In the course of planning for retirement, you may be banking on certain things -- that the cost of Medicare will remain somewhat reasonable, that living costs in general won't start soaring, and that Social Security will pay you the monthly benefit you're entitled to.
Unfortunately, none of those things are a given. Medicare premiums could rise, living costs in general could rise, and Social Security may be in for benefit cuts if lawmakers don't find a way to pump more money in the program.
Image source: Getty Images.
See, the problem is that in the coming years, Social Security's main revenue stream -- payroll tax revenue -- is likely to shrink as older workers retire in droves and too few younger workers come in to replace them. Social Security does have trust funds that can be tapped to keep up with scheduled benefits for a period of time. But once those cash reserves run dry, benefit cuts may be on the table.
Clearly, a smaller monthly Social Security check has the potential to deal a huge blow to your retirement finances. But what if you were able to come into retirement with a $1 million nest egg? In that case, benefit cuts may not be as problematic. And if you're wondering how on earth you're going to manage to save $1 million, the answer is that if you have 30 years of work ahead of you, you may be in pretty good shape to hit that milestone.
A $1 million nest egg may be more doable than you'd think
The idea of having $1 million to your name might seem laughable -- until you realize how much wealth you can grow if you give yourself many years to save. As you invest your money, you get to make money on your money. And if you have three decades to enjoy compounded returns in a retirement account, then you may be surprised at how easy it is to wind up a millionaire.
Of course, to achieve that goal, you generally need to be willing to invest your long-term savings in stocks. If you play it too safe, you won't see the strong returns the stock market is known for.
However, let's say you're able to score an average annual 9% return in your IRA or 401(k) over 30 years, which is a bit below the stock market's average. In that case, saving $625 a month leaves you with just over $1 million in savings.
The Bureau of Labor Statistics reports that median annual earnings as of 2023's final quarter were $59,540 , which breaks down to $4,962 per month. Saving $625 per month means socking away about 12.6% of your income.
That's not an easy thing to do, but it's possible if you're able to live frugally and spend your money mindfully. And it's also worth noting that many financial experts recommend saving at least 15% of your income for retirement, so 12.6% is a notch below that level.
You don't have to plan for retirement alone
Clearly, it's possible to build a nice-sized nest egg if you invest wisely and give yourself a lengthy savings window. But remember, too, that you don't have to tackle retirement planning on your own.
If you're worried about Social Security cuts and their impact on your retirement, meet with a financial advisor to talk through those concerns. A financial advisor can help you establish a savings and investment strategy that's designed to put more money in your pocket for retirement. And if you're able to kick off your senior years with $1 million to your name, the idea of getting less Social Security may not be as daunting.
