The average American worker estimates that about $1.46 million is necessary to retire comfortably, according to a recent Northwestern Mutual survey. And even this may be a little optimistic for some. While baby boomers said they'd probably need less for retirement, Gen X, millennials, and Gen Z all expect to need more for their futures -- as much as $1.65 million.
Saving that kind of cash isn't easy, even with decades to do it. So it shouldn't come as a surprise that workers of all generations are in danger of coming up short. Let's look at how each generation is doing and what you can do to increase your odds of meeting your retirement savings goal.
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How do workers' savings stack up to their retirement goals?
Though the average worker expects to need about $1.46 million in retirement, the average retirement nest egg sits at just $88,400 in 2024. That's more than $10,000 less than the average retirement savings balance in 2021. It leaves the typical worker with a $1.37 million retirement savings deficit. But the situation isn't that dire for everyone.
The survey found that Gen Z and millennials are both about $1.6 million off their retirement savings goals. But these workers also have a considerable amount of time until they reach retirement age. With the right strategy and diligent savings habits, they could still save enough to cover their essential living costs.
Gen X and baby boomers have a bit more cause for concern. They're $1.45 million and $870,000 short of their retirement goals, respectively. They'd have to set aside a large percentage of their paychecks to achieve their goals within the next decade or two. This doesn't make it impossible, but it makes having a savings plan -- and a backup plan -- all the more important.
What do you do if you're struggling to save for retirement?
There are a few questions you need to answer to build a sound retirement savings strategy. First, you need to know where you're going to get the money to invest. Ideally, you'd have extra left over after paying your bills, but this isn't the case for everyone.
You might try starting a side hustle or reducing your expenses to increase your spare cash. Or you could negotiate a raise or look for better-paying employment elsewhere. Explore all your options and decide which is most feasible for you.
Then you have to decide where to keep your cash. A 401(k) plan is a great choice if your company offers one, especially if it has an employer match. Claiming this can help you grow your savings much faster than you could on your own. Otherwise, an IRA is worth considering. It's flexible and gives you the freedom to choose when you pay taxes on your funds.
Just be mindful of the annual contribution limits. Adults under 50 can contribute up to $23,000 to a 401(k) and $7,000 to an IRA this year. Those 50 and older can save up to $30,500 and $8,000, respectively.
Next, you must decide what to invest your money in. Keeping fees low is important here. Index funds are a great option for most workers because they quickly diversify your savings and they have some of the lowest costs around.
Finally, you want to have a backup plan for what you'll do if you reach retirement age without enough savings. You might choose to delay retirement a while longer if you're able to continue working. Or you could try reducing your hours gradually rather than quitting the workforce all at once.
At the end of the day, all you can do is your best. Make a plan that works for you and do your best to stick to it. But don't be afraid to course-correct if you experience a major financial shakeup or if you just change your mind about when you'd like to retire.
