A new study shows that Americans have lowered their “magic number,” the amount of money they believe they need to retire comfortably, to $1.26 million. This represents a $200,000 decrease from the prior year’s amount.
Unfortunately, most Americans aren’t on track to meet their retirement savings goal. In a recent study, Northwestern Mutual found that only 9% of Americans have 10 times their annual income saved for retirement. Considering the average annual U.S. household income is $80,000, Americans need to save roughly 15 times their annual income to meet the “magic number” of $1.26 million.
Some experts recommend that your retirement savings equal 80% of your pre-retirement income per year of retirement. This means that if you retired with a salary of $100,000 and expected a 25-year retirement timespan, you would need $80,000 x 25. Getting an estimate of your FERS annuity and Social Security benefit (remember that filing early reduces the benefit) can help you determine how much savings you’ll need to meet your “magic number.”
If you’re concerned you might run out of money in retirement, you’re not alone. More than half (51%) of Americans think it’s somewhat or very likely they will outlive their savings, and 35% said they haven’t taken any steps to address the issue. Only 16% of Americans feel confident enough to say the prospect of outliving their wealth is “very unlikely.”
The study, performed in January before the stock market was rocked by volatility, also showed that 25% of respondents have just one year or less of their current income saved for retirement. Overall, working-age Americans say they started saving for retirement at age 31 and plan to retire at age 65. But younger generations started saving sooner, they plan to retire earlier, and expect to live longer.
Generation Z, born between 1997 and 2012, started saving at 24, aim to retire at 61, and 34% think it’s likely they’ll live to age 100. In comparison, those born between 1946 and 1964 (Baby Boomers) started saving at 37, aim to retire at 72, and 23% think it’s likely they’ll live to be 100.
As Gen X approaches retirement, 52% have three times or less of their current annual income saved for retirement. The majority (54%) of Gen Xers believe they will not be financially prepared for retirement, significantly higher than 37% for Gen Z and 46% for millennials (born between 1981 and 1996).
Adding to the uncertainty of retirement are concerns about the future of Social Security, cited by 33% of those polled, and the impact of inflation, cited by 30%. Federal employees also need to consider the possibility that proposed cuts to benefits could impact their finances in retirement. Speak with a Federal Retirement Consultant® to ensure you’re on the right path toward your “magic number” and a financially secure retirement.
