How much money should you have saved when you retire?

The old adage says that in order to achieve a financially free, comfortable retirement, American workers should aim to save $1 million to $1.5 million before reaching their golden years. For workers approaching retirement age, those numbers may bring on feelings of anxiety or denial, but luckily (or unluckily—depending on your viewpoint), retirement savings isn’t quite that cut and dry.

Conventional wisdom may give us an unwritten rule to follow when saving for retirement, but each individual situation is different, so there’s no one-size-fits-all savings solution for sustaining a comfortable retirement. And if there isn’t a great rule of thumb to follow, how do we even begin planning how much we will need saved to enjoy a financially independent retirement?

We’ll fill you in.

How much money you’ll need saved to retire comfortably

We’ve seen the statistics, and they’re alarming—only 59 percent of American employees have even tried to calculate how much money they’ll need to have saved so they can live comfortably in retirement [1]. And as we mentioned earlier, there’s no one single solution when it comes to preparing for a healthy, financially free retirement, which can cause rampant panic among pre-retirees who don’t yet have a sizeable retirement nest egg. However, if we shift our mindset away from a dollar sign and more towards a desired experience, we can change the way we see our retirement account balances.

Rather than asking yourself how much money you’ll need to have saved before you can retire, instead question how many years you would like to be retired and what your ideal retirement would look like. Are you hoping to travel the world with your honey? Or perhaps you’d like to spend most of your free time at the driving range? If you’re someone who enjoys more costly hobbies, your retirement nest egg should ideally reflect those future expenses.

The same can be said for how many years of retirement you’d like to have. But before you can make an educated guess at how many years of retirement are in your future, you’ll need to gather some basic information. Take a look at your family history and see how old your deceased family members were when they passed away; this will give you an educated guess at what your life expectancy may look like. You’ll also want to think about what age you would like to be when you retire. Someone who doesn’t want to work past age 60 but plans to live until 85 or 90 will likely need a much larger retirement nest egg than someone who plans to work until age 70 and has a family history of early death.

Think critically about how long you’d like to be retired and what you want those years of retirement to look like. Doing so may help shift your retirement savings goals from a one-size-fits-all number to one that’s more realistic to you and your lifestyle—putting you one step closer to retirement readiness.

Why it's beneficial for young people to begin saving early for retirement

When young people join the workforce for the first time—fresh-faced right out of college—it can be hard for them to see the benefits of saving for their future retirement so early on in their career. A seemingly endless calendar of years they’ll be in the workforce means there’s plenty of time to save for retirement, right? Meanwhile, the newest iPhone can be in their hands today.

But what if they thought about their spending differently? What if they saw the money that they are spending today as money that they’re borrowing from their future self, rather than money they’re simply “not saving?” Would they still make the same spending choices? We’re willing to bet that the prioritization may move away from that “treat yourself” mentality to a more financially literate one—and we’ll explain why.

Related: What to do when you receive an inheritance

Benefits of saving in a 401(k) as soon as you enter the workforce

The importance of saving early in your career comes down to a single elementary mathematics principle: compounding interest. Compounding interest plays a huge role in allowing employees to successfully save for retirement, and the earlier you begin to save, the better. The idea is that the money you save will earn interest as time goes on, and that interest will eventually accrue to an amount that will earn interest itself—creating somewhat of a snowball effect.

Retirement accounts have the potential to grow rapidly and exponentially as time goes on because of snowballing interest. And without contributions early on, participants miss out on valuable time that would help grow their savings. So while spending a few hundred dollars to get the newest iPhone today may seem like a good idea, participants could actually be missing out on a much larger amount had that money been invested instead.

How compounding interest can help grow a retirement account

Let’s break it down into a real-world example. Let’s say our new college grad, Sara, enters the workforce and decides to save $200 per month for her future retirement. If she can save $200 per month for the next 30 years, assuming a 6 percent annual return, Sara will have roughly $200,900 in her account when she’s ready to retire

However, if she decides to instead save $100 per month for retirement and use the other $100 to pay for new gadgets and toys each month, Sara will drastically decrease her retirement savings. In fact, if we assume that all else stays the same (except the contribution amount), Sara will find that her 30 years of savings will only amount to about $100,450. That means that Sara will have roughly half the retirement savings she would have had—just by borrowing $100 each month from her future self.

