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Saving for a secure retirement is crucial if you don't want to end up looking at an empty bank account as a retiree. You should put money into a 401(k) if your workplace offers one, and should use tax-advantaged accounts at a brokerage firm to invest if you don't have a 401(k) or if you've already maxed out your employer match.
Sadly, many Americans aren't saving anything for retirement, or aren't saving enough. To help you see where you stand compared to other workers across the country, let's take a look at average retirement nest eggs.
According to research from The Motley Fool, the median retirement savings for American households was $87,000 in 2022. The average retirement nest egg during that same year was $333,945, but medians can give you a more accurate picture of where you stand since averages are driven up by wealthy people with a ton of money saved.
The good news is that Americans' median retirement savings balance has been trending upward. In 2019, for example, the median retirement savings balance per household was $75,348. But the bad news is that $87,000 isn't really very much money at all.
There's a common rule called the 4% rule, which says that you can most likely make your money last throughout 30 years of retirement if you only take out 4% of your account balance when you first retire, then just adjust your withdrawals each year to account for inflation.
If you followed the 4% rule and had a nest egg of $87,000, that would only produce $3,480 in annual income. Since your Social Security benefits replace about 40% of pre-retirement earnings and you'll probably need your savings to replace at least another 40% to maintain your standard of living, a nest egg of $87,000 just isn't going to cut it.
How to increase your retirement savings -- if you need to
Now, you may have more saved than your peers and this may not be a concern to you. But you may also have less. Whatever your number is relative to your fellow Americans, the most important thing is to make sure that you personally are on track to having the necessary amount of money to live on as a retiree.
Calculate your savings target
There are lots of ways to figure out how much you need, but a simple approach is just to estimate your final salary (assuming you get around a 2% raise from now until retirement) and then multiply that by 10. So if you assume you'll be making around $60,000 by the time you reach retirement age, you'd want to aim for $600,000 saved.
Calculators at Investor.gov can help you to figure out if you're on track to hit your target. You can see how much your current balance will grow and how much you must save each month based on the amount you currently have invested.
It's this data that's going to give you the secret to retirement success. Once the calculators show you how much to invest each month, set up automatic withdrawals of that amount into your 401(k) or IRA . Do that as soon as you can financially make it happen, even if that means making some changes to your finances.
Free up more money to save for retirement
Depending on how much you need to save, you could make big financial changes, like buying a cheaper used car instead of a new one, or they could be little changes like canceling a streaming service or eating out less often.
You can take a look at your budget and savings needs to find specific steps you can take to free up the cash. And consider automating your contributions -- this takes some of the work out of the process and should make it easier.
Once you've got your automatic contributions going in, you can just sit back and relax knowing you'll have enough saved. Chances are good you'll end up with a retirement nest egg that far beats the average with this approach -- and you'll also end up living the retirement you deserve.
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