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Can an $800,000 nest egg carry you throughout retirement? Read on to find out. [[{“value”:”

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Retiring without personal savings could mean having to live on Social Security alone. And since the average senior today only collects about $23,000 a year, you may find that retirement is far from enjoyable if you don’t have savings to fall back on.

Americans aged 65 to 74 years old had a median retirement savings balance of $200,000 as of 2022, according to the Federal Reserve. So if you were to retire with $800,000 in savings, you’d have about four times as much as the typical senior in that age range.

But is an $800,000 savings balance actually enough? It depends.

What do you want retirement to look like?

Whether an $800,000 nest egg is able to last through retirement or not depends on what you want to do with your senior years. If you expect that time to be filled with overseas travel and you intend to hang onto a larger home with a high property tax bill, then you may find that $800,000 falls short. But if you plan to live modestly but comfortably, then $800,000 may be more than enough.

For context, if we apply the 4% rule to an $800,000 nest egg, it gives you $32,000 a year. That rule, if you’re not familiar with it, is generally recognized by financial experts, since it commonly allows retirement accounts to last for 30 years. And it’s easy to follow — just withdraw 4% of your savings your first year of retirement, and then adjust future withdrawals for inflation if needed.

If you’re looking at $32,000 a year from savings and another $23,000 from Social Security, all told, that’s a $55,000 annual income, which isn’t too shabby — especially if your home is paid off by the time you retire and your ongoing expenses are relatively low. But ultimately, you’ll need to think about how you want your retirement to look to determine whether $800,000 is enough money or not.

How to get to $800,000 in retirement savings

If you’re an average earner, you might assume that an $800,000 retirement nest egg is out of reach. But actually, with the right strategy, it’s a sum you may be able to save with relative ease. To do that, though, you need to do two things: start saving from an early age and invest your money in stocks for solid growth.

Over the past 50 years, the S&P 500 has rewarded investors with an average annual 10% return, accounting for years when the market did well and years when it most certainly didn’t. If you invest $250 a month for retirement over a 35-year period, and your portfolio delivers a 10% yearly return during that window, you’re looking at a balance of just over $800,000. Really.

What kind of investment account should you use?

You have options for your retirement investments. A traditional brokerage account is one of them. Using one of these accounts means you’re not subject to any restrictions. You can contribute as much money as you want each year, and you can withdraw your money whenever you feel like it.

An individual retirement account (IRA), on the other hand, comes with contribution limits that change every year (currently, they’re $7,000 for savers under age 50 and $8,000 for those 50 and over). IRAs also subject you to a 10% penalty for taking withdrawals before age 59 1/2 (though there are a few exceptions).

But with an IRA, your money goes in on a tax-free basis. So if you contribute $250 a month to an IRA, or $3,000 a year, that’s $3,000 of income you aren’t paying taxes on. And investment gains in your IRA also aren’t taxed yearly as they would be in a traditional brokerage account. Rather, those gains are tax-deferred. You only pay taxes on gains when you take withdrawals in retirement.

For these reasons, an IRA could be the best place to house your retirement savings, whether you’re aiming for an $800,000 nest egg or a different amount. Click here for a list of the best places to open an IRA.

And then, spend some time figuring out what you want your retirement to look like so you can decide whether it pays to aim for somewhere in the ballpark of $800,000 in savings or a higher or lower number.

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