How Much Money Is Considered a Nest Egg?
A "nest egg" is a sum of money set aside for your retirement years. There is no agreed-upon amount that constitutes a nest egg; the important part is that your nest egg allows you to live comfortable from retirement until you die. The amount of money required for your nest egg depends on several factors.
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Standard of Living
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The amount of money necessary to sustain you throughout your retirement years depends on your standard of living. Ideally, you don't want to retire into poverty; you want to continue to enjoy the same standard of living that you did during your working years. Multiplying your annual expenditures by the amount of years you expect to live after retirement can help you arrive at a reasonable figure. Of course, it's better to err on the side of caution and save too much instead of too little. Saving more can also help you to offset the effects of inflation.
Rate of Return
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The amount necessary for your nest egg to sustain you throughout retirement also depends on how well your investments perform. If your nest egg is stuffed in a sock drawer and not providing any returns, you need to save more. If your nest egg is invested in stocks and bonds that are performing reasonably well and providing you with returns, you need less money tucked away. Investing in a 401(k) program can help your nest egg begin to accumulate returns.
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Circumstances of Retirement
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The circumstances surrounding your retirement have a significant impact on the amount of money you'll need for retirement. If you retire at age 62 and receive reduced Social Security benefits, you'll need to save more money than if you work until you're 70 and can count on maximum benefits from the government. If you plan on keeping a part-time job in retirement, you'll need less money than if you won't be working at all.
Examples
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In a December 2011 article, "U.S. News & World Report" reported that the amount of money Americans had saved for retirement varied widely by income level. Workers who had earned a salary of between $20,000 and $40,000 had a median 401(k) savings of $58,028 by the time they reached their 60s, while those with a salary range between $40,000 and $60,000 had a median savings of $97,413. A median account value of $162,683 was reported for those earning between $60,000 and $80,000, while those earning between $80,000 and $100,000 had put away a median of $236,612. Those earning an annual salary over $100,000 reported a median 401(k) savings of $344,849.
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