It becomes clear, then, that the power of compounding interest is astronomical. It’s beneficial for young employees just entering the workforce to prioritize funding retirement, despite having a decent amount of disposable income for perhaps the first time. But as our example shows, borrowing from your future self comes with a hefty cost—and not just financially. Blowing off saving for retirement in favor of other, more fun options can cost you not only money years down the road but also years of your life that you could’ve spent retired had you made wise investment decisions early in your career. Ultimately, borrowing from your future self delays your overall retirement readiness—which should come as a last resort.

Best long-term tips for saving in a 401(k) retirement plan

Whether you’re quickly approaching the years of retirement bliss, just started in the workforce and can’t yet see the proverbial light at the end of the tunnel, or are somewhere in between, planning and preparing for your retirement is vitally important. Unfortunately, a recent study reported that nearly 14 percent of American workers have nothing saved for retirement, and perhaps even more alarming—roughly 42 percent of Americans have less than $10,000 saved [2]. But why does that really matter?

Well, depending on your lifestyle, $10,000 may earn you a few months to a year of retirement at max, and we’re willing to bet you probably want to be retired for longer than that. So what can you do to begin preparing for your financial future? Enrolling in an employer-sponsored 401(k) plan is a great place to start. And it doesn’t matter whether you’re a rookie to retirement planning or you’re a seasoned pro; participating in a 401(k) retirement plan can provide a significant source of retirement income.

successfully growing your 401(k) long-term

· Calculate your needs

The first step on your path to 401(k) success is to determine your retirement needs. What kind of lifestyle do you envision living? Will you move to a more retirement-friendly state? Are you going to travel a lot? How long would you ideally like to be retired? How much of your current salary will you need in retirement? Will you consider working part-time during retirement? Answering these questions will help build the framework for your 401(k) strategy and give you an idea of how much money you’re going to need to fund your new lifestyle. If you aren’t on the path to meeting the goals you envisioned yet, that’s okay. You have time to increase your financial literacy rates, and if needed, you can always adjust your investment variables, like 401(k) contribution rates, investment strategy, and date of retirement, to reflect your goals and get you back on track.

· Take advantage of a company match

Life is unpredictable. And sometimes it gets in the way of your savings resolutions. While you may not always be able to save as much as you would like, a common piece of retirement planning is to take full advantage of any company match that’s offered by your employer. The match provides additional dollars to your retirement plan, which will contribute to potential long-term compounding and growth of your account. So if your employer offers a 50 percent match up to 6 percent of your salary, make sure to contribute at least that 6 percent so you don’t leave free money on the table.

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· Get advice selecting your retirement investments

Choosing the right mix of investments within your 401(k) plan is crucial to realizing your retirement goals. But there are a lot of choices available, and it’s easy to get overwhelmed. Take advantage of the services offered by licensed financial professionals that are part of your retirement plan. Relying on investment professionals to help you plan your portfolio can reduce the likelihood of common investment no-no’s, like chasing performance or attempting to minimize short-term losses when markets are down.

· Stick to your plan

It’s important to stick to your long-term investment strategy. Make sure to regularly monitor the performance of your account, update contribution amounts, and track your desired years of retirement. Earned a raise? If your budget allows, use a percentage of that raise to increase salary deferrals to your 401(k) plan. You can’t miss money you never saw, anyway!

And if/when it’s financially feasible, take advantage of the high contribution limits of a 401(k) plan. Workers are able to contribute up to $18,500 per year to their 401(k) plan until they turn 50, at which point an additional $6,000 per year in catch-up contributions come into play and workers can save even more. The more you can contribute, and the earlier in your career you can do so, the better chance you have in reaching your savings goals.

· Apply your 401(k) strategy in retirement

Utilizing your 401(k) strategy doesn’t end just because you retire, so make sure to consult with a financial professional or your tax advisor on when to start drawing income from your account. Since each person’s individual situation is different, there’s no one-size-fits-all solution for determining when to start collecting income from a 401(k) or when to claim Social Security benefits. Consult trusted financial professionals before determining when, and how much, to withdraw from your account.

You don’t have to be backed with years of experience or understand the ins and outs of investing just to have a successful 401(k) strategy. Following these five tips can help you grow your retirement nest egg and increase your retirement readiness, regardless of how much time is in between you and your golden years.