You may not be as far behind others as you expected, but that doesn’t mean you can get complacent when it comes to saving for retirement.
If the thought of not having enough money in retirement keeps you up at night, you’re not alone. Saving enough for the future and then spending it for decades can be a challenge.
While you may not be in the situation you’d like right now, your savings may not be as poor as you think they are compared to the average American, and for many of us, there’s still plenty of time to turn things around.
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How much is the average American household saving for retirement?
Many workers estimate they’ll need more than $1 million to retire comfortably, but the average American doesn’t have anywhere near that amount: The average household retirement account balance in 2022 was just under $334,000, according to the most recent Survey of Consumer Finances.
Before you panic, keep in mind that averages can be misleading when talking about finances, mainly because they include the ultra-rich, who may have tens or even hundreds of millions of dollars saved. Looking at median savings — how much the households in the exact middle of the dataset have saved — gives a more realistic picture of what American retirement savers are like.
The average savings in 2022 was just $87,000. A few things to point out here: First, this is household savings, not individual savings. If you’re married, compare your spouse’s combined savings, rather than each person’s savings, to see how they stack up against this amount.
Second, it takes into account all types of workers and families, from young single adults just starting in the workplace to those on the brink of retirement. So while it’s comforting to know that you might not be as far removed from the typical American as you thought, that $87,000 figure doesn’t tell you much about where you stand compared to others at that point in your life, or how much you actually need to save for retirement.
Focus on what you need
Instead of worrying about how your savings compare to others, calculate how much you’ll need by the time you retire and make a plan to get there. Start by keeping track of how much you have in all your retirement accounts, including any accounts you had with previous employers.
Next, calculate how much you need to save each month to reach your goal. A retirement calculator can help. If you’re expecting a 401(k) contribution from your employer, subtract this from your monthly savings goal to calculate how much you need to set aside for yourself.
If this amount is within your reach, the path forward is pretty simple: keep working and remember to set aside money every month. If you can’t currently save the amount you want, things are more complicated. You’ll have to make some changes, but you have options.
First, you can adjust your retirement plan to delay your retirement date by a few months or years. This gives you more time to save, allowing you to invest more and reduce the length and cost of your retirement. But not everyone wants to shorten their retirement.
You can also look for ways to increase your savings rate now. This could mean cutting back on other expenses, finding a higher-paying job, starting a side hustle, etc. If you don’t think you can increase your savings significantly, aim to increase your savings by 1% of your income each year. That’s just an extra $50 per month for someone making $60,000 a year.
And remember, you’re not in this together. You’re investing your savings, and much of your retirement funding will come from the returns on those investments. Just keep at it, and check in with yourself once or twice a year to see if you’re on track and if you can find any new opportunities to boost your savings.