Investing in the stock market can be a great way to build up your wealth and save for retirement. But just how much do you need to truly retire comfortably, and how much should you have invested in the market today to be on track to hit that magic number in 25 years?
Below, I'll look to answer those questions -- and also provide you with a good investment option that can help you keep your risk relatively low while also benefiting from the market's long-term growth.
A goal of having $1 million in savings by the time you retire might have seemed like a good one just five years ago. But with inflation giving many investors a reality check about just how quickly things can go off the rails and chip away at your savings, it's clear that investors may want to consider much more of a buffer than that.
A 2024 survey from Northwestern Mutual found that Americans estimate they'll need around $1.46 million to be able to retire "comfortably." That's up from $951,000 in 2020.
In a few years, the number may go up again. Assuming inflation remains under control, the jump may not be nearly as significant as it has been in just the past four years. But for argument's sake, let's round up and say $1.5 million is the number to aim for.
To determine how much you should aim to have invested today, it's important to consider what type of annual return you'll expect to average over the long haul, which isn't necessarily easy.
The S&P 500 has averaged an annual return of around 10% per year for decades. But with the stock market at record levels, it may be a good idea to factor in some conservatism when projecting your future returns. Setting expectations too high could lead to disappointment later on. Let's assume a more modest annual growth rate of 8%, which will allow you to factor in a slowdown in the future.
A good exchange-traded fund (ETF) to invest in that mirrors the S&P 500 is the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). It tracks the broad index, which can be ideal for long-term investors as it gives you exposure to 500 of the largest and safest stocks on the market. It's a lot easier than picking growth stocks on your own, and it's also an easy way to diversify.
The table below shows how much you would need to have invested in a fund that mirrors the S&P 500 and might grow at a rate of 8% per year.