Retirement Savings: How Close Are You to the Amount Everyone Thinks You Should Have?
Written by
Yaël Bizouati-Kennedy
Edited by
Ashleigh Ray
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Saving for retirement has been tricky for many Americans who have been financially hit by a combination of factors: persistent — albeit cooling — inflation, rising rates, and now, the resumption of student loan payments.
Against that backdrop, it can be challenging to assess the “correct” amount of retirement savings and how long it might take to reach it.
Yet, to put this in context, Americans’ “magic number” to retire — the amount of money needed — keeps on rising. They believe they will need $1.27 million to retire comfortably, according to Northwestern Mutual’s 2023 Planning & Progress Study — up from $1.25 million reported last year. And most Americans are still leagues away from that number.
How Much Are Americans Saving?
“The ‘magic number’ for retirement is a moving target, and it’s not surprising to see it rise year after year,” said James Allen, founder of Billpin.com.
“However, the reality is that the average savings for those already retired — 62 and over — and Gen Xers approaching retirement often falls short of this ideal.”
Indeed, the Northwestern survey found that Americans in their 60s have, on average, $112,500 in retirement savings, while those in their 70s have on average $113,800. Both sums are a far cry from the $1.27 million “magic number.”
And for Americans in their 40s and 50s, the averages are $77,400 and $110,900, respectively, both sums also a long way from the magic number.
Lena Haas, head of wealth management advice and solutions at Edward Jones, explained that the discrepancy is due, in many cases, to Americans simply having started saving too late — and now they need to catch up.
“In our study [Edward Jones and Age Wave] we asked retirees what they wish they had done differently when preparing for retirement. By far their number-one response is: start saving earlier and more. That’s an important message for young people to absorb today,” added Haas.
Ideally, while there is not a one-size-fits-all answer, by the end of your 40s you should aim to save about four times your salary; By the end of your 50s you should aim to save eight times your salary; and In your 60s, you should aim to save about 10 times your salary, said Kim Gattis, senior vice president, senior financial planner at UMB Bank.
“By the time you’re in your 70s, you are hopefully enjoying all the fun things retirement has to offer,” added Gattis. “But just because you’ve retired, doesn’t mean you should stop investing. Lifetime income helps you live comfortably, so be sure to maintain an active investment strategy through your golden years.”
How Can You Catch Up?
First, Edward Jones’ Haas said it’s important to carefully consider what’s most important to you in your retirement to get a sense of your ideal savings amount for retirement.
“Answering those questions will give you a clearer idea of how much money you’ll need in the next phase of your life, which will help inform your saving and investment strategies in an era when attitudes about what retirement means are evolving,” she added.
Another tip is to “test drive” your retirement budget ahead of time to get a sense of how much you’d be spending and what you should plan for.
As for GenX Americans, they should plan to make the best use of catch-up contributions.
“Workers age 50 and older have a higher annual 401(k) contribution limit than their younger peers, allowing you to contribute more for retirement by speeding up your savings with the same tax advantages — either now or in the next few years,” she said.
For example, this year, the catch-up contribution increases to $7,500, meaning that those eligible can contribute a maximum of $30,000 to their 401(k), $7,500 more than their younger peers, she said, adding that there are similar benefits for IRA catch-up contributions that a financial advisor can explore with you.
“Thanks to the SECURE 2.0 Act, those aged 60-63 will have a higher limit for catch-up contributions starting in 2025,” added Haas.
Reach Out to the Experts
Several experts agree that there’s not a single number that fits everyone’s retirement goals so it’s important not to compare yourself to others and work with a financial planner who can build a plan that fits your goals and needs.
“I think retirement for future generations is evolving,” said Anna Katherine Davis, wealth advisor at Gratus Capital.
“I believe Social Security could potentially look different for future generations than how it currently operates. Most companies don’t offer pension plans anymore and instead focus has shifted to 401(k) matches. I’ve noticed the 2022 market decline has caused people nearing retirement to think differently and want more of a cushion on their savings than they did before since a down market is fresh on their minds.”
She added that for people already in retirement, it’s important to review their plan annually as changes in the market, interest rates and life in general need to be monitored and updated to help you stay on track.
“I would advise people to get started planning early and work with a financial professional,” she said.
“A wealth advisor will help you think through additional expenses in retirement, map out your goals, take into account taxes, inflation, and market volatility, and build a custom plan that works for you. The earlier you start planning, the more time you have to track your expenses and make adjustments to your savings to help you achieve your goals.”
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