There’s a reason many people aim to save $1 million or more for retirement. Social Security will only replace about 40% of your preretirement wages if you earn an average salary. And the average monthly benefit today is only about $2,083. Without savings, you could get stuck living on roughly $25,000 a year if you collect the typical Social Security check.

But while it’s important to save well for retirement, data shows that many older Americans inevitably reach their senior years with modest nest eggs. In fact, as of 2022, the last time the Federal Reserve collected data, the median retirement savings balance among Americans ages 65 to 74 was only $200,000.

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Now, in fairness, the stock market has enjoyed significant gains over the past four years. So it’s conceivable that if the Fed were to survey Americans in that same age group today, they’d report higher balances.

But that doesn’t mean the median savings amount would increase from $200,000 to $500,000. And all told, it’s certainly fair to assume that the typical American between 65 and 74 has closer to $200,000 saved than $1 million or more.

Of course, this begs the question: Can you actually survive on $200,000 in savings in retirement? The general answer is yes, but it requires very careful money management.

What retirement might look like with $200,000 in savings

A $200,000 nest egg can serve as a nice supplement to your monthly Social Security checks. It can also provide you with a cushion when unexpected bills, such as home or car repairs, arise.

But a $200,000 savings balance may not change your lifestyle significantly on a day-to-day basis. If we apply the popular 4% rule to a balance that size, it amounts to $8,000 in annual income. That’s another $667 per month.

Now that extra $667 probably won’t let you take luxury vacations twice a year. You’ll still have to budget carefully and keep your essential costs as low as possible.

But that additional money should make it easier to cover a range of retirement expenses. So if you’re struggling to save for retirement and think your best-case scenario is a $200,000 nest egg at the end of the day, don’t stop. You’ll be in a much stronger position to cover your costs with a $200,000 IRA than with $0.

Of course, with a typical Social Security check and $200,000 savings balance, you may end up having to work part-time in retirement to have money to afford extras like cable, restaurant meals, and paid entertainment. But all told, it’s possible to make retirement work on $200,000. You just need to spend carefully and avoid wasting money on things you don’t need.

How to retire with well more than $200,000

Clearly, it’s possible to get by on $200,000 in retirement savings, since the typical person aged 65 to 74 is doing so now. But that doesn’t mean $200,000 will buy you the retirement lifestyle you want.

If that’s the case, you should know that the key to retiring with more money is to start saving as early as possible. Rather than wait until your income has peaked, which may not happen until your 40s or 50s, start funding an IRA or 401(k) with small amounts in your 20s.

If you can only swing $25 a month, that’s better than $0. The second that money lands in your retirement account, you can invest it so it grows into a larger sum. Over time, that could make a difference.

In fact, let’s say you’re able to save $100 a month for retirement. If you start doing so at 22 and retire at 65, you have a 43-year window to build wealth. If your portfolio delivers an 8% yearly return during that time, which is a bit below the stock market’s average, you could end up with almost $396,000, or roughly twice the median $200,000 balance the Fed most recently recorded.

Better yet, if you’re able to stretch to $200 a month, you could end up with almost $800,000 by age 65, assuming that same time frame and yearly return. And that amount of money could be life-changing.

You’re certainly not doomed if you’re approaching retirement with $200,000 in savings. But if you’re relatively new to the workforce, you should know that you have an opportunity to set yourself up with a lot more savings than that. The key is to start early rather than wait.

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