Looks like $1 million won’t cut it anymore to ensure a comfortable retirement.
Northwestern Mutual released new data today that finds U.S. adults estimate they’ll need $1.25 million to retire comfortably, a 20% spike over what they reported in 2021.
At the same time, Americans’ average retirement savings has dropped 11%–from $98,800 last year to $86,869 now–while their expected retirement age has risen–now 64, which is up from 62.6 last year.
“It’s a period of uncertainty for many people, driven largely by rising inflation and volatility in the markets,” said Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual. “We’ve also seen upticks in spending year-over-year not only as a result of inflation, but also as people have resumed a sense of normalcy in their lives following the earlier days of the pandemic. These factors are leading many people to recalibrate their thinking about how much they’ll need to retire and how long it will take them to get there.”
4 in 10 won’t be ready
The 2022 Planning & Progress Study finds low levels of confidence among Americans about their retirement preparedness, and they don’t have great faith in Social Security as a backstop. More than four in 10 (43%) people say they do not expect to be financially ready for retirement when the time comes. And 45% say they can imagine a time when Social Security no longer exists.
Meanwhile, one-third (33%) of Americans expect to live to 100, with an equal third (33%) predicting there is a better than 50% chance they may outlive their savings. At the same time, more than one in three (36%) report that they have not proactively taken any steps to address this concern.
Another notable finding from the latest data is that Americans are counting on their 401k or other retirement account to deliver 27% of their retirement income, while expecting Social Security to cover 26%. Personal savings or investments are expected to account for 22%.
Working longer
Americans on average now say they plan to work until the age of 64, up from 62.6 last year. Interestingly, the study found that working with an advisor and/or being a disciplined planner can shave off a few working years—those two subgroups report anticipated retirement ages of 61 and 62 respectively.
“It’s one of those questions on so many people’s minds—how long should I expect to work in order to save enough for retirement?” said Mitchell. “It’s really difficult to answer because there are all kinds of considerations to factor in. But too many people grapple with it in a bubble. With greater clarity you can make a more confident call and getting professional advice can provide that clarity.”
When asked about how the pandemic has impacted people’s retirement timelines, a quarter (25%) said they plan to retire later than they had anticipated, and 15% said they plan to retire earlier.
Finally, the study also uncovered interesting data about what Americans value in their work lives, finding that most adults (60%) prioritize personal fulfillment over salary and income potential (40%) in their careers.
“This is a really fascinating finding and one that advisors should take note of as they work with their clients,” said Mitchell. “What people prioritize goes well beyond their bottom lines. The best advisors understand their clients’ values and motivations, not just their financial situations.”
The 2022 Planning & Progress Study was conducted by The Harris Poll on behalf of Northwestern Mutual and included 2,381 American adults aged 18 or older who participated in an online survey in February, 2022.
SEE ALSO:
• Advisors Add Big Retirement Planning Confidence Boost
• Just How Much a Retiree Will Spend on Healthcare: Milliman
• 10 Places You Need More Than $1 Million to Retire
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.
