How much savings do you need to fund a comfortable retirement? The number is obviously different for everyone since everyone's definition of "comfortable" is different. Northwestern Mutual's average investor-reported target of $1.46 million, however, seems like a reasonable estimate. That amount of money could produce on the order of $60,000 worth of annual dividend and interest income. Whatever Social Security benefits you end up getting should help close any gap. So, that'll work as a starting goal.
The problem? That's a large sum of money for the average investor to save up, especially in light of the sky-high cost of living these days. Indeed, it's such a daunting figure that some investors may be too discouraged to even bother trying.
That doesn't have to be you! The key is just breaking your savings and investing plan down into smaller, manageable pieces with milestone goals. You'll likely find a seven-figure stash isn't quite as far out of reach as you might think.
With that as the backdrop, here's a general estimate of how much money you'll ideally have saved up by the time you're 60 -- near retirement age, but with a few years left to do something about any shortfall.
Your magic number
Again, there's no absolute number. Everyone's different. So are their financial situations.
If your goal is simply to maintain your current standard of living, though, you should have on the order of nine times your annual salary tucked away for retirement when you're 60 years old. For example, if you're earning $100,000 per year now, you'll ideally have $900,000 sitting in a retirement savings account when you're 60.
That's the word from asset management outfit T Rowe Price anyway, although it jibes with several other financial firms' suggestions.
But if you're nowhere near that number, or know you won't be by then? Don't sweat it. Most people aren't. The Federal Reserve's most recent look at the matter indicates people between the ages of 55 and 64 only have a little over $500,000 saved for retirement. T Rowe Price's salary-multiple target is also in the middle of a rather wide range. You're doing reasonably well if you've only got six times your current yearly income in savings, and it's possible that 60-year-olds with 11 times their annual salaries saved up by this point will struggle to scrape by. Again, everyone's different.
You get the (rough) idea, though.
Action plan
You're behind? Well, good news -- you're not out of luck just yet. There are some actions you can take right now to catch up. One of these actions, in fact, is utilizing what the IRS calls "catch up" contributions to individual retirement accounts.
The details: While anyone under the age of 50 can only contribute up to $23,000 of their income to a work-sponsored retirement account this year, participants aged 50 or older can contribute an additional $7,500 to these plans. And for most eligible participants, next year's catch-up cap will be raised to $10,000. (While this allowance isn't going away next year, it will be changing dramatically for higher earners in 2025. Anyone with wages in excess of $145,000 per year will only be able to make catch-up contributions to a Roth employer-sponsored retirement account.)
In the meantime, remember that anyone over the age of 50 can also contribute an additional $1,000 to a traditional or Roth IRA outside of a workplace plan, bringing the cap up to $8,000. Income-based contribution rules still apply, of course.
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Putting more money into a retirement account is admittedly easier said than done. As was noted, the cost of living is simply expensive right now. Your total tax bills are likely one of those rising expenses.
You've still got options, however, that can help lower your overall living expenses. Maybe it's time to finally cancel conventional cable television and tune into cheaper streaming options. Embrace the idea of fewer restaurant visits and cooking more often at home, which can actually be a lot of fun. A little price shopping might reveal that not all grocery stores are priced the same, particularly when you're able to apply coupons.
That being said, perhaps the most-overlooked move you might be able to make right now isn't freeing up money to contribute more to a retirement account but investing what money you do have saved up more effectively.
Is any of it currently idle cash? If so, consider shifting that into a cash-like money market fund paying on the order of 4% to 5%. Just as important, while there's certainly a need for conservative investing this close to retirement, it's not like the average 60-year-old couldn't use at least a little bit of growth in their portfolio. Just be smart and avoid "swinging for the fences" kinds of trades. Think reliable long-term growth names like Microsoft. Maybe steer clear of less-predictable stocks such as Intel.
The nickels and dimes add up over time
But if you still just know you'll never get to $1.4 million by the time you retire or reach the sum of 11 times your yearly income T Rowe Price says you need by the time you're 65 years old. That's OK. Most people won't. That doesn't mean these people still can't enjoy retirement with markedly less money saved up. That's why you should do what you can when you can with whatever you can.
The one thing you absolutely don't want to do, conversely, is nothing.
Contrary to a common assumption, most retirement fortunes aren't made overnight. They're the result of years' worth of saving, sometimes seemingly small sums of money.
Most retirement millionaires don't expect to reach the seven-figure mark when they start saving or even when they're halfway through their working years. It often just happens when people aren't looking, with time and compounded gains doing most of the heavy lifting in the latter portion of the savings years.
The sooner you get started, though, the better. That's true even if you're 60 years old. You'll just want to think differently than the typical 30-year-old investor.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Intel and T. Rowe Price Group and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
