By Jessica Hall
The gap between our goals and reality has never been wider
American adults believe they will need $1.46 million to retire comfortably, a 15% increase from last year and a massive 54% jump from what Americans said in 2020 that they expected they'd need.
The ballooning of that retirement-nest-egg expectation has outpaced inflation, currently running at between 2% and 3%, according to Northwestern Mutual's 2024 Planning & Progress Study.
Over a five-year span, this so-called magic number has jumped from the $951,000 Americans reported targeting in 2020.
Both Generation Z and millennials expect to need more than $1.6 million to retire comfortably. High-net-worth individuals - people with more than $1 million in investible assets - said they'll need nearly $4 million to retire. Generation Z comprises those born between 1997 and 2013. Millennials are those born between 1981 and 1996.
Even as the total nest egg Americans believe they'll need may be rising, the actual amount U.S. adults have saved for retirement is dropping. The average sum that U.S. adults have saved for retirement dropped to $88,400 in 2024 from $89,300 in 2023. It's down more than $10,000 from a five-year peak of $98,800 in 2021, the study found.
"In 2023, the soaring cost of eggs in the grocery store symbolized inflation in America. In 2024, it's nest eggs," Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual, said in a statement. "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."
The average age at which Americans started saving for retirement was 31, the study found. But for Gen Z, it's 22 - nearly a decade earlier. It's also a full 15 years earlier than baby boomers and older generations, who say they started when they were 37. Millennials and Generation X members began saving for retirement at ages 27 and 31, respectively.
Baby boomers are those born between 1946 and 1964. Generation X was born between 1965 and 1980.
As far as their work expectations, Gen Z aims to retire at age 60, while boomers expect to work until they're 72. The average age most people expect to work to is 65, reported Northwestern Mutual, based on its study of 4,588 U.S. adults aged 18 or older.
"These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America," said Javeri Gokhale. "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. At the same time, Gen Z is redefining retirement and signaling that they plan to have long and fulfilling postcareer lives. The good news is that they are investing earlier so they can save the money they need to enjoy it."
No matter their ages, or when retirement begins, few expect to be financially prepared. For example, just half of boomers and older generations (49%) and Gen X (48%) believe they will be financially ready to retire.
As a result, members of Gen X believe there is a 42% chance of outliving their savings, while boomers and older generations put that probability at 37%. Across both generations, more than a third have not taken any steps to address the possibility of outliving their savings, Northwestern Mutual found.
The research discovered that 3 in 10 millennials and Gen Z Americans believe it's likely or highly likely that they will live to age 100. The sentiment among these younger generations is stronger than older generations. Among Gen X and boomers and older, just 22% and 21%, respectively, said they believed they would live to 100.
In 2024, more than 4 million Americans will turn 65. This demographic phenomenon, known as Peak 65, will continue through 2027. It's the largest surge of Americans hitting the traditional retirement age in history.
Read: Welcome to Peak 65: More than 4 million people are turning 65 this year, and it will affect you
"The 'silver tsunami' is here," said Javeri Gokhale. "While younger generations are focused on building wealth and protecting what they've already built, Gen X and boomers have an additional important task: paying themselves first in retirement."
"Putting money into a 401(k) may not be enough to retire comfortably if the financial plan doesn't address the impact of taxes on retirement income," said Javeri Gokhale.
-Jessica Hall
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
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04-02-24 1545ET
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