Personal Finance
Americans think they need $1.46 million to retire. What experts say
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When it comes to retirement, Americans have a new number in mind — $1.46 million — for how much they think they will need to live comfortably, according to new research from Northwestern Mutual.
That estimate is up 53% since 2020, when Americans said they would need $951,000, as the cost of living has surged in recent years. It is also up 15% from last year, when respondents said they would need $1.27 million.
For many savers, that goal may sound daunting, particularly as U.S. adults have an average of $88,400 currently saved toward retirement, the study found. Likewise, a recent CNBC survey showed that 53% of Americans feel behind on their retirement savings.
However, experts say having a “magic number” in mind should not be a priority when planning for your retirement.
“The number isn’t the emphasis,” said John Roland, a certified financial planner and private wealth advisor at Northwestern Mutual’s Beyond Financial Advisors.
“That retirement number is really just a starting point for a broader conversation on how to make clear, competent decisions in that phase of your financial life when you’re distributing money versus when you’re accumulating money,” he said.
Fidelity Investments, the nation’s largest provider of 401(k) savings plans, has moved away from providing broad estimates for what is needed to retire, said Rita Assaf, vice president of retirement products.
“There is no one size fits all,” Assaf said.
She said your individual income likely differs from other people’s. Other factors — such as how much of your income you hope to replace in retirement, where you plan to live, the lifestyle you plan to have, your health-care costs, and longevity — will all impact the actual number you will need.
“It really depends on your personal situation,” Assaf said. “We do think having a retirement plan helps with that, but it’s got to be a personal retirement plan.”
The number experts say to focus on
Financial advisors agree that having a high savings rate, along with appropriate asset allocations, is one of the most significant components of building wealth. That’s the number to focus on, they say.
Fidelity provides a framework for evaluating your retirement savings progress based on your age.
The framework includes saving your salary by age 30, which then increases to twice your salary by age 35, three times by 40 and continues to go up until the goal of 10 times by age 67.
“That may or may not be feasible depending on where you’re at,” Assaf said of the savings goals. “But it just gives an easier view of what to do.”
The framework assumes that the investor will start saving at age 25 and save 15% annually.
Recent retirement research from Vanguard recommends that workers ramp up their annual retirement savings rate to 12% to 15% of their incomes and invest in an appropriate asset mix for their ages. Doing so can help improve their sustainable investment rate — the highest level of pre-retirement income they can replace.
“I would much rather have clients that save 15% of their income and get a 5% rate of return than save 1% of their income and get a 15% rate of return,” Roland said.
He said that to save money, you need not spend it, a concept emphasized in the book “The Millionaire Next Door.”
“Many people who have significant wealth, you would never know because they don’t look visibly wealthy,” Roland said.
“Those are the people that, as they save and accumulate wealth, oftentimes have accumulated more than they ever anticipated,” he said.
If setting your retirement savings deferral rate to 15% now feels like too much of a financial stretch, you may instead try to boost your contributions by 1% per year. Experts say incremental increases can make a big difference in the long run.
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The average 401(k) savings rate, including employee deferrals and company contributions, continued to climb in 2023, a new industry survey reported.
In 2023, the average combined savings rate was 12.7%, up from 12.1% in 2022, with employees deferring 7.8% of pay and companies adding 4.9%, according to the Plan Sponsor Council of America’s yearly survey of more than 700 company 401(k) and profit-sharing plans.
“The deferral rate has been trending up over time,” with dips during economic downturns, said Hattie Greenan, director of research and communications for the Plan Sponsor Council of America.
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Meanwhile, Vanguard reported the average combined savings rate was an estimated 11.7% in 2023, which matched the figures from 2022, according to the company’s yearly analysis of more than 1,500 qualified plans and nearly 5 million participants.
Fidelity Investments, which reports retirement savings rates quarterly, estimated the combined savings rate was 14.1%, as of Sept. 30, 2024, based on an analysis of 26,000 corporate retirement plans.
How much to save in your 401(k)
Vanguard recommends saving 12% to 15% of your earnings every year, including employer contributions, to meet your retirement needs. The combined savings benchmark for Fidelity is 15%.
Typically, companies match employee deferrals up to a specified limit — and you should aim to contribute at least enough to get the full match, said Greenan from the Plan Sponsor Council of America.
“That’s really going to add up over time,” she said.
More than 80% of plans included a matching contribution in 2023, according to the Plan Sponsor Council of America report.
After hitting the match, some experts suggest boosting your deferrals every year, but “you’re going to see growth from whatever you can afford to contribute,” Greenan said.
