Want $500,000 in Retirement Savings? Here's What You Need to Save Each Month
Building a $500,000 nest egg may be more feasible than you'd think. Read on to see how to get there.
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If you want to be able to enjoy retirement without being overwhelmed with financial worries, then you can't rely on Social Security benefits alone. The typical retired worker today only collects about $23,000 a year.
And while the average monthly retirement benefit should increase over time in line with inflation, the point remains the same: Retiring on just Social Security will likely mean taking a huge pay cut and having to limit your spending later in life.
A better bet is to set yourself up with a nice amount of savings in the bank so you have that money on top of what Social Security pays you. And while there's no single target number that guarantees long-term financial stability, a $500,000 nest egg puts you in a pretty great spot for retirement.
At first, you might think that saving $500,000 in your lifetime is virtually impossible. But you may be surprised at how easy it is to get there.
A goal that's more attainable than you'd think
As of 2022, the median retirement savings balance among Americans aged 65 to 74 was $200,000, according to the Federal Reserve. So if you were to retire with $500,000, you'd have two and a half times more money than the typical older American today. And you may be able to reach $500,000 by saving just $200 a month.
Of course, if you're on a tight budget, you might worry about coming up with $200 a month. But if you contribute to a traditional IRA, those $200 deposits will be tax-free, which could make them easier to swing. Check out our list of the best IRAs for retirement savings.
Making the numbers work
Let's review the math to see how $200 a month might lead to $500,000 in savings. That $200 figure assumes two things:
- You're saving that much each month over a 35-year period.
- You're investing your money at a 9% yearly return, which is a notch below the stock market's average return over the past 50 years.
With these guidelines, saving $200 a month could lead to a nest egg worth about $518,000 -- so actually, you're a bit over the $500,000 mark, which is even better. And as far as the above requirements go, a 35-year savings window is more than reasonable, even if you don't start saving as soon as you kick off your career. If you begin funding an IRA at age 30, you're 35 years away from 65, which is a common retirement age.
And if you're wondering how to get a 9% return out of your IRA, a good bet is to load up on S&P 500 ETFs, or exchange-traded funds. The S&P 500 index consists of the 500 largest publicly traded companies and is considered a measure of the stock market on a whole. So when we talk about 9% being a bit below the market's average, we're actually referring to the S&P 500's performance over time.
Get ready to enjoy retirement to the fullest
A $500,000 nest egg could make your retirement pretty darn fantastic. And now that you know that it's possible to get there by investing just $200 a month, you can work on finding ways to come up with that money.
You may have to spend a bit less on some of the things you love, or even boost your income with a side hustle if your paycheck is already taken up by your current budget. But saving $200 a month could spell the difference between enjoying retirement to the fullest and struggling financially. So it's definitely worth making that effort.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
