Forget the Average Retirement Savings for Americans. Here's a Better Way to Set Yourself Up for a Comfortable Retirement.

When it comes to planning for retirement, the focus often falls on national averages and benchmarks. For example, a survey from Northwestern Mutual reveals that Americans believe they need $1.46 million to retire comfortably, while Federal Reserve data from 2022 shows that Americans have a median retirement savings of $87,000 and an average of $333,945. These figures are useful, but they can be misleading. Here's a better way to set yourself up for a comfortable retirement by focusing on what you and your family need.

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1. Create your vision for retirement

Before setting retirement targets, it's important to create a clear vision of what retirement looks like for you. Consider the type of living arrangements you want and the hobbies you wish to pursue. Also, think about any debts you may have to continue paying, such as car loans or credit card debt. Write down all the details of what you envision for yourself. Here are a few things to consider as you start the process:

• Lifestyle : Do you plan to travel the world, move to a different city, or pursue new passions? Factor these lifestyle choices into your budget to ensure you have enough saved up.
• Living expenses : Estimate how much it will cost to cover your regular expenses during retirement. This includes housing, groceries, utilities, healthcare, insurance, transportation, and other recurring expenses.
• Healthcare costs : Predicting healthcare costs in retirement can be challenging, but you can get a ballpark estimate by reviewing your current healthcare situation and family history. Research the costs of health insurance, potential out-of-pocket expenses, and long-term care insurance to avoid any unpleasant surprises.

2. Jot down all your sources of income

Your retirement vision will highlight some expenses you'll need to watch out for, and now you'll want to see if you have enough income coming in every month to cover them. Here are a few sources to consider:

• Social Security
• Pensions
• Employer-sponsored retirement plans such as a 401(k) or a 403(b)
• Roth and traditional IRAs
• Investment accounts outside of retirement accounts
• Rental income
• Royalty income
• Side gigs

3. Create a retirement savings plan

Creating a retirement savings plan can be complicated if you're not familiar with retirement accounts and how they work, so you might want to consult a professional for help. However, if you want to try it on your own, here are a few things to consider:

• Check out workplace benefits : See if your job offers a 401(k) or another type of employer-sponsored retirement plan. Your employer might even provide a 401(k) company match to help you save for retirement. Research your retirement plan rules and investment options to see if they're a good fit for you. Your employer may also offer an employee stock purchase plan (ESPP) or restricted stock units (RSUs) that can help you beef up your savings.
• Max out IRAs : If you're looking to save for retirement beyond your workplace options, consider an individual retirement account (IRA). In 2024, you can contribute up to $7,000 to a traditional or Roth IRA in 2024 if you're under 50, and up to $8,000 if you're older. These accounts offer the flexibility to invest in a wider selection of assets than you would find in a 401(k), such as dividend and growth stocks .
• Open taxable brokerage accounts : If you've already contributed as much as you like to retirement accounts, you can stash money away in a taxable brokerage account. Unlike retirement accounts, there are no contribution limits. Plus, if you decide to retire early, you can use the funds in your taxable brokerage account without incurring a penalty.
• Develop profitable skills : If you're looking to increase your income so that you can save more, consider learning in-demand skills in the marketplace. These skills can also come in handy during retirement if you want to make extra money as a consultant, teacher, or trainer.

Although $1 million might be the magic retirement number for some, and others may be falling short of the six-figure mark in retirement savings, it's important not to get hung up on everyone else's numbers. Determine how much you actually need and work toward that. Retirement planning is extremely personal, so the clearer your vision of the life you want to live, the better you can plan to achieve your goal.

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