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The “magic number” that Americans believe they need to have saved for retirement jumped from a year ago as some express anxiety about their retirement savings.
Northwestern Mutual released a study on Wednesday which found that the amount of retirement savings Americans think they need to retire comfortably rose to $1.46 million.
That figure is an increase of $200,000 from last year’s edition of the report and is in line with the estimated magic number from 2024, the firm noted.
“The new ‘magic number’ reflects a convergence of factors — from persistent inflation and longer life expectancies to uncertainty about the future of Social Security,” said John Roberts, chief field officer at Northwestern Mutual.
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For Americans with a relatively high net worth, defined as having $1 million or more in investable assets, the magic number is even higher at $2.67 million, on average.
“Retirement is increasingly complex, and Americans are responding by setting higher expectations for what they’ll need. What matters now is pairing those expectations with a thoughtful, comprehensive financial plan that will enable them to reach their unique goals,” Roberts said.
The report found that 46% of Americans say they don’t expect they will be financially prepared for retirement, and 48% said it’s somewhat or very likely they will outlive their savings. It also found that just 23% of Americans with retirement savings said they have only one year or less of their current income set aside.
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The report notes that while there isn’t a universal retirement number for all Americans, Northwestern Mutual recommends that people plan to replace about 80% of their pre-retirement income.
It also detailed several other retirement rules of thumb for Americans to consider as they think about how much they should save for retirement.
The so-called “25x rule” suggests that a person should save about 25 times their expected annual savings. Using the $1.46 million “magic number” from the study, that would be sufficient to generate about $58,000 in annual retirement income, the report said.
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Another rule of thumb is the $1,000-a-month rule, which states that for every $1,000 of desired monthly retirement spending, there should be $300,000 in savings. For example, with $1.46 million in retirement savings, it would yield about $4,800 in retirement income per month.
“These rules of thumb can certainly give Americans a ballpark estimate for their own wealth management goals. But they don’t factor in the big risks to retirement – like increasing healthcare costs or a long-term care event,” Roberts said.
“They also don’t consider any unique estate planning goals that Americans hope to provide to the next generation,” he added, noting that developing a financial plan with an advisor can be beneficial.
