Inflation has crept into every part of Americans’ lives, including how much they now think they need to retire comfortably: a record $1.46 million, a study released on Tuesday said.
That’s a 53% surge since the $951,000 target Americans reported in 2020 and a 15% increase from last year’s $1.27 million, according to Northwestern Mutual’s 2024 Planning & Progress Study which polled 4,588 adults in January.
The jump hasn’t spurred Americans to save more, though. The average amount that U.S. adults have saved for retirement dropped modestly to $88,400 from $89,300 in 2023 but that is more than $10,000 off the five-year peak of $98,800 in 2021, the study said. The dip in savings brings the gap between what people think they need for retirement and what they’ve saved to $1.37 million.
“People’s ‘magic number’ to retire comfortably has exploded to an all-time high, and the gap between their goals and progress has never been wider,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “Inflation is expanding our expectations for retirement savings.”
What we think we need in retirement and what we’ve saved
Every generation shows a large gap between what its members believe they’ll need for a comfortable retirement and the reality of what they have saved as of today, the study showed.
◾ Gen Z expects it’ll need $1.63 million for retirement but has only saved $22,800 on average – a $1.61 million gap
◾ Millennials think they’ll need $1.65 million but have only saved $62,600 on average – a $1.59 million gap
◾ Gen X forecasts it’ll need $1.56 million but has saved on average $108,600 – a $1.45 million gap
◾ Boomers predict they'll need $990,000 but they've saved $120,300 on average – an $870,000 gap
Even high-net wealth people registered a wide gap. They expect they’ll need $3.93 million to fund their lifestyle in retirement but on average only have $172,100 saved, the study said.
How do savings tactics differ between generations?
Gen Z thinks the early bird catches the worm. They believe that by starting to save sooner, they’ll be able to retire earlier, the study said.
“Young people today recognize the value of retirement planning and building wealth early on in life and are getting a significant head start over their parents and grandparents,” said Gokhale.
Gen Z has, on average, started saving for retirement at age 22, nearly a decade earlier than the overall average age across generations of 31, the study said. Overall, the average age most people expect to retire is 65.