Americans think they need almost $ 1.5 million to retire. Experts, on the other hand, say they should focus on another number!
Have you ever wondered how much money you’ll need to retire safely? If you’re like most Americans, the answer is a resounding yes. A recent research revealed that Americans believe they need almost $ 1.5 million to retire, in order to live comfortably. But before you start stressing about reaching this seemingly unattainable goal, experts say that focusing on a different number might be a better strategy.
According to the research done by Northwestern Mutual, U.S. adults believe they will need $1.46 million to retire, that’s a whopping 53% increase from the $951,000 target reported in 2020. And a 15% increase over the $1.27 million reported last year. This “magic number” for retirement has been surging to an all-time high – rising much faster than the rate of inflation while swelling more than 50% since the onset of the pandemic.
Many people might find that retirement goal overwhelming, specially due to U.S. adults having an average of $88,400 currently saved toward retirement, as the study found. This isn’t surprising, as a CNBC survey showed that 53% of Americans feel like they’re falling behind on their saving goals. However, experts say having a “magic number” in mind should not be a priority when planning for your retirement.
“That retirement number is really just a starting point for a broader conversation on how to make clear, competent decisions in that phase of your financial life when you’re distributing money versus when you’re accumulating money.”, said John Roland, a certified financial planner and private wealth advisor at Northwestern Mutual’s Beyond Financial Advisors.
Financial institutions like Fidelity Investments, the nation’s largest provider of 401(k) savings plans, are moving away from one-size-fits-all recommendations. This is because the amount needed depends on your own unique situation. There are several factors to consider when calculating your retirement savings goals, including your desired income in retirement, where you plan to live, what kind of lifestyle you envision, potential healthcare costs, and how long you might live.
“There is no one size fits all. It really depends on your personal situation,” Assaf said. “We do think having a retirement plan helps with that, but it’s got to be a personal retirement plan.”, said Rita Assaf, vice president of retirement products at Fidelity.
Financial advisors emphasize that a high savings rate, coupled with smart investment choices, is the key to building wealth. So, they recommend prioritizing this factor above all else. To help evaluate your progress, Fidelity provides a framework based on your age, that suggests saving your salary by age 30, which then increases to twice your salary by age 35, three times by 40 and continues to go up until the goal of 10 times by age 67. The framework assumes that the investor will start saving at age 25 and save 15% annually.
“That may or may not be feasible depending on where you’re at. But it just gives an easier view of what to do.”, said Assaf.
A new study by Vanguard on retirement suggests increasing annual savings to 12-15% of income and investing in an age-targeted asset allocation, in an attempt to improve an individual’s sustainable investment rate, which is the maximum amount of pre-retirement income they can replace. A 15% deferral rate is a big jump for you now? Start small and aim for 1% increases each year. Experts say this gradual approach adds up significantly over time.
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