For many savers, a cozy retirement can seem like a distant dream rather than a realistic future. Costs of living continue to rise, while itâ€™s becoming harder for many to keep up with saving. More and more senior citizens are working into retirement, and millennials may be underestimating just how much theyâ€™d need to save for retirement in the first place.
MagnifyMoney commissioned a survey of 800 full-time workers to get a better look at their understanding of their own retirement savings needs. The results show that while millennials may be underestimating the real costs of retirement, so are baby boomers. Furthermore, some baby boomers indicated that no amount of money would make them comfortable enough to retire.
Saving for retirement is not an exact science. Shooting for a $1 million nest egg is a common rule of thumb â€” and most survey respondents agree that $1 million would be enough.
However, the amount of retirement savings you need depends on your estimated expenses in retirement. Your exact number could be more or less than $1 million, depending on how much you expect to spend on housing, discretionary costs or lingering debts.
For example, $1 million in savings would fund a 20-year retirement where youâ€™re limited to $50,000 in annual spending. If you anticipate a 30-year retirement, $1 million in savings would only cover around $33,000 in annual spending.
How much you should have saved for retirement also depends largely on your age. For example, itâ€™s unlikely that at 30 years old, youâ€™ll already have $1 million set aside unless youâ€™re extremely blessed. Youâ€™ll have to build up your savings as you go and as your income, hopefully, increases with age.
Fidelity offers a different take on savings guidelines by age. According to Fidelity, by age 30 you should have 1x your annual salary saved, growing to 3x your annual salary saved by age 40, 6x by 50, and 8x by 60.
If you think youâ€™ve underestimated how much you truly need to save for retirement, thereâ€™s still time to get your savings on track.
A common retirement savings tool is the 25x rule, which dictates you need to have 25 times your annual retirement expenses saved. Core to this rule is the assumption that youâ€™ll need to cover 25 years of retirement. So if you calculate an estimated $70,000 in annual spending in retirement, for example, following the 25x rule would indicate a nest egg goal of $1.75 million.
Thatâ€™s a far cry from the mere $500,000 that 20% of our respondents indicated would be adequate for retirement. If you stuck to that goal, by the 25x rule, your annual spending in retirement would be cut down to $20,000.
Itâ€™s best to throw your retirement savings into an investment account, rather than a high-yield savings account. Over time, investing can post returns around 8%, well above the 2% savings APYs we see today. Retirement savings are more than just your 401(k), too: individual retirement accounts, or IRAs, allow you to save on your own, whether instead of or in addition to your 401(k).
If youâ€™re an investing beginner, there are a ton of resources out there to help you get started. Robo-advisors and online brokerages offer an easily navigable investing experience that allow you to set your own goals and preferences.
MagnifyMoney by LendingTree commissioned Qualtrics to conduct an online survey of 816 full-time American workers. The survey was fielded October 1-3, 2019.
We define millennials as those aged 23 to 38, Gen X as those 39 to 53 and Boomers as those aged 54 to 73. Members of Gen Z (ages 18 to 22) and the Silent Generation (ages 74 and up) were also surveyed, and their responses are included within the overall total percentages. However, they were excluded from the age breakdowns due to the lower sample size among respondents in those age groups.