$1.46 million.
That’s what U.S. adults believe they’ll need to save to live comfortably throughout their retirement years, according to Northwestern Mutual’s latest “Progress & Planning Study” surveying Americans’ views on their long-term financial security.
The retirement “magic number,” as the financial services firm’s April 2024 report terms it, is 15 percent higher than it was a year ago and has grown a whopping 53 percent since 2020, when the average amount retirement savers said they would need was $951,000.
At the same time, Americans’ actual retirement savings have changed little. The survey of nearly 4,600 people ages 18 and up, conducted for Northwestern Mutual by the Harris Poll, found an average nest egg of $88,400, barely budging from $87,500 in 2020. The gap between what workers have saved and what they feel they need to save has exploded from $864,000 to $1.37 million in just four years.
Whether you really need $1.46 million to retire comfortably will depend on a host of factors, including your expected longevity, where you plan to live and what you want to do. (You can use the AARP Retirement Calculator to get an estimate.) But the steep ascent in what American workers believe they’ll need is further evidence of their growing anxiety about retirement.
The proportion of working-age Americans who believe the nation faces a “retirement crisis” grew from 67 percent in 2020 to 79 percent last year, according to a February 2024 study by the National Institute on Retirement Security. A May 2023 Gallup poll found that 43 percent of U.S. adults are optimistic about being able to live comfortably in retirement, the lowest figure since 2012, when the country was just emerging from the Great Recession.
Inflation weighs heavily
The biggest culprit for the swelling magic number? Inflation, which hit a 40-year high of 9.1 percent in June 2022.
“There is certainly an additional layer of stress that today’s retirees have that was not there the last 20-30 years,” says John Faircloth, a private wealth adviser and chief operations officer at Northwestern Mutual’s Riverwalk Wealth Advisors in Tampa, Florida.
“When people retire, there are typical concerns: Will I have enough money, will the markets fall as soon as I retire, will I outlive my money, etc.,” he says. “I think rising prices in everyday items like food, gas, insurance, even home and auto, have made a lot of folks nervous.”
While inflation has slackened, hovering around 3.5 percent in recent months, the pandemic cycle of price spikes was a wake-up call for many Americans, says Tom Chang, a behavioral economist and associate professor of finance and business economics at the University of Southern California’s Marshall School of Business.
“We were shocked into thinking about inflation,” Chang says, especially younger adults who spent most of their lives in an era of stable prices. “Inflation has become a much more salient feature. People are thinking about inflation, and they realize that they have to save more.”
In the face of these economic headwinds, 6 in 10 U.S. adults with investable assets of $10,000 or more say they have significantly altered their retirement expectations in the last five years, according to a new study from the Nationwide Retirement Institute. Nearly 2 in 5 have scrapped the idea of setting a retirement savings target altogether.
Lasting impact
Even with inflation cooling, consumer prices rose by nearly 20 percent from early 2020 to early 2024. That’s considerably less than the growth in the magic number over the same period, but “those [inflation] numbers are compounding on themselves,” Faircloth says.
“When prices go up, they often don’t come back down,” he says. As a result, “the rising cost of living in retirement is a major concern.”
Even a slight change in inflation can make a big difference in long-term saving needs. For example, if inflation averages 2 percent over the next 40 years, something that costs $100 today would cost about $220. But if inflation is about 3 percent a year, that item is going to cost about $325.
“If you’re looking at a 40-year time horizon, the difference of 1 percent of inflation means you need to save 50 percent more,” Chang says.
That kind of time horizon is increasingly part of people’s retirement calculations. “We are living longer,” Faircloth says. “If you’re going to be in that retirement period longer, then you will need more dollars.”
Nearly 1 in 3 millennials and members of Generation Z consider it likely or highly likely they will live to be 100, compared to about 1 in 5 boomers and Gen Xers, the Northwestern Mutual study found. At the same time, the younger generations plan to retire earlier: age 60 for Gen Z and 64 for millennials, versus 67 for Xers and 72 for boomers. To square those expectations, their nest eggs will have to be bigger and last longer.
