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See the number of Americans who actually retire as millionaires — are you on track or falling behind?
See the number of Americans who actually retire as millionaires — are you on track or falling behind?
Americans think they’ll need $1.46 million to retire comfortably, according to Northwestern Mutual’s 2024 Planning and Progress Study. While that’s a good number to aim for, it’s not a goal many people will reach.
In fact, according to the latest Survey of Consumer Finances prepared by the Federal Reserve, less than 10 percent of all Americans with an IRA or defined contribution plan have at least $1 million in savings.
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Furthermore, many Americans are far behind on this, with the Federal Reserve communicating the average value of retirement accounts in 2022 was just $86,900, while the median value was $334,000.
If you want to be one of the few Americans who achieve millionaire status, it’s important to save throughout your career and ensure you’re on the right track. Here’s how to do it.
Are you on track to save $1 million?
Many retirees who become millionaires take a long time to do so, working diligently throughout their careers to invest in their future. Whether or not you’re on track to be one of them depends on how old you are and how much you currently have saved.
Here are some scenarios that show what is required of people, in different life situations, who want to build a seven-figure nest egg, assuming a 7% annual return.
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If you’re 25 and just starting out, you would need to save $361.32 a month through retirement to become a millionaire by age 67 (full Social Security retirement age).
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If you are 35 and just starting out, you will need to invest $756.07 per month until you are 67.
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If you are 45 years old and have invested $50,000, you need to invest $1,323.79 per month
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If you are 55 years old and have invested $400,000, you need to invest $461.77 per month
Investor.gov has calculators to help you see if you are personally on the right track, given your age and current investments.
The main takeaway is that it’s much easier to become a millionaire if you start saving early. The longer you can allow for compounding, the less money you’ll have to invest each month to reach your retirement savings goal.
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What can you do if you are falling behind?
If you’re not on pace to become a retired millionaire, you can still work toward becoming one. Following the commonly used 4% rule of thumb for determining a safe withdrawal rate, a $1 million nest egg would produce $40,000 in annual income. Falling too short of that goal could lead to financial trouble.
To catch up, you need to take your retirement savings seriously, treating it like a bill that needs to be paid, just like your rent or groceries. After all, the savings you’re putting away now are what will allow you to cover your rent and food costs later, when you’re no longer receiving a paycheck.
Calculate how much you should invest using a savings goal calculator and adjust your budget, making cuts as needed or increasing your income with a side hustle to reach your target number. Have the money automatically transferred to a tax-advantaged retirement plan so you can be sure it’s invested each month.
If you have access to a 401(k) match, you should sign up. You may earn an employer match, plus tax incentives for investing. For those without a 401(k), an IRA can provide comparable tax benefits. You can arrange for your brokerage to automatically withdraw contributions from your bank account.
Don’t wait to get started. Becoming a millionaire is a worthwhile goal that can help ensure a comfortable retirement.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.