How Much Money You Need In Your Savings To Retire Rich

Joining the ranks of the wealthy is a financial goal that's monolithic in the minds of many Americans. While becoming rich in the present is a massively tall order, saving up to enjoy expanded wealth in the future is actually doable. Saving for a quality retirement can be as attainable as just a few hundred dollars per month if you start young. But just making your retirement finances work might not be the ultimate goal. Many savers hope to amass a true war chest of wealth by the time they retire, leaving the workforce behind as a truly rich individual.

Americans both young and old agree that a nest egg worth about $5 million is necessary to retire as someone who has achieved the status of rich. That's quite a bit of cheddar, but if you start putting away $1,130 per month at 18 and continuing until you reach full retirement age you'll likely hit that vaunted figure. Of course, as is almost always the case when it comes to exploring personal finances and retirement savings strategies, there's plenty more to chew on than just raw numbers.

Diligent savers may still not be able to reach this financial milestones that makes them "rich," but this doesn't mean that you can't live a life full of richness in retirement. Saving with purpose, living within your means, and focusing discretionary spending on things that give you fulfillment deliver a lifestyle that can be tremendously rewarding. Some experts also suggest utilizing the 4% rule to keep your worries over running out of funding to a minimum. This approach will see you take a distribution of 4% from your retirement savings account in the first year of retirement, and then adjust it based on inflation every year afterward. For instance, if you have an even $1 million in your retirement accounts when you hang it up, you'll take $40,000 out in your first year. If the following year sees a 3.5% inflation rate, you'll adjust that distribution by 3.5%, giving you $41,400 in spending capital that year.

If $40,000 doesn't deliver on the lifestyle you hope to enjoy, plan early to reach a higher savings goal: For instance, your money will generally double in the market every seven years, so waiting seven years beyond when you achieve that first million can potentially turn it into two. Delaying your retirement for three years beyond full retirement age will also give you a 24% bonus in your Social Security checks along with three additional years to save. Those three years handle a bulk of the seven required for a doubling event and give you plenty of room to continue adding to the pot.

Based on the same 4% drawdown rule, with a $5 million nest egg you'd be pulling out $200,000 in your first year of retirement. This is a hefty figure for sure. But it's worth noting that even a significant amount of retirement savings can end up dwindling down to dangerous levels if you aren't careful. Lifestyle creep is a particularly damaging problem that many Americans face. With plenty of cash on hand, it can be tempting to spend without care.

Those who want to live life large in retirement might consider purchasing a luxurious home. This can easily rise up into the millions (with a median price of $2.7 million in Seattle, for instance). Right off the bat, this purchase can drop your annual retirement distributions to a much lower figure (subtracting $40,000 for each million spent), and that's before you factor in additional purchases like furniture and décor. 

You might also invest in lifestyle enhancements like a boat or club memberships that further erode the principal value of your portfolio and once again reduce the retirement income your investments generate. It's conceivable that a perfectly executed retirement planning strategy carefully enacted throughout your working years might come off the rails when it comes time to start spending. On the other hand, the project of living within your means becomes even easier with this much money standing as a backstop, and there's no reason why a $5 million retirement account can't become a $10 million inheritance down the line while still funding a tremendously luxurious lifestyle in the interim.

Instead of focusing on an end figure that looks nice on the balance sheet, many savers work backwards. Thinking about the money you have reasonably available to you rather than the totality of your investment portfolio can be a different approach to considering richness in retirement. The top 20% of earners make roughly $130,000 annually, or about $11,000 per month. Delivering this requires a little over $3 million in retirement assets based on a 4% drawdown rate.

Calculating your targets another way, a good rule of thumb is to aim to build a portfolio worth 25 times the annual spending level you maintain. At $130,000 annually, this comes out to exactly the same figure: $3.25 million. Thinking about your portfolio in terms of its multiple against your annual spending brings about the same end result with a different mental framework. With the same parameters for saving as above, hitting this target requires a monthly savings contribution of $730 from the time you're 18.