What amount of savings is necessary to ensure a comfortable retirement? This figure varies for each individual, as everyone’s notion of “comfort” is distinct. Yet, Northwestern Mutual’s average investor-reported target of $1.46 million provides a sensible benchmark. Such a sum could potentially generate about $60,000 annually in dividend and interest income. Your Social Security benefits should help bridge any remaining gap, offering a solid starting point.
However, the challenge lies in the fact that this is a substantial amount for the average investor to accumulate, particularly given the soaring cost of living today. The figure may appear so overwhelming that some investors might feel discouraged from even attempting to reach it.
Don’t let this deter you! The strategy is to break down your savings and investment plan into smaller, more manageable segments with specific milestone goals. You might find that achieving a seven-figure nest egg is not as unattainable as it seems.
With this context, here’s a general estimate of the ideal savings you should have by age 60—approaching retirement, but with some time to address any shortfalls.
Your Ideal Savings Goal
Once more, there isn’t a definitive figure since each person and their financial circumstances are unique.
If your objective is to maintain your current lifestyle, you should aim to have around nine times your annual salary saved for retirement by the time you’re 60. For instance, if your current income is $100,000 annually, you should ideally have $900,000 in a retirement savings account by age 60.
That’s the advice from asset management firm T Rowe Price, which aligns with the recommendations of several other financial institutions.
But what if you’re far from reaching that target, or know you won’t be there by then? Don’t worry. Many people aren’t. The Federal Reserve’s latest analysis shows that individuals aged 55 to 64 have just over $500,000 saved for retirement on average. T Rowe Price’s salary-multiple target is also a median within a broad range. You’re on a good path if you have only six times your current annual income saved, and it’s possible for 60-year-olds with 11 times their salary saved to still face financial challenges. As always, each situation is different.
The general idea should be clear, though.
Actionable Steps
Falling behind? There’s still hope—you have options to catch up. One key strategy is to make use of “catch-up” contributions to individual retirement accounts, as permitted by the IRS.
Here’s how it works: While individuals under 50 can contribute up to $23,000 to an employer-sponsored retirement account this year, those aged 50 or older can add an extra $7,500. Next year’s catch-up contribution limit for most eligible individuals will increase to $10,000. (Note that in 2025, higher earners, defined as those making over $145,000 annually, will only be able to make catch-up contributions to a Roth employer-sponsored retirement account.)
Additionally, anyone over 50 can contribute an extra $1,000 to a traditional or Roth IRA outside of a workplace plan, raising the cap to $8,000. Income-based contribution rules still apply.
Admittedly, increasing contributions to a retirement account is easier said than done, especially considering the current high cost of living. Rising expenses, such as taxes, are likely among your concerns.
However, there are strategies to reduce your living expenses. Consider canceling traditional cable TV in favor of more affordable streaming services. Opt for cooking at home more often instead of dining out, which can be an enjoyable experience. Price comparison among grocery stores and using coupons can also lead to savings.
But perhaps the most overlooked strategy is not merely freeing up money to increase retirement contributions but rather investing your existing savings more wisely.
Is any portion of your money sitting idle? If so, consider moving it into a money market fund offering returns of around 4% to 5%. While there is a need for conservative investments near retirement, even a 60-year-old can benefit from some growth in their portfolio. However, avoid high-risk trades and focus on reliable long-term growth stocks like Microsoft, steering clear of less predictable options like Intel.
Small Savings Accumulate Over Time
If reaching $1.4 million or the equivalent of 11 times your annual salary by retirement seems impossible, that’s okay. It’s a reality for many. However, that doesn’t mean you can’t enjoy retirement with substantially less saved. It’s important to do what you can, whenever you can, with whatever resources you have.
What you must avoid is doing nothing.
Contrary to popular belief, most retirement fortunes are not amassed overnight. They result from years of saving, often involving modest amounts.
Most retirement millionaires didn’t anticipate reaching seven figures when they began saving or even midway through their careers. This often happens unexpectedly, with time and compounded gains playing a significant role in the latter stages of the savings journey.
The earlier you start, the better—even if you’re 60 years old. Just approach it differently from a typical 30-year-old investor.
The $22,924 Social Security Bonus Most Retirees Overlook
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