Americans Now Say They Need $1.5 Million to Retire

The Nugget

Americans now believe they need $1.5 million to retire comfortably, a stark difference from the average savings people actually have. This increased target number reflects the impact of rising costs, longer lifespans, and potential cuts to Social Security benefits.

Key quotes

"People’s ‘magic number’ is now 50% higher than it was during the pandemic." - Aditi Javeri Gokhale, Chief Strategy Officer at Northwestern Mutual
"Boomers have a better feel for their numbers and they don’t believe they will live as long as Gen Z, which expects to retire at 60 and live to 100." - Aditi Javeri Gokhale
"Many people put money in 401(k)s but don’t realize that in retirement that income will likely be taxed at about 20% or 30%." - Aditi Javeri Gokhale
"Of the 30% of Americans surveyed who did have a plan to minimize taxes on retirement income, about a third said they would make strategic withdrawals from traditional tax-deferred and after-tax Roth retirement accounts in order to stay in a lower tax bracket."
Source: Northwestern Mutual 2024 Planning & Progress Study

A typical American now believes they need $1.5 million to retire comfortably, a stark contrast to the average savings individuals have set aside.
This spike in retirement target numbers is primarily attributed to increased costs, longer life expectancies, and the looming threat of potential reductions in Social Security benefits.
Different generations have varying perceptions of their retirement needs, with Gen Z and millennials setting the highest targets at over $1.6 million, while boomers are more conservative with a target of $990,000.

Advanced tax planning, particularly diversifying assets among accounts with different tax implications, can aid in bridging the gap between retirement savings and target numbers.
Withdrawals from traditional tax-deferred accounts during retirement are taxed as ordinary income, potentially pushing retirees into higher tax brackets.
Strategic withdrawals from a mix of traditional tax-deferred and after-tax Roth retirement accounts can help individuals manage their tax burden during retirement.

💰 Save early and strategically: Start saving for retirement as early as possible and consider diversifying your retirement accounts to manage tax implications.
🎯 Know your numbers: Understand your retirement goals and the financial milestones required to achieve them to avoid falling short during retirement.
💡 Tax awareness: Be aware of how different retirement account withdrawals are taxed to make strategic decisions on managing your tax burden post-retirement.
🤔 Keep adapting: Continuously reassess and adjust your retirement savings strategy based on changing life circumstances, expenses, and financial goals.

This summary contains AI-generated information and may have important inaccuracies or omissions.