The Average American Has $88K in Retirement Savings. Here's How You Can Retire With 10X That

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People who retire on Social Security alone tend to wind up pretty cash-strapped. The average retired worker today only collects about $23,000 a year in benefits. Even with a frugal mindset, that's not a lot of money to live on.

That's why you need to save well for retirement, whether by signing up for your company's 401(k) plan or making contributions to an IRA you manage on your own. But data from Northwestern Mutual reveals that the typical retirement saver hasn't accumulated all that much money.

The average retirement savings balance among Americans of all ages is $88,400. And while that's a lot of money for someone in their 20s or 30s to have saved for retirement, for older workers, it signals a serious savings shortfall. The good news, though, is that with the right strategy, you can set yourself up with a lot more savings than the average American today.

You need to do better than the typical American

An $88,400 nest egg might seem like a lot of cash in theory. But remember, that money could need to last for 20 years or more in retirement. So when you think about it that way, it's not so much money on a yearly basis.

In fact, financial advisors have long recommended a 4% withdrawal rate for retirement savings (specifically, withdrawing 4% of your balance your first year of retirement and then adjusting future withdrawals for inflation). And 4% of $88,400 is only about $3,500 per year.

If we add that to the average annual $23,000 Social Security benefit, that's only $26,500 a year -- still not very much money to live on. So you should aim to save way more than the typical American.

How to retire with 10 times the typical American's savings

Although a nest egg of $88,400 may not go very far in retirement, a savings balance of $884,000 is a different story. Attaining that balance may be easier than you'd think.

To end up with that much money, you need to do two things. First, give yourself as long a savings window as possible. Secondly, you'll want to invest your money in stocks for solid growth.

Let's say you're 30 years old and aren't particularly motivated to begin saving for retirement because it's so far away. What you should realize is that by waiting until your mid-30s or 40s, you're putting yourself at risk of a shortfall. On the other hand, if you start saving at age 30, you may not have to contribute so much to your nest egg each month to end up with a lot of money for retirement if you invest in stocks.

Over the past 50 years, the stock market's average yearly return has been 10%, accounting for both good years and bad. So, let's say you start saving for retirement at age 30 and end your career at 65. If you put away $275 per month, you'll end up with $894,000 -- roughly 10 times what the typical saver has today.

But if you wait until age 35 to start saving, it'll take $450 per month to end up with about the same amount of money. That's a lot harder, which is why it pays to make the effort to save earlier on.

All told, retiring with $88,400 is better than retiring with $0 saved. But you should aim higher for a comfortable retirement. And if you start early and invest in stocks, you may be surprised at how much money you ultimately end up with.

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