Investors expect a long-term return of 15.3%. Here’s the truth all retirees should keep in mind

What if I told you that you could go from $0 to $1 million in 30 years by investing just $170 a month? It sounds pretty amazing, especially for working people who didn’t have much, if any, to save in the first decade of their careers. But there’s a small problem with this example: It’s too optimistic.

In order to achieve this, you will need to achieve an impressive average annual return of 15.3%. Natixis Survey This reveals what many Gen X workers expect from their income. But the reality isn’t quite so rosy. Below, we’ll talk about more reasonable expectations and how to adjust your retirement plan accordingly.

Excessive optimism can be dangerous.

The Natixis survey found that American Gen X workers have the largest expectation gap of any country surveyed when it comes to investment returns. While they hope for a 15.3% above-inflation return over the long term, the reality is closer to 7%. That’s less than half of what they expected.

This may not be what you want to hear, but it’s important to revise your expectations so you don’t fail in retirement. Going back to our original example of saving $170 a month for 30 years, you’d only end up with $198,807 if you earned an average annual return of 7% over that period. Even with Social Security, that probably wouldn’t be enough to cover all of your expenses.

If you want to live as comfortably as possible, you need to increase your retirement contributions to match a more realistic rate of return. If you still hope to save $1 million over 30 years, you’ll need to save about $856 per month, assuming an average annual return of 7%. That’s much harder for the average person.

How to Modify Your Retirement Plan

If you realize that you have been overly optimistic about your investment returns, it is important to correct this as soon as possible. To start, calculate the current balance of all your retirement accounts. Then use a retirement calculator to figure out how much you should be saving each month to reach your long-term goals.

Ideally, you would have extra money to set aside for retirement, but for many people, that’s not the case. First, you need to find money to set aside. There are two ways to do this: reduce your expenses and increase your income.

Cutting your expenses might look like canceling unused subscriptions or cutting discretionary spending. Increasing your income might include things like finding a better-paying job or starting a side hustle. You can also try a combination of the two.

When that’s not enough, you may need to consider extending the length of time you invest your retirement savings before withdrawing them. This usually means delaying retirement to give your investments more time to grow. It’s not a perfect solution, but it’s very effective.

Let’s say you hope to save $1 million by your initial retirement date in 30 years, but you don’t have the $856 per month you need to reach your goal, assuming an average annual return of 7%. You can only save $500 per month. If you postpone your retirement for a little more than seven years, you can still reach your $1 million goal. You may not even need to wait that long, since working longer also reduces the length and cost of your retirement.

It’s never easy to find yourself in a situation where you can’t provide for the future. But the sooner you take steps to address the problem, the easier it will be to get back on track. Do the best you can now, and check in with your progress every year (or whenever you go through a major life change) to make sure you’re contributing enough.