Is Your Retirement Planning on the Right Track?
By: James Flippin · October 21, 2022 · Reading Time: 3 minutes
Americans have a general sense of what they’ll need to comfortably retire. On average, most say a nest egg of at least $1.7 million is a requirement. But, according to a recent study from Charles Schwab (SCHW), less than half believe they’re likely to hit that number before deciding to call it a career.
Big picture, it’s not surprising that most consider $1.7 million out of reach. Financial planners typically advise investing 10% to 15% of your annual gross salary in retirement savings. After covering everyday expenses, which are on the rise due to inflation, it can feel like an unrealistic amount to come up with.
No Need to Panic
For those who find it challenging to invest upwards of 15% each year, it’s important to keep things in perspective. As a point of reference, Vanguard’s “How America Saves 2022” report indicates most workers with employer-sponsored retirement plans contribute 7% on average.
Also remember that $1.7 million is an arbitrary consensus, not a rigid goalpost. External factors such as potential wage growth, periods of unemployment, unexpected life events, and market volatility impact savings targets as well.
The typical 401(k) plan generates an average annual return between 5% and 8%. So, if you start saving at age 25, you’d need to invest around $850 per month to hit the $1.7 million benchmark by 65. Starting at age 30, bump that up to just under $1,200 each month. Starting at age 40, you’re closer to $2,450.
The biggest lesson to take from this number crunch is how important it is to start saving for retirement as early as possible. Even small amounts help significantly over time due to compound growth. Similarly, it’s important to consider increasing the amount you invest as you get older — hopefully as your wages rise. Some investors even choose to work with a financial advisor to ensure their retirement plan is on track. Staying dedicated and disciplined throughout the process is key.
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