Americans think they need $1.25 million to retire comfortably — but while that figure may seem overwhelming, it still may not be enough, new research says.
A study from Northwestern Mutual published this week found that U.S. adults predict they will need $1.25 million to retire comfortably, an amount that’s 20 percent higher than in 2021. change that target until the average American’s retirement savings fell 11% to $86,869, down from $98,800 last year.
For many people, the idea of saving $1.25 million may seem insurmountable, but even that amount may not be enough to fund a retirement that could last decades, according to experts. Experts.
“The gap is growing between where people are and where they might need to be. “People are really nervous about retirement,” said Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual.
While there is no magic number that works for all retirees, a general rule of thumb is that everyone should aim to have 70% of their pre-retirement income for each of their retirement years.
But that number may be conservative. Steve Azoury, owner of financial services firm Azoury Financial in Troy, Mich., says people should plan to have between 80% and 90% of their pre-retirement income in retirement.
“The idea is to retire, not just sit around. Go and have some fun and live your life. The 70% rule is really just for paying bills and things to do,” says Azoury. “About 30 years of your work will determine your final years – so work hard and save money.”
Azoury said workers should save 15% of their income over the course of their career, an amount he says should fund a comfortable retirement.
No more 4% rule?
By a different – and potentially outdated – measure, many retirees plan to withdraw 4% of their retirement assets annually in the hope of not using up their savings. But that rule has recently been revised downward, with some experts now saying retirees should only withdraw 1.9% of their portfolios a year.
Add to that market uncertainty, inflation, and the prospect of shrinking Social Security benefits and longer life expectancy, and calculating how much you need to retire gets complicated. People may need to work longer, save more, or cut back on their spending in retirement to make ends meet.
“Many of these benchmarks are just that simple – the back of the envelope, interesting looking, is very simple,” says Mitchell. “What you need is an overall understanding of your life and goals and against the purity of a number,” he adds.
“The key is to have a customized financial plan that is updated every year,” says Jeffrey Swett, financial advisor and leader of the Swett Wealth Management Group of UBS in Boston. “You can’t say one number will cover everyone’s needs. It depends on lifestyle, cost of living, spending habits and longevity, among other things.”
Coming out of the pandemic at a time of rising inflation and volatile markets has created uncertainty for many, Mitchell said.
“We have also seen an increase in annual spending not only due to inflation, but also because people have regained a sense of normalcy in their lives after the early days of the pandemic. These factors are causing many people to reframe their thinking about how much they will need to retire and how long it will take to get there,” says Mitchell.
The expected retirement age has increased somewhat to 64 from 62.6 last year, Northwestern Mutual said.
“Often people don’t get to choose when they retire. They may get sick, they may have to take care of loved ones, they may be laid off from work. Their scenario in their mind may not play out. That’s why you need to consider multiple situations and prepare on multiple fronts and work with a counselor,” says Mitchell.
Research shows that Americans have low levels of confidence in their retirement preparations, and they don’t have great confidence in Social Security as a fulcrum. More than 4 in 10 (43%) say they don’t expect to be financially ready to retire when the time comes. And 45% say they can envision a time when Social Security no longer exists.
One in three Americans expect to live to be 100, research shows. An equivalent amount (33%) predict there is a 50% higher chance they will outlive their savings. However, more than a third (36%) reported that they had not actively taken any steps to address this concern.
“That’s one of the questions on a lot of people’s minds – how long should I work to save enough for retirement?” Mitchell said. “It’s really hard to answer, because there are all kinds of considerations to include.”
When asked about how the pandemic has affected their retirement timeline, 25% of respondents said they plan to retire later than expected, while 15% said they plan to retire later. retire earlier.
Research also shows that most adults (60%) prioritize personal fulfillment over salary and earning potential in their careers.
Swett said COVID-19 has made customers focus on more than just money. And for some, the pandemic has made them less interested in retirement, because remote work relieves some of the stress of commuting and gives them more flexibility.
“COVID has completely changed everything,” says Swett. “People have really emphasized quality of life. Remote working, in some cases, means people actually work longer and worry less about retirement because they can work from anywhere.”