Falling short
Given the growing gap between Americans’ actual savings and what they perceive they’ll need for a secure retirement, it’s not surprising that many lack confidence that they can catch up. Fewer than half of boomers and Gen Xers who have not yet retired think they’ll be financially ready when they do, according to the Northwestern Mutual survey.
Gen X, the oldest members of which are nearing 60, seems especially concerned, saying in greater numbers than boomers that they do not have a handle on how much money they will need to retire comfortably or how to meet health care and long-term care costs as they age.
“Those numbers tell me there’s a lot of anxiety there,” Faircloth say
Compounding the unease is uncertainty about the future of Social Security, which provides more than half of income for about 2 in 5 beneficiaries ages 65 and over, according to the Social Security Administration (SSA).
The latest annual report from Social Security’s Board of Trustees projects that the trust funds that pay out benefits will run short in 2035. If Congress does not take action to shore up the program’s finances by then, those beneficiaries would only get about 83 percent of their scheduled payments, making them more reliant on savings.
“I’m firmly in Gen X myself. We have been told for many years not to count on Social Security, that the money is going to run out. And now the younger generations are wondering what will happen,” Faircloth says. “They just don’t know what’s coming down the pike.”
Easing anxiety
While you may not get to a million and a half in savings, you also might not need that much.
“It’s good to have a goal in mind,” says said Rona Guymon, senior vice president of Nationwide Annuity Distribution, in a statement on the Nationwide survey findings, but “at the end of the day, a magic number doesn’t tell you much about how long your income will last over an uncertain amount of time in retirement. That’s where holistic financial planning can make all the difference in the world to address the anxiety of a nervous investor.”
Whatever your goal, there are things you can do to get closer to it, and to stress less about your retirement prospects.
Figure out your own magic number
Deciding where and how you want to live in retirement will play a big role in forecasting how much you will need. Do you hope to travel a lot? Will you work part-time for a while? Is it important to you to leave an inheritance or help your grandchildren pay for college? Estimate how much you’ll need for the retirement you want and lay out the steps that can get you there.
“Doing that first action can really make an impact on a person’s confidence,” says Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. “Finding out what your goal is and your path to it — that can change everything for workers going into retirement.”
Save more as you age
Americans’ earnings are typically highest from their mid-30s to mid-50s, according to data from the federal Bureau of Labor Statistics. Toward the end of that cycle, you can really maximize your savings by taking advantage of catch-up contributions.
The IRS sets limits on how much you can contribute each year to your workplace plan or individual retirement account (IRA), but it’s a two-tiered system. This year, if you’re under age 50, the rules cap contributions at $23,000 to a 401(k) and $7,000 to an IRA. Starting at 50, you can make catch-up contributions, bringing the maximum to $30,500 for 401(k) and $8,000 for an IRA.
And if you have access to a workplace plan that offers an employer match, make sure you’re maxing out that amount, Copeland says.
Look for guaranteed income
The certainty of a monthly check from an employer pension has helped many boomers retire with confidence that they won’t run out of money. With “defined contribution” plans like 401(k)s now dominant in the workplace, future retirees are more likely to have only Social Security as a guaranteed income stream, unless they create their own.
One option is to keep working, but that may not be an attractive or physically feasible choice. Another might be an annuity, an insurance product that, in its most basic form, converts a lump-sum initial payment into a lifetime monthly income that isn’t tied to investments.
“An annuity actually solves a lot of those problems,” Faircloth says. “If the markets are down, you can still cover your grocery expenses. It allows you to live your life regardless of what the economy is doing.”
But be sure of what you’re getting. There are different kinds of annuities, of varying levels of complexity, and some charge high fees. “There are bad ones and there are some really good ones,” Faircloth says. Do your research and, if possible, seek advice from a trusted financial adviser before buying.
