(SmartAsset) - If $1 million was once the consensus target for retirement savings in the U.S., that appears to be changing. A recent Schwab Retirement Plan Services survey found that 401(k) plan participants across the country now believe they must save $1.9 million for retirement.
The online survey, handled by Logica Research, conducted 1,000 interviews with plan participants between ages 21 and 70 and gauged confidence levels for achieving their own retirement goals. Whether you’re just beginning to save or quickly approaching retirement age, a financial advisor can help you build a plan.
Retirement Survey Results
In 2019, the same Schwab survey found that 401(k) participants had a target retirement savings of $1.7 million. That goal has since increased and so has investors’ confidence in reaching their goals. More than half (53%) of survey participants said they are likely to achieve their retirement goals, up 16% from a year ago when the COVID-19 pandemic unleashed massive economic turmoil and uncertainty.
“We experienced tremendous stress in our work and home lives this past year that highlighted the importance of financial wellness and the value of trusted advice,” Catherine Golladay, head of Schwab Workplace Financial Services, said in a statement.
But 401(k) plan participants say they still face numerous challenges. In fact, 61% said they needed the type of professional advice a financial advisor can provide, including help calculating a retirement savings goal, investing, creating income in retirement and planning for taxes in retirement.
How to Save $1.9M for Retirement
While the prospect of having $1.9 saved by retirement seems daunting, saving early and often will increase your chances of reaching this goal. Tax-advantaged accounts like 401(k)s and 403(b)s, which are offered through employers, can help you build a nest egg over the years. While annual contributions to these types of plans are capped at $19,500 in 2021 (with a $6,500 catch-up permitted for people 50 and older), those saving for retirement can also contribute $6,000 ($7,000 if you’re over 50) to an individual retirement account (IRA) each year. Those saving for retirement may also want to explore whether a mega backdoor Roth IRA is appropriate for them.
Every three years, the Federal Reserve examines the changes in U.S. family finances, including how much people have saved in retirement accounts at various points in their lives. Using data from the Federal Reserve’s 2019 Survey of Consumer Finances, the Center for Retirement Research at Boston College calculated the median retirement savings across several age groups:
-
Median 401(k)/IRA balance for ages 35-44: $51,000
-
Median 401(k)/IRA balance for ages 45-54: $90,000
-
Median 401(k)/IRA balance for ages 55-64: $120,000
Here’s how much someone with the median 401(k)/IRA balance at age 35, 45 and 55 would have to save in total each month to reach the $1.9 million threshold by age 65 (these projections assume an 8% annual rate of return):
Building a $1.9 Million Nest Egg Age 401(k)/IRA Balance Monthly Savings Retirement Savings at Age 65 35 $51,000 $900 $1,899,046 45 $90,000 $2,475 $1,901,238 55 $120,000 $8,930 $1,900,065
A 35-year-old who has already saved $51,000 for retirement is clearly in the best position and would have to sock away $900 per month over the next 30 years to nearly reach the $1.9 million threshold. Older workers would have to save much more each month. A 45-year-old with $90,000 saved must sock away $2,475 per month to eclipse the $1.9 million mark by age 65. Meanwhile, a 55-year-old with $120,000 saved would have to play some serious catch-up and save nearly $9,000 per month to reach their goal within 10 years.
Bottom Line
A million bucks isn’t what it used to be. It was once thought a retirement savings milestone, but 401(k) plan participants now believe they’ll need nearly twice as much, according to a Schwab Workplace Financial Services survey. Building up a nest egg that large will likely take time and planning, highlighting the importance of saving for retirement in one’s 20s and 30s.
Retirement Saving Tips
-
SmartAsset has a variety of tools that can help you plan for retirement. Our 401(k) calculator can show you how much your account will be worth by the time you retire. Meanwhile, our retirement calculator can help you determine whether you’re on track to meet your retirement goals.
-
Need help managing your investments? How about planning for retirement income? A financial advisor can help you with a myriad of money needs and finding one in your area doesn’t have to be difficult. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
-
Don’t forget to contribute to your 401(k) up to your company’s 401(k) match, if one is available. Otherwise, like a third of Americans, you’re leaving free money on the table.
By Patrick Villanova, CEPF®
