For adults in the US, the “magic number”– the amount they believe they need to comfortably retire– is $1.46 Million according to Northwestern Mutual’s latest survey. This denotes a 15% increase over the $1.27 million reported last year, and a whopping 53% over the $951,000 they reported in 2020.
The figure is rising “much faster than the rate of inflation”, the study said.
Financial Forecast: Rising Retirement Expectations Outpace Inflation Rates
The findings were part of the latest annual survey conducted by Northwestern Mutual survey as part of their Planning and Progress Study. Northwestern Mutual’s 2024 Planning & Progress Study explores the attitudes, behaviors, and perspectives of Americans across a broad set of issues impacting their long-term financial security.
The key findings of the survey were:
- People’s ‘magic number’ for retirement has jumped 15% in just a year and 53% since 2020; while retirement savings has fallen to $88K.
- The ‘Silver Tsunami’ is here: 11,000 Americans will turn 65 every day through 2027; only half of Boomers+ and Gen X believe they will be financially ready for retirement
- Gen Z started saving at 22 and expects to retire at 60, whereas Boomers+ started saving at 37 and expect to retire at 72.
- Only 3 in 10 Americans believe they have a tax-efficient retirement plan, possibly causing many to pay more than required.
According to the study, In 2020, the same target was $951,000 compared with $1.46 Million this year. It is over 15% higher than the $1.27 million reported in 2023. This suggests that even while the inflation rate has cooled from 2% to 3%, the magic number hasn’t seen a corresponding decline.
There Is A Wide Gap Between The Retirement Goal And Current Savings Of Americans
Interestingly, the gap between their target and goals has become wider. The average retirement savings of an American is just $88,400 as compared to $89,300 in 2023 and the peak of $98,800 in 2021.
This means their average savings is $1.37 million less than their average retirement savings target.
Javeri Gokhale, chief strategy officer, president of retail investments, and head of institutional investments at Northwestern Mutual highlighted the importance of planning and staying disciplined to meet our expectations. Teresa Ghilarducci, however, attributes the rising magic number to “retirement anxiety” rather than “retirement planning. She pointed to how people might be overestimating the amount of money they will need in their 401(k). The calculation is also complicated if you factor in the uncertainty of the future of Social Security.
“Magic Number” Shows Variation By Generation
The magic number also showed large variations across the generations.
Both Gen Z and millennials say they need more than $1.6 million to retire comfortably. For high-net-worth individuals, this amount is as high as $4 million.
Gen Z is also better prepared for their retirement. Whereas the average age for an American to start saving for retirement is 31, for Gen Z, it is 22. Boomers started when they were 37, millennials at 27, and Gen X at 31. Gen Z is reportedly starting sooner and saving more with the aim of retiring earlier.
“They expect to retire at the age of 60, a dozen years before Boomers+ who say they’ll work until they’re 72,” the company said. “Millennials and Gen X’ers expect to work until 64 and 67, respectively. The average age most people expect to work to is 65.” the study stated.
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It is also important to remember that all the figures refer to what Americans “believe” they will need rather than an actual estimation based on any established math. People might be influenced to raise their expectations of their savings and experience more anxiety in response to what they hear about the inflation and rising cost of living in the country.