$1.27M is the new magic number: What Americans need for retirement
Most employees expect to work longer, indicating they plan to retire at age 65 (up from 64 in 2022), and need to save more than they did a year ago, according to Northwestern Mutual.
The amount of money Americans think they will need to save to achieve a comfortable retirement inched up this year to $1.27 million from $1.25 million last year, according to new data from Northwestern Mutual. Nearly half of respondents to its recent 2023 Planning & Progress Study, however, indicated they don’t know how much they’ll need to save.
Americans also expect to work longer than they previously did, with adults on average indicating they plan to retire at age 65, up from an anticipated retirement age of 64 last year and 62.6 in 2021.
“The most surprising part of the study was that almost half of respondents do not know what their financial security number is,” said Chris Collins, wealth management advisor at Collins Financial, a Northwestern Mutual Private Client Group. “A good advisor will help you identify that and get you on the road to financial security.”
Collins said intentionality is key no matter where people are on their financial journey, which often means making debt management part of their financial plan.
“Americans’ magic number for retirement readiness continues to rise,” said Aditi Javeri Gokhale, chief strategy officer, head of institutional investments and president of retail investments at Northwestern Mutual. “The good news is that they are saving and investing more for tomorrow, even in this time of high inflation and market volatility.”
The study found a 3% increase in average retirement savings from $86,869 in 2022 to $89,300 this year among respondents of all ages.
“That is a step in the right direction and a reverse of what we saw last year when the gap widened rather than narrowed,” said Javeri Gokhale. “The challenging news is that there continues to be a big disparity between what they think they’ll need to retire and what they’ve saved to date.”
Related: Most workers expect to fall short of $1 million retirement savings goal
Gen Z is the most confident they’ll be financially prepared for retirement when the time comes, with 65% saying they expect to be ready financially, the report found. Older generations are more pessimistic. Gen X feels the least prepared, with 55% saying they won’t be ready financially to retire, and nearly half of millennials and pre-retirement boomers saying the same.
Americans are equally worried that they will outlive their savings as they are about the potential for declining health during their retirement years. However, only one-third of respondents indicated they had taken steps to ensure they won’t run out of money either by increasing savings, developing a financial plan or purchasing investments.
“Employers can take a more active role in making sure their employees are not only prepared for retirement but knowledgeable in what goes into that process,” said Collins. “Often, employees are not aware of their options, whether they utilize them or not. Making it plain and clear the products and investments at their disposal can go a long way in strengthening employee retirement prospects. At the same time, this can also build trust with that employee, which can also make them more productive and positively contribute to your bottom line. Again, intentionality is a simple, yet significant way to improve an employee’s preparedness for retirement.”
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.