accounts. Using data from the 2019 survey, The Center for Retirement Research at Boston College calculated the median retirement savings across several age groups:
- The median IRA/401k balance for someone 35–44 is $51,000.
- The median IRA/401k balance for someone 45–54 is $90,000.
- The median IRA/401k balance for someone 55–64 is $120,000.
If you are looking to get to $1.9 million by retirement and you are a median saver, how much will you need to save to hit that mark? For the sake of this experiment, I am going to assume an 8% savings rate (a number slightly lower than the average US stock market return). It is better to be conservative than not save enough.
A 35-year-old who has saved $51,000 is clearly in the best position to save more. To get to $1.9 million you will still need to save $900 a month over 30 years. Can you do that? Of course you can. But older workers would have to save far more. A 45-year-old with $90,000 saved has to save $2,475 a month to hit the $1.9 million by age 65. Can you save that much a month? These are the questions you need to be asking yourself. A 55-year-old with $120,000 saved has to save $9,000 a month to hit the $1.9 million by age 65. That seems extremely daunting, right?
My top retirement saving tips
If the numbers seem daunting, here are my top recommendations:
- Tip #1: Start saving now.
- Tip #2: Start maxing out every retirement account you have, if possible (401k, 403B, 457, IRA, Roth IRA, regular investment accounts, etc.).
- Tip #3: Focus. Stay disciplined.
Get with your spouse and make a plan to reach your goals. It is difficult if you are not saving the right amount of money. Where can you make cuts? Get a spending plan together and make it happen. You do not want to depend on your kids because you did not have the discipline or focus to make it happen during your working years.
But the truth is, $1.9 million might not be your number. If you use the Bengen 4% rule and you have a diversified portfolio and take inflation adjustments, you’ll have $80,000 to spend year one on a $1.9 million portfolio.
If you are 65 and getting ready to retire and your social security is $40,000 a year and you only need $80,000 to live on, your situation is far different. You only need $1 million! On the flip side, you might need more than $1.9 million. That is why you need a comprehensive financial plan that optimizes everything.
If you are ready to get killin’ it and you are a high-income earner, schedule a 15-minute call with me. Let’s see if you are a good fit!
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.