AARP web collage (Source: Getty Images (3))
$1.46 million.
That’s what U.S. adults believe they’ll need to save tolive comfortably throughout their retirement years, according to Northwestern Mutual’s latest “Planning & Progress Study”surveying Americans’ views on their long-term financial security.
AARP Membership— $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.Find out how much you could save in a year with a membership.Learn more.
The retirement “magic number,” as the financial services firm’s April 2024 report terms it, is 15 percent higher than it was a year ago and has grown a whopping 53 percent since 2020, when the average amount retirement savers said they would need was $951,000.
At the same time, Americans’ actual retirement savings have changed little. The survey of nearly 4,600 people ages 18 and up, conducted for Northwestern Mutual by the Harris Poll, found an average nest egg of $88,400, barely budging from $87,500 in 2020. The gap between what workers have saved and what they feel they need to save has exploded from $864,000 to $1.37 million in just four years.
Whether you really need $1.46 million to retire comfortably will depend on a host of factors, including your expected longevity,where you plan to liveandwhat you want to do. (You can use theAARP Retirement Calculatorto get an estimate.) But the steep ascent in what American workers believe they’ll need is further evidence of their growing anxiety about retirement.
The proportion of working-age Americans who believe the nation faces a “retirement crisis” grew from 67 percent in 2020 to 79 percent last year, according to aFebruary 2024 studyby the National Institute on Retirement Security. AMay 2023 Gallup pollfound that 43 percent of U.S. adults are optimistic about being able to live comfortably in retirement, the lowest figure since 2012, when the country was just emerging from the Great Recession.
Inflation weighs heavily
The biggest culprit for the swelling magic number?Inflation, which hit a 40-year high of 9.1 percent in June 2022.
“There is certainly an additional layer of stress that today’s retirees have that was not there the last 20-30 years,” says John Faircloth, a private wealth adviser and chief operations officer at Northwestern Mutual’s Riverwalk Wealth Advisors in Tampa, Florida.
“When people retire, there are typical concerns: Will I have enough money, will the markets fall as soon as I retire, will I outlive my money, etc.,” he says. “I think rising prices in everyday items like food, gas, insurance, evenhomeandauto, have made a lot of folks nervous.”
While inflation has slackened, hovering around 3.5 percent in recent months, the pandemic cycle of price spikes was a wake-up call for many Americans, says Tom Chang, a behavioral economist and associate professor of finance and business economics at the University of Southern California’s Marshall School of Business.
“We were shocked into thinking about inflation,” Chang says, especially younger adults who spent most of their lives in an era of stable prices. “Inflation has become a much more salient feature. People are thinking about inflation, and they realize that they have to save more.”
In the face of these economic headwinds, 6 in 10 U.S. adults with investable assets of $10,000 or more say they have significantly altered their retirement expectations in the last five years, according toa new studyfrom the Nationwide Retirement Institute. Nearly 2 in 5 have scrapped the idea of setting a retirement savings target altogether.
Lasting impact
Even with inflation cooling, consumer prices rose by nearly 20 percent from early 2020 to early 2024. That’s considerably less than the growth in the magic number over the same period, but “those [inflation] numbers are compounding on themselves,” Faircloth says.
