It is an excellent goal to save $1 million for retirement. This amount could help you live the lifestyle you want, and not worry about running out of money. But, it is not common for retirees to have that much money. Statistics show that around 10% of retired people have at least $1 million in savings. However, the majority of retirees have much less. A financial advisor is a great way to help you if you want to be part of the minority, but don't know how to start saving.
What Can a Retiree Save?
The Federal Reserve's Survey of Consumer Finances tracks data on retirement savings for different age groups within the U.S. The average retirement savings breakdown by age according to the most recent survey, which was completed in 2019.
These numbers are far below $1 million, as you can see. These numbers represent the amount of retirement savings that an average 65-year-old person has made in retirement accounts such as 401(k), Individual Retirement Accounts (IRAs) and 401(k).
The numbers can change even more if you look at median figures. The median is the middle number within a group. Federal Reserve data show that the median retirement account for 65-74-year-olds is $164,000, while those aged 75-74 have $83,000.
These numbers are from 2019, and may not reflect any retirement losses or gains that retirees have had in the past few years. The next Survey of Consumer Finances will be published sometime in 2023. It may show a completely different picture of retirement savings, with the COVID-19 pandemic effects and higher inflation.
What is the average net worth of a retired person?
Your net worth is the sum of your assets and liabilities. Higher net worth means you have more assets and less debts, which is a good thing for retirement planning.
The average net worth of a retiree is estimated at $1.2 million according to Federal Reserve data. This figure applies to those 65-74 years old. For those 75 years and over, the average net worth falls to $958,000. This data includes:
To calculate your net worth, add all your assets to your debts. This number can be used to calculate your net worth in comparison with other Americans your age.
Is $1 million enough to retire comfortably?
Long-time financial experts recommend that you save at least $1,000,000 for your retirement. It is up to you to decide if $1 million is sufficient.
Some retirees may find $1 million more than enough to live a comfortable life. For those who are planning to move to another country, $1 million may be more than enough to pay for housing, utilities, or health care. They may be able retire with $500,000 instead.
If you want to enjoy a lifestyle that involves a lot of travel, expensive hobbies, or financial support for a grandchild or child, $1 million could leave you with a gap in your savings. If you are suffering from a chronic condition or require long-term care, your savings could be impacted.
Medicare does not generally cover long-term nursing care. You can apply for Medicaid to cover long-term nursing care. However, your assets will determine your eligibility. Your net worth may be too high to qualify. You might have to sell some assets in order to qualify. You can prepare for this scenario by purchasing long-term insurance, or a combination of long-term and life insurance.
How to save $1 million for retirement
To save $1 million for retirement, you will need a plan. You need to do some math to figure out how much you will need to save each month or annually to reach your retirement goal.
Let's say you are 30 years old. Imagine that you want to retire at 65 with $1,000,000 in savings. Pre-tax, you earn $70,000 per year and have $0 in savings. If you invest at a 7% annual return, then you would need to save 10% each year. This assumes that you will live to age 95 and plan on spending $2,900 per month in retirement.
That's $583 per month if you save 10% of your pretax income each tax year. What if you start saving at 35? You'd need to increase your savings rate by 15% or $850 per month in that instance.
An online retirement savings calculator will help you determine how much you should save to retire with $1,000,000. These tips can help you increase your savings.
These are just a few ways you can increase your savings if you want to retire with $1,000,000. You should consider your financial goals and the amount of money you believe you will need to achieve them. A professional can help you create a plan to achieve your goals.
The bottom line
While most retirees don't have the resources to become millionaires, it is possible to save $1 million if you are strategic. As compounding interest is more effective, it's a good idea to start early. If you want to retire millionaire, it is important to compare different investment options and understand your risk tolerance.
Retirement Planning Tips
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The post What Percentage Of Retirees Have A Million Dollars? SmartAsset Blog was the first to publish this article.
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