Americans have ambitious goals for their retirement years, with the average worker now believing they need $1.46 million to retire comfortably. This figure marks a significant 53% increase from the savings target reported in 2020, as per a recent survey conducted by Northwestern Mutual.
Despite these aspirations, the survey reveals a stark reality - the average amount currently held in a retirement account stands at just $88,400. This glaring disparity means that the typical worker faces a substantial $1.37 million gap between their current savings and their retirement financial goals.
Factors such as inflation and other financial challenges have contributed to the increased perceived need for larger retirement funds in comparison to 2020. Aditi Javeri Gokhale, the chief strategy officer at Northwestern Mutual, explained to CBS MoneyWatch that workers today are also anticipating longer lifespans and extended retirement periods. This shift in mindset could be a contributing factor to the belief that larger nest eggs are necessary for retirement.
Interestingly, the study highlights that Gen Z workers, currently in their early 20s, have particularly ambitious retirement plans. They aim to retire at 60 and nearly one-third of them anticipate living up to 100 years old. This expectation translates to a need to finance a 40-year retirement, emphasizing the importance of substantial retirement savings.
"The magic number is at an all-time high — it's 50% higher than what it was before the pandemic," Gokhale said. "The cost of living in general, whether in reality or perception, seems to be more costly now than it was before."
And more people are worried about Social Security, given that the program's trust fund reserves are set to be depleted in 2033, which will lead to a cut in benefits if the program isn't shored up before then.
"We're all seeing stories about Social Security, and you'll see more of that since it's election year," she noted. "So if my benefit will be cut, I have to shoulder more of the burden."
How far does $1.46 million get you?
Many of the 4,588 adults who responded to the financial service company's survey likely answered with a guesstimate, given that the study also found that only about half of boomers — many of whom are already retired — say they actually know how much they need to retire, Gokhale said.
In other words, while some people have talked with a financial adviser or worked out a detailed plan themselves for their retirement, many Americans are heading toward retirement without really sitting down and figuring out what they need.
"Retirement planning is not just about numbers; it's also about emotions," Gokhale pointed out. "While some individuals may have crunched the numbers to estimate their retirement expenses and savings, ultimately, the decision often comes down to a gut feeling."
It's important to recognize that retirement needs can vary significantly based on factors such as pre-retirement lifestyle, local cost of living, taxes, and other financial considerations. For instance, following the 4% rule for annual withdrawals from retirement savings, a nest egg of $1.46 million would generate around $58,400 in yearly income.
When factoring in Social Security benefits, which average about $23,000 per year, the total retirement income would amount to approximately $81,000 annually — surpassing the median household income of $74,580.
Nevertheless, it's essential to note that most Americans are far from reaching a $1.46 million savings goal, and many enter retirement with no savings at all.
Emphasizing self-reliance
This study highlights the self-reliant nature of the current retirement landscape, which has shifted towards individual responsibility with the prevalence of 401(k) plans over traditional pensions. Unlike pensions, which were managed by employers to provide retirees with a steady income stream, 401(k) plans require employees to make their own investment choices and determine their savings rate.
One of the system's critics is retirement expert Teresa Ghilarducci, an economist and professor at the The New School for Social Research in New York, who recently expressed to CBS News that the current approach has has left behind the bottom 90% of workers. For starters, only half of American workers even have access to a retirement plan, leaving the rest to cobble together a savings strategy.
Many Americans don't believe they have enough money to consult a financial adviser, but it's a step that she believes more people should take, noted Gokhale, whose company provides that service. "I don't believe you have to be on your own and Google search, 'What do I need for retirement'," she added.
But other research indicates there are plenty of hurdles to overcome. For one, about 6 in 10 people over 50 have never talked with a financial professional, and the reasons range from their fears that they don't have enough in savings to justify it and that it's too expensive, according to a study published earlier this year from AARP.
"If you are trying to do this on your own, it becomes very very overwhelming and disheartening," Gokhale said.
For most Americans, going it alone is the standard way to plan for retirement.
