Whether you’re fast approaching retirement or have decades to prepare, the question of how much to save can be daunting. Yet Americans have a goal in mind for what’s needed to finance a comfortable retirement: $1.26 million.
That’s according to a new study by Northwestern Mutual, which surveyed more than 4,500 U.S. adults aged 18 and older. While $1.26 million may seem unattainable to many, it represents a scaled-down ambition from last year’s survey, when workers pegged their ideal retirement needs at $1.46 million.
The reason for the scaled-down financial goal comes down to cooling inflation, which has tempered workers’ expectations for their retirement needs, researchers at Northwestern Mutual said. Since touching a pandemic peak of 9.1% in June 2022, inflation has gradually eased, dropping last month to 2.4% on an annual basis.
“The inflation rate has been falling, and we’re starting to see people’s expectations for retirement savings soften, too,” said Melinda Wilke, a wealth management advisor at Northwestern Mutual.
But that’s not to say inflation has disappeared from the equation altogether.
“Obviously a reduced inflation rate is good news,” said David John, a senior policy advisor at AARP. “But we are still seeing many people who are very concerned that prices are going to continue to go up, and what that means for how long their retirement savings will last.”
John added that concern about the fate of the Social Security program — which currently provides monthly payments to more than 70 million Americans — is top of mind for many Americans the nonprofit works with.
Even after years of saving, a majority say they’re worried they could still come up short in retirement. Fifty–one percent of those surveyed said they think it’s somewhat or very likely that they could run out of retirement savings.
Despite having lofty goals for their retirement nest eggs, many workers are falling short. According to the 2022 Survey of Consumer Finances, the most recent data available, Americans had median retirement savings of $87,000.
Generational Differences
Americans also express generational differences when it comes to retirement — and the nation’s youngest adults have the biggest aspirations, the study found.
About 63% of Gen Z — whose oldest members are now in their early to mid-20s — say they believe they will be financially prepared for retirement. That’s far higher than the millennial or baby boomer generation, with their confidence at 54% and 56%, respectively.
Part of this, Wilke said, is due to an interest in wealth building among Gen Z. “FinTok, meme stocks and cryptocurrency piqued their interest,” the wealth management advisor said.
Gen Z also started their retirement planning earlier than other generations, with members of the group starting to save at the average age of 24, with the goal of leaving the workforce at 61. In contrast, older generations started saving much later, with boomers beginning at an average age of 37 and with plans to retire at 72.
The least confident generation is Gen X, or workers between about 45 to 60 years old, with only 46% saying they believe they’ll hit retirement in good financial shape, the survey found.
Gen X could be described as “Generation AnXiety,” Wilke added. As the first generation of U.S. workers to lean on 401(k) plans as a primary means of saving, they’re generally more underprepared for retirement than other generations, with about half telling Natixis last year that they’d need a miracle to retire.
Retirement savings can vary, depending on age — NerdWallet offers a handy breakdown — but overall, about one in four Americans with retirement savings say they’ve put aside one year or less of their current annual income, the Northwestern Mutual survey found.
How much to save for retirement?
Building a $1.26 million retirement fund is easier if you start young.
Workers who begin to save at age 20 would need to sock away $330 per month to reach $1.26 million, while people starting at age 30 would need to save $695 per month, according to Northwestern Mutual.
Still, saving will look different for everyone, experts say. John from AARP outlined a few considerations for people to keep in mind as they map out their retirement plan, including:
- Start saving if you haven’t already. “Any level of savings is better than having no savings at all,” John said.
- Wait to retire as long as you can to get the maximum monthly payment from Social Security. People born after 1960 get their full benefits at age 67, but they get even higher payments if they delay claiming until they hit 70, according to SSA. This is also a way to insulate yourself a bit from inflation’s impact, John said, since Social Security payments are inflation-protected year to year.
- Take full advantage of your employer’s match program if you have one. “It’s free money, essentially getting your savings to grow rather quickly,” said John.
- Avoid reacting to market volatility by suddenly moving your investments into something safer. It may be tempting with today’s stock market turbulence, but John said it’s best to wait given what you had will likely grow back over time.
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