How Much Should Retirees Have Invested by Age 65?

What's your magic number? That is to say, how much savings do you need to feel comfortable enough to retire from a paying job? Everyone's number is a little bit different, of course. But, whether they know it or not, everyone's got a number. Here's some insight on how to figure yours out.

The number

The average "right" number is $1.26 million, by the way. That's the average amount that annuity and insurance outfit Northwestern Mutual reports U.S. residents currently say they'll need to retire comfortably, down measurably from 2024's consensus of $1.46 million. It's not a bad guess, either. Assuming all of that amount is invested in ultra-safe government bonds currently yielding a realistic average of 3.5%, that's about $44,000 worth of annual income. While not a huge amount, when paired with Social Security payments at a time of your life where spending is a bit curtailed, that could work well enough.

Most people aren't going to reach that seven-figure sum, of course, nor do they necessarily need to. Rather, future retirees might be better served by thinking in terms of maintaining their current standard of living. That's a much more approachable goal since everyone's lump-sum target will reflect their lifetime work-based income.

Investors should aim to reach savings milestones that are a multiple of their income at different stages of their lives. For instance, mutual fund company T. Rowe Price suggests you have between 1.5 and 2.5 times the amount of your annual salary tucked away for retirement at the age of 40, en route to 7.5 to 13.5 times your yearly work-based income by the time you're 65 years old. In other words, if you're earning $100,000 at the age of 65, you should have amassed retirement savings of between $750,000 and $1.35 million when you reach that age.

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T. Rowe Price isn't alone in its rough suggestion. Rival mutual fund company Fidelity says you should aim to have about 10 times your annual pay saved for retirement at the age of 67, versus eight times your yearly work-based earnings when you're 60 years of age, jibing with suggestions from brokerage firm Merrill Lynch.

And for what it's worth, the Bureau of Labor Statistics reports the average full-time worker in the United States who's currently 65 years old or older is earning an average of a little over $62,000 per year. Multiplying that amount by the suggested factor of 10 means a nest egg of $620,000. That sum alone isn't likely to secure a fantastic amount of retirement income, but when combined with the average 65-year-old's typical Social Security payment of around $1,600 per month, it's a livable amount.

All the little things add up, so plan carefully

The irony is that we often get so focused on the biggest things -- like the sheer scope and size of our retirement savings goal -- that we forget it's all the little things that end up making a big difference in the end. These details include cancelling subscriptions to streaming services that we never use, postponing our enrollment in a retirement plan (and missing out on a year's worth of an employer's matching contribution), or letting cash sit idle in a retirement account instead of putting it to work as soon as possible. If more investors took care of this sort of minutiae earlier and more often, more of them would be able to afford the sort of retirement they dream of.

Then there's the not-so-small one thing that could make a massive difference in the end. That's waiting just a couple more years to retire.

The discussion above mostly asks and answers the question of how much money you should have saved up for retirement by the time you turn 65, which is not only old enough to take penalty-free money out of a retirement account, but also old enough to claim Social Security benefits.

There's a measurable penalty for doing so, though -- two of them, actually.

The first of these penalties is just that by claiming Social Security benefits at the age of 65 rather than waiting until your full retirement age of 67 (depending on when you were born), you'll reduce your monthly Social Security benefit by as much as 15% of what it would have been by waiting just a couple more years That's why the average 67-year-old's Social Security monthly check of $2,163 is markedly higher than the typical 65-year-old's $1,600 -- many of the 67-year-old cohort simply waited longer to initiate their benefits payments.

And the second reason that waiting just a couple more years to retire can pay off in a big way? Not only does this give you a couple more years to contribute to a retirement account rather than withdrawing money from it, but it also gives you a couple of extra years' worth of growth of what's likely to be a sizable stash of money. For perspective, assuming even just a subpar gain of 5% on this money, a 5% return on $600,000 pumps this number up to $660,000 in a couple of years' time. And that doesn't factor in the additional retirement savings you're adding on your own in the meantime. For some investors, that little bit of extra can make the difference between a nervous retirement and a comfortable one.

Wherever you are in terms of saving for retirement, even if you feel like you're miles away from saving enough to matter, it's never too late to start doing something. The baby steps tend to get bigger pretty quickly once you develop a bit of momentum.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.