Most U.S. seniors would have a hard time retiring without the financial support they get from their monthly Social Security checks. But they would also have an even harder time retiring on their Social Security benefits alone. Those checks aren't intended to make beneficiaries into millionaires. Likely, they won't even cover all of a beneficiary's routine expenses.
That's why personal savings are critical to maintaining financial independence. Here's what you can reasonably expect from Social Security and how much you'd need to invest beginning today to cover the rest.
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How far will Social Security go in retirement?
The average monthly Social Security check as of June 2024 was $1,918. That totals just over $23,000 per year. Your total lifetime benefit depends on the number of years you claim checks, which depends on your claiming age and life expectancy. Receiving the average check for 20 years would result in a lifetime benefit of around $460,320. The actual number will likely be a little higher thanks to cost-of-living adjustments. (COLAs) It could be lower if the government has to cut benefits in the future.
Regardless of the exact figure, it's safe to assume that most people aren't going to take home millions of dollars in benefits over their retirement. Yet many workers estimate that retirement will cost them between $1 million and $2 million.
That means there will be a need for additional sources of retirement income to cover what Social Security doesn't. There are different ways to approach this, but the most popular is to invest your money in tax-advantaged retirement accounts.
How much do you have to invest to retire a millionaire?
It's definitely possible to become a millionaire through investing, but your nest egg's final balance depends on several factors, including how much and how consistently you invest, how long the money remains invested, and your rate of return. Because you cannot control all of these factors, it's difficult to know exactly how much you'll earn by your chosen retirement date.
Let's explore a few scenarios to give you an idea of what you might need to save.
If you're starting from nothing at age 25 and you hope to save $1 million by your retirement at 65, you'd need to set aside $311 per month and earn an 8% average annual return on your investments. But being able to set aside that amount every month isn't easy and there are many people in their 20s who aren't able to save for retirement at that rate.
It is still possible to achieve the $1 million goal even if you wait until your 30s to get started. Starting at age 30, you'll need to save $467 per month, assuming the same 8% average annual return as in the previous example. You'd need $710 per month if you waited until 35 to begin saving.
In a perfect world, you wouldn't have any trouble coming up with the needed investment funds. That's not the case for many workers, though. Contributing enough to a 401(k) to earn an employer match (if you qualify for one) is one way to enhance your contributions. But when this isn't enough, you might have to consider alternative ways to fund your retirement.
You might work a second part-time job, for example. Or you could delay your retirement. This gives you additional time to save, allows your existing investments to grow (and compound) for longer, and reduces the length and cost of your retirement. You could also employ a combination of these strategies.
Find what works for you based on what you think you can comfortably save for retirement. Then, strive to make regular retirement contributions every month or every pay period. And review your investment situation at least annually to see how you're progressing toward your goals.
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