$1.46M is the ‘Magic Number’ for Retirement, Study Finds

That’s how much U.S. adults think they’ll need to retire comfortably but few are prepared, according to new research from Northwestern Mutual.

By Rethinking65

American’s “magic number” for retirement jumped 15% since last year, to $1.46 million, and has surged 53% since 2020. Yet the average American has saved just $88,000 for retirement — more than $10,000 below their peak savings in 2021.

Gen Xers have a $1.45 million gap between their retirement goal ($1.56 million) and current savings ($108,600). Boomers+ expect they’ll need $990,000 to retire comfortably, but have only saved $120,300 — an $870,000 gap. Less than half of boomers+ (49%) and Gen Xers (48%) feels they’ll be ready for retirement when they do retire.

These figures, released on April 2, come from Northwestern Mutual’s 2024 Planning & Progress Study. The study explores Americans’ attitudes, behaviors and perspectives impacting their long-term financial security.

Meanwhile, high-net-worth individuals (those with more than $1 million in investable assets) say they’ll need $3.93 million to live comfortably in retirement but have on average saved just $172,100, the research also found. These data points include adults of all ages.

“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,” Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual, said in a press release. “Inflation is expanding our expectations for retirement savings, and putting the pressure on to plan and stay disciplined.”

Inflation is hovering around 2% to 3%, Northwestern Mutual noted. Respondents to the firm’s 2023 survey said they needed to save $1.27 million to retire comfortably; in 2020, $951,000.

Generational Differences

The study also identified generational differences in savings efforts and retirement goals. Boomers+ began saving for retirement at 37 and expect to retire at 72, while Gen X started saving at 31 and expect to work until 67. The savings start dates and expected retirement dates are even younger for millennials (37, 64) and Gen Z (22, 60).

But with age comes wisdom, on other retirement factors the researchers studied. More than half (56%) of boomers+ said they have a plan to address healthcare costs in retirement, compared with 44% of Gen X. Boomers+ are also more likely than Gen X to have a plan to address long-term-care needs in retirement (41% vs. 34%), to have a plan to address possibility outliving their savings, and to understand how taxes and the market could factor into their retirement.

Tax Deficit

The Northwestern Mutual 2024 Planning & Progress Study found that only three in 10 Americans have a plan to minimize the taxes they pay on their retirement savings. The top 10 strategies employed include:

  1. Making withdrawals strategically from traditional and Roth accounts to remain in a lower tax bracket (32%).
  2. Using a mix of traditional and Roth retirement accounts (30%).
  3. Making strategic charitable donations (24%).
  4. Using a Health Savings Account (HSA) or other tax-advantaged healthcare account (23%).
  5. Using products like permanent life insurance or annuities for the tax benefits (22%).
  6. Making Roth conversions prior to taking RMDs or Social Security (19%).
  7. Using qualified charitable distributions from an IRA (17%).
  8. Making contributions to other tax-advantaged accounts like a 529 (14%).
  9. Using the basis paid into the cash value of permanent life insurance to remain in a lower tax bracket (13%).
  10. Taking advantage of a qualified longevity annuity contract (QLAC) to set aside funds for later in retirement (13%).

“Most people don’t realize that their retirement income may be taxed about 20% or 30% when they withdraw spend it. When they recognize the impact, it’s often too late for them to adjust,” said Javeri Gokhale. “A comprehensive financial plan can help people get to and through retirement by minimizing exposure and preventing anyone from paying more in taxes than they should be — potentially preserving thousands of dollars in their next eggs.”

The 2024 Planning & Progress Study, conducted by the Harris Poll on behalf of Northwestern Mutual, surveyed 4,588 U.S. adults aged 18 or older. The survey was conducted online between Jan. 3 and Jan. 17, 2024.

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