Starting in 2025, the 401(k) maximum employee deferral will jump to $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution will remain $7,500 for workers 50 and older, but increases to $11,250 for investors aged 60 to 63.
If you’re planning to save more in 2025, right now is “an important time of the year” to boost deferrals, said certified financial planner and enrolled agent Catherine Valega, founder of Boston-area Green Bee Advisory.
Typically, it takes a few paychecks until your 401(k) deferral updates go into effect, so it’s better to make changes in December to be ready for January, she said.
Only 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s annual report. On top of maxed-out contributions, an estimated 15% of workers made catch-up contributions in plans with the feature, the same report found.
The US Capitol building in Washington, DC, on November 24, 2024.
Daniel Slim | Afp | Getty Images
The Senate is getting closer to a final vote on a bill that would increase Social Security benefits for an estimated 3 million people.
The chamber voted Wednesday to let consideration of the bill — the Social Security Fairness Act — proceed. The bipartisan proposal calls for repealing certain rules that reduce Social Security benefits for individuals who receive pension income from work in the public sector.
Despite a bipartisan 73 majority vote to proceed, the effort to advance the bill was met with some dissent, with Sen. Thom Tillis, R-N.C., citing the costs associated with the change. The Congressional Budget Office has estimated repealing the rules — known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO — would cost $196 billion over 10 years.
The WEP reduces Social Security benefits for individuals who receive pension or disability benefits from jobs where they did not pay Social Security payroll taxes. The GPO reduces Social Security benefits for spouses, widows and widowers who also receive their own government pension income.
Passing the bill would speed up Social Security’s trust fund insolvency dates by six months, according to the Committee for a Responsible Federal Budget. Without the change, Social Security’s trustees have projected the trust fund the program relies on to pay retirement benefits will run out in 2033, when 79% of those benefits will be payable.
“We are about to pass an unfunded $200 billion spending package for a trust fund that is likely to go insolvent over the next nine to 10 years, and we’re going to pretend like somebody else has to fix it,” Tillis said during a Senate speech ahead of the vote to advance the bill.
Tillis said lawmakers are not considering the 97% of beneficiaries who would not benefit from the bill, but who would be hurt by future consequences that passing it would have on the program.
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“Ladies and gentlemen, this bill has not even had a hearing in any committee in the House or the Senate,” Tillis said.
The Social Security Fairness Act was approved by the House in November after two lawmakers – Reps. Abigail Spanberger, D-Va., and Garret Graves, R-La. – filed a discharge petition to force a vote on the bill. The Senate cloture vote to proceed to a final vote also limited the ability for that chamber to debate the proposal.
The 27 Senate leaders who voted “no” on moving the Social Security Fairness Act to a final vote are all Republicans, with the exception of Sen. Joe Manchin, an independent representing West Virginia.
The Senators who voted to move the bill forward included a mix of Democrats and Republicans, including Senate Majority Leader Chuck Schumer, D-N.Y., and Vice President-elect and Sen. JD Vance, R-Ohio.
‘No excuse for treating our public servants this way’
Leaders who spoke on the Senate floor in support of the bill ahead of Wednesday’s vote to proceed cited the financial suffering of their constituents.
As of November, more than 2 million people’s Social Security benefits were affected by the WEP, while more than 650,000 people were impacted by the GPO, said Sen. Susan Collins, R-Maine, who co-led the Senate version of the bill.
One 72-year-old constituent had to return to work after her husband died, since the GPO reduced her Social Security widow benefits by two-thirds, Collins said.
“She did not have the financial security any longer to remain retired, and the GPO penalty left her with few choices but to return to work,” Collins said.
Sen. Bill Cassidy, R-La., recalled meeting with a retired Louisiana schoolteacher impacted by the GPO, who cried in his office because she didn’t understand why her Social Security spousal benefits were reduced.
“She felt like she was being punished for educating generations of Louisiana children,” Cassidy said. “There’s no excuse for treating our public servants this way.”
If the Senate passes the bill, it will be a win for Collins and Sen. Sherrod Brown, D-Ohio, who co-led the bill. Collins has pushed for the change for more than two decades, Brown noted in a Wednesday Senate speech. Brown is leaving the Senate after losing a reelection campaign.
Reps. Spanberger and Graves, who introduced the House bill, are also leaving Congress.
“If you love this country and fight for the people who make it work, I urge all my colleagues on both sides to join us — restore the Social Security that people who protect us in service have earned over a lifetime of work,” Brown said during a Wednesday Senate speech.
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