The magic retirement number continues to rise

The magic retirement number, as expressed by financial services firms in April 2024, is 15 percent higher than a year ago and has increased by 53 percent since 2020, when the average amount of retirement savers said that they would need was $951,000.

At the same time, Americans’ actual retirement savings have changed little. The survey of nearly 4,600 people age 18 and older, conducted for Northwestern Mutual by 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 who 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 life expectancy, where you plan to live, and what you want to do. (You can use the AARP retirement calculator to get an estimate.) But the steep rise in what American workers believe they will need is further evidence of their growing anxiety about retirement.

The percentage of working-age Americans who believe the country faces a retirement crisis rose from 67 percent in 2020 to 79 percent last year, according to a February 2024 study by the National Institute for Retirement Security. The May 2023 Gallup poll found that 43 percent of American adults are optimistic about being able to live comfortably in retirement, the lowest number since 2012, when the country was just emerging from the Great Recession.

Inflation weighs heavily

The biggest culprit behind the increase in the magic number, which hit a 40-year high of 9.1 percent in June 2022.

There’s certainly an extra layer of stress that today’s retirees have that wasn’t there 20 to 30 years ago, says John Faircloth, a private wealth adviser and chief operating officer at Northwestern Mutuals Riverwalk Wealth Advisors in Tampa, Florida.

When people retire, there are typical concerns: will I have enough money, will the markets crash once I retire, will I outlive my money, etc., he says. I think the rising prices on everyday items like food, gas, insurance, even housing and cars have made a lot of people nervous.

While inflation has eased, hovering around 3.5 percent in recent months, the pandemic cycle of price increases 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. Marshall School of Business.

We were shocked when we thought about inflation, says Chang, especially young people who spent most of their lives in an era of stable prices. Inflation has become a much more prominent feature. People are thinking about inflation and realize that they should save more.

Faced with these economic obstacles, 6 in 10 American adults with investable assets of $10,000 or more say they have significantly changed their retirement expectations in the past five years, according to a new study from the National Retirement Institute. Nearly 2 in 5 have given up on the idea of ​​setting a retirement savings goal.

Lasting influence

Even with inflation cooling, consumer prices rose nearly 20 percent from early 2020 to early 2024. That’s significantly less than the magic number growth over the same period, but they [inflation] The numbers are compounding themselves, Faircloth says.