Americans have lofty goals for retirement, with a new survey believing they’ll need $1.25 million in savings to ensure a comfortable life into their golden years. However, the troubling reality is that most people find themselves miles away from that goal, with less than $87,000 in the typical American retirement account.
To be sure, the so-called retirement gap – the amount of money people will need in their later years and what they have actually put away – is a long-standing problem. But the gap between Americans’ long-term financial aspirations and the grim reality is widening, with many today struggling to pay for basic things like food and shelter, let alone retirement planning.
The latest distress signal appears in a new Northwestern Mutual study, an annual survey of more than 2,000 adults on their attitudes and attitudes around money and financial planning. The analysis found that the typical American now estimates they will need $1.25 million for a comfortable retirement – a 20% jump from 2021. Plus, the average retirement account has declined 11% in value, to $86,869 at the moment. year.
“This is a period of uncertainty for many, driven largely by rising inflation and volatility in the markets,” Christian Michel, executive vice president and chief customer officer at Northwestern Mutual, said in a statement.
The findings come in the form of other research about America’s lack of retirement preparedness. According to a study released earlier this month by Goldman Sachs, only a quarter of current retirees are generating enough income to replace $7 out of every $10 in pre-retirement income—the usual thumbs-up for a comfortable retirement. rules.
Nearly half of retirees are living on less than half of their pre-retirement income, with those older Americans “particularly vulnerable” to inflation and other economic trends, Goldman said.
“We have a retirement problem in America,” Greg Callan, head of multi-asset solutions at Goldman Sachs Asset Management, said in a conference call about his findings. The US retirement system has “shifted responsibility from the employer to the employee” with the switch from pensions to 401(k)s.
He said workers are dealing with “a lot of market volatility – and a long life expectancy”. “It’s a challenging mix for individuals to navigate.”
For retirees, the general rule is to withdraw no more than 4% of their 401(k) and other savings annually, meaning a $1.25 million retirement account would provide $50,000 in annual income. An $87,000 retirement account would provide approximately $3,500 annually.
Northwestern Mutual found that 4 out of 10 Americans say they don’t think they’ll be ready to retire. As a result, Americans now say they plan to retire at age 64, up from 62.6 years old last year, the study found.
Yet the anecdotal experience of retirees suggests that many Americans will have little choice about when they will retire. Goldman’s survey of currently retirees found that 56% left the workforce before planning to do so. And almost half said they retired for reasons beyond their control, such as health problems, losing their jobs or needing to care for family members. The study found that only 7% said they retired because they had enough money.
Experts at Goldman said younger workers also need to save for retirement to cope with raising children, caring for older parents and rising costs of living. “Such a vortex of competitive financial needs can derail retirement preparation,” said Mike Moran, senior pension strategist at Goldman Sachs Asset Management. “This is the new reality for retirement savers.”