The 'magic number' to retire comfortably hits a record high: study
Oof. These numbers are shocking.
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◾ 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.
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wsj.com
But WSJ suggests that people don't need nearly as much as they think because Social Security pays better than people think.
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According to a new survey from Northwestern Mutual, the average American thinks he’ll need $1.46 million in savings to be financially secure in old age. If that were true, it’d be bad news. As USA Today recently reported, the average U.S. adult has saved only $88,400 for retirement.
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Why, then, do seniors report such high levels of security with seemingly paltry levels of savings? One reason is that Social Security benefits are more generous than people think. An average couple retiring in 2022 received total annual benefits of nearly $46,000, up from around $34,600 (in today’s dollars) in 2000. While hardly extravagant, a typical couple can expect an income more than twice the elderly poverty threshold before they touch a penny of their own savings.
Conventional financial planning also overstates the income seniors need. That owes partly to planners assuming that seniors require the same amount of money throughout retirement. Yet as economists Michael Hurd and Susanne Rohwedder of the Rand Corp. have shown, average household spending drops by roughly 40% from age 65 to 90. Seniors aren’t running out of money—spending on gifts and donations increases with age. Retirees simply spend less on themselves than financial planners assume.
Planners likewise forget that much of adults’ preretirement income is spent on their children. The U.S. estimates that a couple earning roughly $83,000 with two children spends more than $26,000 annually providing food, housing, healthcare and other needs for their children. That’s money parents can’t spend on themselves. Of the income they could devote to their own needs, Social Security will replace around 60%. The upshot is that parents need less savings on top of Social Security than one might think.
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The wife and I are doing pretty well with our 401(k)s, we'll have the house paid off before retirement, and we'll also have college expenses behind us before retirement. I'm hoping to really boost 401(k) contributions once the kids finish college. So I think we are on track at the moment.