Saving for retirement is one of the biggest, most complex financial goals that most Americans have to think about. Yes, you'll probably get some Social Security benefits, but the average Social Security check is only about $1,907 per month (as of January 2024).
Most people in the U.S. do not have "defined benefit" pensions from their employers that provide guaranteed income for life. Instead, many people now use "defined contribution" retirement savings plans like 401(k)s. This means that Americans are responsible, more than ever, for funding their own retirement. You can't count on Social Security for a luxe lifestyle in retirement -- the average worker only replaces about 40% of their income with Social Security retirement benefits.
The good news is: by investing in stocks and ETFs, and by making smart use of tax-advantaged retirement savings accounts, many Americans can build up enough of a nest egg for a comfortable retirement.
Let's look at how much Americans need to save for retirement, based on a new survey from Northwestern Mutual.
The American dream retirement nest egg: $1.46 million
According to the Northwestern Mutual 2024 Planning & Progress Study, Americans believe that they need an average of $1.46 million to retire comfortably. And keep in mind, that's an average across all age groups. The exact amount of money that you feel is necessary to retire will vary based on your age and stage of your career.
Here are a few different "magic numbers" that people told Northwestern Mutual that they need to retire in comfort, based on age cohorts:
| Generation/age group | Average "magic number" retirement nest egg |
|---|---|
| Boomers | $990,000 |
| Gen X | $1.56 million |
| Millennials | $1.65 million |
| Gen Z | $1.63 million |
| All ages | $1.46 million |
Data source: Northwestern Mutual 2024 Planning & Progress Study
That target "magic number" has gone up significantly with the past few years of high inflation. According to past surveys from Northwestern Mutual, Americans' dream nest egg target has increased by 15% since 2023, and by 53% since 2020.
This sense of "nest egg inflation" can be daunting. With life getting more expensive every year, you might feel like you'll never afford to retire. But the truth is more complex, and more hopeful.
What it really takes to retire in comfort
If you're reading this and you don't already have $1.46 million saved for retirement, you're not alone. The Northwestern Mutual survey also found that the average American has only $88,400 of retirement savings as of 2024.
Does this mean that you'll never save enough to retire? No! Depending on your age and career stage, you might have plenty of time (and plenty of career growth and investment growth) ahead of you. Let's say that you're 45 years old and you want to retire at age 67. You have 22 years left to work, earn, save, invest, and watch your money grow.
Let's say that, at age 45, you have the average retirement savings of $88,400. And let's assume the following things:
- You save and invest for retirement for the next 22 years (until age 67)
- You save $500 per month for retirement ($6,000 per year) in your 401(k) or other tax-advantaged retirement accounts like a traditional IRA
- You bump up your retirement savings by 1% per year (saving a bit more money each year with pay raises)
- You invest in a diversified portfolio of stock and bond ETFs that generates average annual return of 8%
After 22 years, starting from $88,400, you'd have $868,633 saved for retirement.
Want to save even more? If you can save $1,000 per month ($12,000 per year), with all the other assumptions the same, after 22 years you'd have $1,256,677 -- not far off from the average dream nest egg of $1.46 million.
If you have a retirement nest egg of $1.26 million, and you withdraw 4% of it per year, that equals a retirement income of about $50,267 per year. Assuming you also get the average Social Security check of $1,907 per month, that makes for a total retirement income of $73,151.
Bottom line
It's easy to feel intimidated by the sheer immensity of saving for retirement. But don't let one big "magic number" hold you back from saving and investing along the way. You don't have to come up with $1.46 million all at once. And as you get older and closer to retirement age, you might find that it gets easier to save.
Your household spending might go down, you might downsize your lifestyle or pay off your mortgage, your income might go up, and the stock market might outperform expectations. Over the course of what's hopefully a long life of working, saving, and investing, you might be surprised at how much you can save and how much your nest egg can grow.
