The New Retirement Magic Number

According to recent findings from Northwestern Mutual, Americans believe they will need $1.27 million to retire comfortably. However, the average amount that U.S. adults have saved for retirement is only $89,300 – up slightly from 2022.

High-Net-Worth Individuals Aim Higher

For those with over $1 million in investible assets, the number goes up to $3 million. This leaves quite a disparity between what people think they’ll need for retirement and what they’ve saved so far.

A Step In The Right Direction

Despite this gap, Northwestern Mutual’s study found that Americans are saving and investing more than ever before, even amid inflation and market volatility. Aditi Javeri Gokhale, Chief Strategy Officer, Head of Institutional Investments, and President of Retail Investments at Northwestern Mutual, said that this is good news and a step in the right direction. However, the disparity remains a concern for financial planners.

While the new magic number for retirement may seem daunting, saving and investing early can help make it achievable.

Retirement Outlook Diverges Among Generations

According to a recent study, Gen Z (those born between 1997 and 2012) is the most confident among all generations about their financial preparedness for retirement. On the contrary, older generations are more pessimistic, with more than half of Gen X (those born between 1965 and 1980) saying that they won’t be ready, and nearly half of millennials (those born between 1981 and 1996) and boomers+ (not yet retired).

Age groups also have varying estimates for how much they need to have to enjoy a comfortable retirement. People in their 50s expect to need over $1.5 million, while those in their 60s and 70s require significantly less due to many of them already being retired.

Despite these differences, the study found that Americans on average plan to retire at age 65, up from 64 last year and 62.6 in 2021. Gen Z is aiming to retire earlier at age 60, despite the fact that many of them expect to live to age 100.

Disciplined financial planners are likely to retire at an earlier age than informal or non-planners. The former group retires at an average age of 63, while the latter group retires at an average age of 67.

When it comes to retirement dreams, people are most excited about spending time with family (51%), relaxing (55%), and traveling (48%). Volunteering (17%), second careers (13%), and entrepreneurship (11%) were less popular among study participants.

Retirement concerns: Health, savings, and boredom

A recent survey by Allianz Life found that Americans are most concerned about declining health, outliving savings, and boredom. Surprisingly, very few people said they were concerned about missing their career.

“What stood out to us in these findings is that concerns about outliving savings came in virtually equal to declining health,” said Javeri Gokhale, spokesperson for Allianz Life.

On average, Americans say there is a nearly 50/50 chance they will outlive their savings, and yet one third of respondents haven’t taken any steps to address it. Planning and working with an adviser can make a big difference: nine out of 10 people who work with an adviser have taken steps to address the possibility of outliving their savings.

The study found that three in 10 Americans think it’s likely they’ll live to age 100. However, expectations are much greater among younger adults, with 40% of Gen Z and millennials hoping to hit triple digits.

Interestingly, more men than women think they are likely to live to 100 when mortality data indicates the opposite is true. Among centenarians in the U.S. today, 85% are women.

“Gen Z seeks to retire at age 60, and many of them believe they will live to age 100,” said Gokhale. “I think those are bold and fantastic goals – which means that they will have to be intentional about planning to live four decades of worry-free life in retirement.”

Despite concerns that Social Security may not exist in the future, many Americans rely on it for retirement funding. Over 40% said they could imagine a time when Social Security no longer exists, yet people are relying on it to provide 28% of their overall retirement funding – more than personal and retirement savings combined.

Changing Expectations for Retirement Funding

When it comes to retirement funding, younger generations have tempered expectations. According to recent data, Gen Z and millennials anticipate Social Security will cover only 15% and 19% of their overall retirement expenses, respectively. This stands in stark contrast to the expectations of older generations, namely boomers and beyond, who expect Social Security to fund a significant 38% of their expenses during retirement.

These changing expectations could have significant ramifications for the way we plan for retirement. As younger generations continue to enter the workforce, it’s possible that Social Security benefits may become less relied upon as a source of retirement income. It begs the question: what other sources of funding will these generations turn to in order to secure a comfortable retirement?

As financial advisors and investors alike look to the future, it’s clear that we need to be prepared to adapt to changing attitudes towards retirement funding.

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