Retirement savings target in U.S. soars 53% in four years, reaching US$1.46 million, reveals Northwestern Mutual survey

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3rd April 2024 – (Washington) A recent survey conducted by Northwestern Mutual has unveiled a significant surge in the retirement savings target for Americans, with the typical worker now aiming to accumulate $1.46 million to retire comfortably. This represents a considerable 53% increase from their savings goal four years ago. The findings shed light on the growing financial aspirations of the American workforce, as well as the widening gap between their current savings and retirement expectations.

The survey, which collected responses from 4,588 adults, highlights a stark reality: the average amount held in a retirement account today is a mere $88,400. This means that the average worker faces a staggering shortfall of $1.37 million between their actual savings and their retirement ambitions. According to Aditi Javeri Gokhale, Chief Strategy Officer at Northwestern Mutual, this upward revision in retirement savings can be attributed to factors such as inflation, increased financial pressures, and a growing belief among workers that they will live longer and spend more time in retirement.

The study also reveals the generational differences in retirement expectations. Gen Z workers, currently in their early 20s, aim to retire at the age of 60, with nearly one in three believing they will live to the age of 100. Consequently, they anticipate a 40-year retirement, necessitating a larger nest egg. Gokhale notes that the retirement target of $1.46 million is at an all-time high, surging by 50% since before the pandemic. The rising cost of living, whether real or perceived, has played a role in this significant increase.

Concerns regarding Social Security’s future stability have also contributed to the rising retirement savings target. The survey indicates that more individuals are worried about potential cuts in benefits, as the program’s trust fund reserves are projected to be depleted by 2033 unless necessary measures are taken. The looming threat of benefit reductions has prompted workers to bear a greater portion of the burden, fueling the desire for larger retirement savings.

However, the survey reveals a concerning trend: only half of the surveyed baby boomers, many of whom are already retired, claim to know how much they need for retirement. Most Americans are approaching retirement without having calculated their required savings. Gokhale emphasizes that determining retirement needs should go beyond mere feelings and intuition. While retirement requirements vary based on a person’s standard of living, local cost of living, and tax considerations, using the 4% withdrawal rule suggests an annual income of around $58,400 from a $1.46 million nest egg. When factoring in Social Security benefits, which amount to approximately $23,000 annually, the resulting retirement income of $81,000 per year surpasses the median household income of $74,580.

The study underscores the self-reliant nature of the current retirement system. Retirement programs have shifted from pensions to 401(k) plans, where individuals must select their own investments and determine their savings rate. Critics argue that this DIY approach has left many workers behind, particularly those in the bottom 90%. Retirement expert Teresa Ghilarducci suggests that more Americans should seek the advice of financial professionals to navigate the complexities of retirement planning. However, barriers such as perceived lack of funds and concerns about affordability prevent a significant portion of the population from seeking professional help.