A million dollars used to be a commonly referenced “magic number” for savings in order to live a comfortable life in retirement. That’s so 5 years ago!
“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, Northwestern Mutual
According to Northwestern Mutual’s 2024 Planning & Progress Study, Americans’ “magic number” for retirement is 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.
That’s right, U.S. adults believe they will need $1.46 million to retire comfortably, a 15% increase over the $1.27 million reported last year, far outpacing today’s inflation rate which currently hovers between 2% and 3%. Over a 5-year span, people’s “magic number” has jumped a whopping 53% from the $951,000 target Americans reported in 2020.
The study also found Americans have a long way to go to get to this new “magic number.” The average amount that U.S. adults have saved for retirement dropped modestly from $89,300 in 2023 to $88,400 today, which is still more than $10,000 off its 5-year peak of $98,800 in 2021.
“In 2023, the soaring cost of eggs in the grocery store symbolized inflation in America. In 2024, it’s nest eggs,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “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. Inflation is expanding our expectations for retirement savings, and putting the pressure on to plan and stay disciplined. Making a ‘magic number’ appear isn’t about waving a wand; it’s about using time-tested techniques and learning from a skilled advisor.”
Gen Z: Start sooner, retire earlier
By generation, both Gen Z and Millennials expect to need more than $1.6 million to retire comfortably. Gen X came in at $1.56 million and Boomers $990,000. High-net-worth individuals—people with more than $1 million in investable assets—say they’ll need nearly $4 million.
The study finds the average age that Americans say they started saving for retirement is 31. But for Gen Z, it’s 22—nearly a decade earlier. It’s also a full 15 years before Boomers+ who say they started when they were 37. Millennials and Gen Xers began saving for retirement at ages 27 and 31, respectively.
The hope among Gen Z is that by starting to save sooner, they’ll be able to retire earlier. They expect to retire at the age of 60, a dozen years before Boomers+ who say they’ll work until they’re 72. Millennials and Gen X’ers expect to work until 64 and 67, respectively. The average age most people expect to work to is 65.
The research discovered that 3 in 10 Millennials and Gen Z Americans believe it’s likely or highly likely that they will live to age 100. The sentiment among these younger generations is stronger than older generations. Among Gen X and Boomers+, just 22% and 21% respectively agreed that they believed they would live to 100.
“These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America,” said Javeri Gokhale. “Young people today recognize the value of retirement planning and building wealth early on in life and are getting a significant head start over their parents and grandparents. At the same time, Gen Z is redefining retirement and signaling that they plan to have long and fulfilling post-career lives. The good news is that they are investing earlier so they can save the money they need to enjoy it.”
‘Silver Tsunami’ is here
In 2024 alone, more than four million Americans will turn 65. That’s an average of 11,000 Americans per day, and it will continue through 2027. It’s the largest surge of Americans hitting the traditional retirement age in history.
The 2024 Planning & Progress Study found that among generations closest to retirement, just half of Boomers+ (49%) and Gen X (48%) believe they will be financially prepared when the time comes.
On average, Gen X believes there is a 42% chance they could outlive their savings, while Boomers+ put the probability at 37%. Across both generations, more than a third (37% and 38%, respectively) have not taken any steps to address the possibility of outliving their savings.
“The ‘Silver Tsunami’ is here. While younger generations are focused on building wealth and protecting what they’ve already built, Gen X and Boomers have an additional important task: paying themselves first in retirement,” Javeri Gokhale said. “Where they have savings can be just as important as how much they have saved. Done well, a comprehensive financial plan can preserve thousands of hard-earned dollars to fund these golden years.”
When digging into some of the most pressing challenges associated with retirement planning, the research shows that Boomers+ and Gen X don’t have markedly strong confidence in their preparedness.
Taxes an afterthought
Only 3 in 10 Americans have a plan to minimize the taxes they pay on their retirement savings. Among them, the top 10 strategies employed include:
- Making withdrawals strategically from traditional and Roth accounts to remain in a lower tax bracket (32%)
- Using a mix of traditional and Roth retirement accounts (30%)
- Making strategic charitable donations (24%)
- Using a Health Savings Account (HSA) or other tax-advantaged healthcare account (23%)
- Using products like permanent life insurance or annuities for the tax benefits (22%)
- Making Roth conversions prior to taking RMDs or Social Security (19%)
- Using qualified charitable distributions from an IRA (17%)
- Making contributions to other tax-advantaged accounts like a 529 (14%)
- Using the basis paid into the cash value of permanent life insurance to remain in a lower tax bracket (13%)
- Taking advantage of a Qualified Longevity Annuity Contract (QLAC) to set aside funds for later in retirement (13%)
“Putting money into a 401(k) may not be enough to retire comfortably if the financial plan doesn’t address the impact of taxes on retirement income.”
Aditi Javeri Gokhale, Northwestern Mutual
“Putting money into a 401(k) may not be enough to retire comfortably if the financial plan doesn’t address the impact of taxes on retirement income,” Javeri Gokhale said. “Most people don’t realize that their retirement income may be taxed about 20% or 30% when they withdraw and spend it. When they recognize the impact, it’s often too late for them to adjust.”
Javeri Gokhale added that 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 nest eggs.
Northwestern Mutual’s 2024 Planning & Progress Study is the company’s proprietary research series that explores Americans’ attitudes, behaviors and perspectives across a broad set of issues impacting their long-term financial security. In forthcoming data sets, the study will explore wide-ranging issues facing Americans spanning savings and debt, retirement income, emerging technology, professional help and more.
SEE ALSO:
• ‘Peak 65’ is Here, and Findings Suggest Annuities Can Protect Income
• Americans Experience Dips in Financial Security
• Got $1 Million for Retirement? Move Here, Not There
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
