(NewsNation) — As Americans work toward building a nest egg they hope will see them through their retirement years, ensuring they have enough money to live off of can sometimes seem like a never-ending uphill battle.
A Northwestern Mutual survey last year found that a typical person believes they need $1.46 million to retire comfortably. That savings target has surged more than 50% since 2020, the financial services company said.
But actual retirement savings haven’t kept up with Americans’ lofty goals. Savers have set aside $88,400 on average, the survey found — $1.37 million less than what they believe they’ll need. Four years ago, the goal versus the current savings gap was $864,000.
What’s the secret behind storing away for retirement? Here’s what some experts have to say.
Make a 401(k) a priority
A 401(k) is the most common retirement plan that is used by many Americans, allowing pretax dollars to be devoted to retirement, which can be matched by one’s employer.
The money is placed into an account managed by an investment company, such as Fidelity Investments, Charles Schwab and Vanguard. The money will then grow based on the investment market. 401(k) plans typically come in two types: traditional and Roth. The former taxes your money when you withdraw, while the latter taxes your money before it goes into the account.
“Unlike with withdrawals from a regular 401(k), with a Roth, you owe the IRS nothing when you start taking qualified distributions as long as you are 59 1/2 and have held the account for five years or more,” according to NerdWallet, a financial service website.
There are limits to how much you can contribute. This year, the limit is $23,500.
Become a super-saver
In many cases, financial planners and investment experts predict that retirees will need between 70% and 80% of their preretirement income to maintain the lifestyle they have become accustomed to.
While some suggest such estimates are inflated by as much as 20%, financial planners routinely preach that the best way to be prepared for the future is to save now. Around 44% of U.S. workers are putting more than 10% of their salary toward retirement.
With the funds that Social Security relies on to pay out benefits expected to run out in 2035, financial expert Pattie Ehsaei told NewsNation in 2024, “Becoming a super saver is an incredible idea.”
“You’re not going to be depending on that for your retirement, so it’s so important to start saving now,” she said.
In addition to maximizing 401(k) and IRA investments, Ehsaei said that the biggest key is to begin saving money. She said that while some luxuries can be afforded, Americans should create a budget and stick to it, she said.
But ideally, certified financial planner Shinobu Hindert told NewsNation that savings should start earlier than later. Hindert says when planning for retirement, a person should ideally have the equivalent of one year’s salary saved by the time they are 30, three times their annual salary by the time they are 40, six times their salary by the time they are 50 and eight times their salary by the time they’re 60.
Plan for what you need
When it comes to trying to determine how much someone may need to live on once retirement, using a current salary may seem reasonable. However, that could require some adjusting.
Americans in their 40s should nudge up their baseline income based on what a reasonable amount for post-retirement, The Associated Press reported. David Blanchett, formerly of Morningstar, predicted that the average college-educated individual will make a 50% higher salary at retirement than he or she did at age 25. Gains in salary over time are less pronounced for people with lower levels of educational attainment.
Once a salary baseline has been established, those planning for retirement should consider what percentage of their salary they are saving — or expect to save by the time they retire —and subtract that from their baseline salary amount.
Other factors, including housing costs and tax reductions, should be considered when it comes to determining a retirement income, the AP reported.
Work longer
For many Americans, working until the age of 65 has become an expectation. However, the AP reported that if people are willing to work beyond what is considered a traditional retirement age, it allows for more additional time for savings to be accrued or for other benefits to take shape.
The National Bureau of Economic Research found that in addition to a longer working career providing more time for retirement accounts to be added to, delaying withdrawals from retirement funds also allows those accounts to grow.
Delay Social Security
This is another exceptionally powerful lever, allowing individuals to pick up an increase in benefits for every year they delay Social Security filing beyond their full retirement ages up until age 70. In order to pull this off, however, an individual may need to work longer or draw from a portfolio earlier.
The Social Security Administration announced that it would make changes in 2025 to its program to address inflation. All workers in the U.S. are subject to federal taxes that fund Social Security — 6.2% for employees and 6.2% for employers. There is a maximum amount of earned income that is taxed, and that amount changes yearly.
In 2025, the maximum taxable earnings will increase to $176,100, up from $168,000 in 2024.
The lowest cost-of-living adjustment (COLA) in four years will take effect in January at 2.5%, increasing retirement benefits by about $49 a month, according to the SSA.
COLA is a yearly increase in Social Security benefits to account for inflation and its impact on the cost of living. The average COLA since 2000 has been 2.6%.
The 2025 COLA is down from the 3.4% increase that was seen in 2024 and the 8.7% bump in 2023, a sign of cooling inflation.
NewsNation’s Ashley Soriano and Andrew Dorn and The Associated Press contributed reporting to this story.