How Much Should Retirees Have Invested by Age 65?

Retirement is something you hear about often throughout your working life. It's easy to push those retirement thoughts away during your younger years, but waiting too long to get serious about your financial future can have serious consequences.

The typical U.S. household has median retirement savings of just $200,000 at age 65.

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In other words, someone using the popular 4% rule is trying to live off just $8,000 in their first year of retirement. Not many people can live off of that, so it's safe to say there is a financial crisis among older Americans.

Just how much are people falling short of where they should be? There is no single number, but investment management company T. Rowe Price lays out some reasonable guidance to help gauge how much you should have invested throughout your working years.

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You should try to have 7.5 to 13.5 times your salary invested by age 65

T. Rowe Price lays out milestones, depending on your age:

• 1.5 to 2.5 times your salary at age 40
• 3.5 to 5.5 times your salary at age 50
• 6.0 to 11.0 times your salary at age 60
• 7.5 to 13.5 times your salary at age 65

Given the median household income in the U.S. is approximately $80,000, a typical household retiring at 65 should have between $600,000 and $1.1 million invested, according to the above guidelines. That's three to five times what a typical household actually retires on.

Why the wide range? Everyone's situation is different. Your lifestyle, location, income, and personal finances can all directly impact how much you might need. These milestones also also based on the previously mentioned 4% rule and a 30-year retirement period.

Younger workers shouldn't depend on Social Security

This challenge is going to evolve and impact younger generations differently. Social Security currently provides a safety blanket to retirees. The average monthly Social Security benefit is approximately $2,000, and millions of Americans depend on that money.

However, Social Security is on an unsustainable path. Due primarily to an aging population, the number of beneficiaries is growing faster than that of workers contributing via payroll taxes. The Social Security Board of Trustees estimates the program currently has less than a decade of solvency left at this pace.

It sounds bad, but don't panic. It's unlikely Social Security goes away entirely. If it does reach insolvency, benefits will decline to match incoming tax revenue.

Between now and then, the government must take action to extend Social Security's solvency. It could:

• Raise the retirement age.
• Revise the formula used to calculate cost-of-living adjustments (COLAs).
• Increase payroll taxes.
• Reduce monthly benefits.

The bottom line? It's more important than ever to take your retirement into your own hands. Social Security will look different in 10, 20, or 30 years.

Two things you can do right now to start heading in the right direction

Even if you can't build the retirement portfolio you hoped for, any progress is better than where you would be otherwise.

The two most important things within your control are how much you spend and how much you invest.

If you don't currently budget your money, now is a good time to start. Track your expenses and see where you may be able to cut back if you need to free up some cash. It's also a good idea to focus on paying off high-interest debt, such as credit cards.

Then, focus on your retirement portfolio. If you have a 401(k) plan, check with your employer to see whether it offers an employer match. There are other tools and options to save with, even if you don't have access to a 401(k).

If you're feeling a bit overwhelmed, that's OK. Finances can be complicated, and nobody is born an expert. Consider consulting with a certified financial planner who can help you evaluate where you stand and build a plan suited to your specific needs.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.