The Typical Retiree Gathers This Amount in Their Retirement Savings Accounts
Securing your retirement is crucial if you want to savor your golden years without financial stress.
The typical Social Security payout for retired workers is $1,915 per month at present. This isn't a substantial sum to cover your living expenses as well as retirement pursuits, recreations, and travels. However, consistently saving and putting money into tax-advantaged retirement vehicles such as a 401(k) or IRA can set you up to enjoy a substantial income later in life.
If you're searching for a benchmark to determine how much you should have accumulated in your retirement funds when you retire, you might want to focus on knowing the average amount that current retirees have saved. The Federal Reserve conducts surveys on American households every three years, detailing their demographic and financial information, including the sum they have saved in their retirement accounts.
The typical retirement account balance for retirees
The Fed's Consumer Finances Survey asks various details about various retirement accounts. This includes employer-sponsored plans like 401(k)s and Keoghs, all types of IRAs, and even the cash value of pensions.
The most recent survey was conducted in late 2022. It revealed that the average retirement account balance for retired individuals was $513,200. However, this average was inflated by retirees with significant savings in their accounts.
A more realistic metric might be the median balance, which is the amount that half of retirees have more than and half have less than. The median balance in retirees' retirement accounts was $170,000.
It's essential to note a few things about those figures. First, this only includes retirees with any savings in retirement accounts. Those without pension or retirement account balances aren't included in the averages. As a result, the actual averages are lower when considering households without retirement savings. Second, it includes retirees of all ages, from recent retirees to those in the later stages of retirement.
For some, these numbers may seem unattainable. Building a six-figure nest egg requires years of disciplined saving and investing. For others, they may seem low. However, don't become overly complacent. The truth is that $170,000 is likely inadequate for most people to enjoy the retirement they desire.
If you develop a strategy and adhere to it, you can surpass the average retiree and set yourself up for a fulfilling retirement.
Becoming superior to average
If you want to retire with a retirement account balance that's better than average, you must commit to saving and investing.
The easiest way to start may be your employer's 401(k) match. If you're not receiving the maximum matching contribution from your employer, you're leaving free money on the table. Even if your 401(k) has high fees, it often makes sense to contribute enough to receive the maximum employer match. Few investments offer an instant return of 50% or 100%, but the 401(k) match is one of them, although not all employers provide a match.
Beyond the 401(k), consider opening an IRA. You can open one with no fees, and you receive tax advantages on your investments. With a traditional IRA, you can deduct any contribution from your taxes, potentially allowing you to save more for retirement today. With a Roth IRA, you won't pay any taxes on your withdrawals in retirement, allowing your money to go further when you're spending it. You won't pay any taxes on capital gains or dividends in either account.
Another advantage of IRAs is that you have more investment options than a 401(k). You can invest in most securities offered in a standard brokerage account instead of a limited selection of funds offered in your employer-sponsored plan. However, a broad-based index fund investing in all the stocks in an index like the S&P 500 may be your best choice for both an IRA and a 401(k). It's simple, straightforward, and requires little account maintenance.
Regularly investing just a few hundred dollars each month in an index fund in your retirement accounts could result in a retirement account approaching seven figures by the time you retire, if you start early enough. Even if you're starting late, you can still catch up by pouring as much as you can into your accounts. The IRS will even allow you to add thousands of dollars more per year into those accounts once you reach 50 years old thanks to catch-up contribution limits.
The sooner you start, the better, but there's usually a path to achieving an above-average retirement.
Saving consistently in tax-advantaged retirement vehicles like a 401(k) or IRA beyond the typical Social Security payout can significantly enhance your income during retirement, surpassing average retirement account balances. Despite the average retirement account balance for retirees being $513,200, as revealed in a recent survey, this may not be sufficient for most individuals to enjoy the retirement they desire.
