You May Not Be Behind on Retirement Savings -- But There's Still Cause for Concern

Figuring out how much you need to save for retirement can be confusing. You don't know how long you'll live or what your expenses will be like. This makes it tough to know whether you're on track for your goals, even if you're saving regularly.

Some people find that comparing their progress to others' helps them. While this can provide a quick sense of how you're doing compared to the average American, it might still leave you in danger of coming up short.

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The median retirement savings in the U.S. is $87,000

Beating the typical American's retirement savings isn't as hard as you might imagine. According to 2022 Federal Reserve data, the median retirement savings balance for all families is $87,000. The mean sits at nearly $334,000, but this is misleading because it only takes a few high earners to skew the data upward.

Even the $87,000 median doesn't tell the full story. This is the median amount of retirement savings among all Americans who have retirement accounts. But many don't. Only about 54.4% have any money set aside for retirement, according to the Federal Reserve data. If we included the households without savings, the median would drop even further.

So if you have any money set aside for retirement, you're off to a good start, and you're probably ahead of many Americans. That said, even if you're sitting at $87,000 or $334,000 in savings, that doesn't necessarily mean you're on track for your goals.

A lot depends on your timeline. Having $87,000 in retirement savings is excellent if you're in your mid-20s. It's alarming if you're in your mid-60s. So just focusing on median savings isn't the best way to assess how you're doing.

How to figure out how much you need to save for retirement

A better approach is to calculate how much you think you'll need for retirement based on your lifestyle and estimated life expectancy. One way to do this is to estimate how much of your annual living costs you'll have to pay out of pocket in retirement. For example, if you think you'll spend about $60,000 per year in retirement and you expect to get $20,000 in Social Security benefits, you'd only need to cover $40,000 of your annual retirement expenses on your own.

Multiply that number by 25. This is your savings target. In our previous example, if you needed to pay for $40,000 in annual expenses on your own, your savings target would be $1 million.

Track your progress toward this goal instead of looking at how your nest egg compares to someone else's. Keep in mind that the earlier you begin saving, the easier it will be to reach your goal, because you'll have more investment earnings to count on. Try to make regular contributions to your retirement account whenever possible to maximize your savings' growth.

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