Employees’ new ‘magic number’ for retirement hits all-time high: $1.46 million
Against this retirement planning backdrop, however, employees are saving less for retirement, with the average amount now saved at $88,400 - a decrease of $10,000 from 2021, according to a Northwestern Mutual study.
A new study from Northwestern Mutual suggests that Americans’ “magic number” for how much money they believe they need to save for retirement has sharply risen in recent years, even while their actual savings are falling.
Northwestern Mutual’s 2024 Planning & Progress Study, which is the company’s research series exploring Americans’ attitudes, behaviors and perspectives on a range of issues tied to their long-term financial security, found that U.S. adults believe they will need an average of $1.46 million to retire comfortably, which is a sharp 15% increase from last year and a robust 50% higher than at the beginning of the COVID-19 pandemic in 2020 when Americans’ target number was $951,000.
Against that backdrop, however, Americans are saving less for retirement. U.S adults have an average of $88,400 saved for retirement, according to the study. That reflects a small drop of $900 from last year, but it more markedly demonstrates a decrease of more than $10,000 from 2021.
“In 2023, the soaring cost of eggs in the grocery store symbolized inflation in America. In 2024, it’s nest eggs,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “People’s ‘magic number’ to retire comfortably has exploded to an all-time high, and the gap between their goals and progress has never been wider. Inflation is expanding our expectations for retirement savings, and putting the pressure on to plan and stay disciplined. Making a ‘magic number’ appear isn’t about waving a wand; it’s about using time-tested techniques and learning from a skilled advisor.”
The magic number needed for retirement varied among the different generations – in fact, outside of the boomer generation, the number was much higher than the overall average. While boomers’ target retirement saving total was $990,000, Generation X was at $1.56 million, millennials were the highest at $1.65 million and Generation Z was at $1.63 million. Meanwhile high-net-worth individuals, who have more than $1 million in investable assets, pointed to a magic number of $3.93 million.
Other findings also identified some differences and similarities among the generations and their perspectives on retirement and retirement savings. For instance, the boomer generation said they started saving for retirement at age 37 and expect to work until they are 72 years old. In contrast, Gen Z’s average age to start saving for retirement is 22, and they expect to retire a dozen years earlier at 60. Across all generations, the average age that Americans started saving for retirement is 31, and they expect to retire at age 65.
“These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America,” Javeri Gokhale said. “Young people today recognize the value of retirement planning and building wealth early on in life and are getting a significant head start over their parents and grandparents. At the same time, Gen Z is redefining retirement and signaling that they plan to have long and fulfilling post-career lives. The good news is that they are investing earlier so they can save the money they need to enjoy it.”
Boomers and Gen X, the two generations closest to retirement, have the most pessimistic views of their preparedness with just 49% of boomers and 48% of Gen X believing they will be financially prepared for retirement when the time arrives. Similarly, Gen X on average believes there is a 42% chance they could outlive their savings, and boomers put the chance at 37%. “Across both generations, more than a third have not taken any steps to address the possibility of outliving their savings,” according to the study.
Top 5 saving strategies
The study found that 30% of Americans are using a plan to minimize the taxes that they pay on their retirement savings. The top five strategies used among that group includes:
- Making withdrawals strategically from traditional and Roth accounts to remain in a lower tax bracket (32%)
- Using a mix of traditional and Roth retirement accounts (30%)
- Making strategic charitable donations (24%)
- Using a Health Savings Account (HSA) or other tax-advantaged health care account (23%)
- Using products like permanent life insurance or annuities for the tax benefits (22%)
Related: Employees prioritize 401(k) plans with $1.8M retirement savings goals in mind
The study’s findings illustrate the importance of working with a financial advisor and developing a financial plan, particularly for those closest to retirement.
“The ‘Silver Tsunami’ is here,” Javeri Gokhale said. “While younger generations are focused on building wealth and protecting what they’ve already built, Gen X and boomers have an additional important task: paying themselves first in retirement. Where they have savings can be just as important as how much they have saved. Done well, a comprehensive financial plan can preserve thousands of hard-earned dollars to fund these golden years. For anyone who is not sure how to streamline and preserve every penny, an expert financial advisor can be a great resource.”