U.S. adults predict they'll need a significant amount to retire, much more than what they presently possess, and these estimations are increasing at a rate beyond inflation. On average, Americans foresee needing approximately $1.46 million to retire comfortably, based on findings from the Northwestern Mutual's 2024 Planning & Progress Study. The perceived necessity has risen by 15% from the prior year, almost quintuple the cost increases during the same timeframe.
Unfortunately, the actual retirement savings of Americans fall far short of their growing expectations. The average American only has $88,400 in retirement savings, over $10,000 less than its five-year high of $98,800 in 2021 as per the study. This creates a substantial gap between anticipated retirement needs and the reality of savings in all demographic segments.
The 'magic number' needed for a comfortable retirement has reached a record high and the disparity between people's goals and their savings progress is unprecedented," remarked Aditi Javeri Gokhale, Northwestern Mutual’s chief strategy officer. "Inflation is driving our retirement savings expectations upwards and adding pressure to plan and maintain discipline."
Inflation is not only making retirement appear more costly, but it’s also eroding traditional retirement savings methods. Pension plans, once a prevalent benefit, have become almost obsolete today. And though Social Security provides around 90% of income for over a quarter of older Americans, the trust fund is projected to be exhausted by the mid-2030s due to a 75-year deficit.
While 68% of private-sector employees have access to 401(k) plans, only about half utilize them, as reported by the U.S. Bureau of Labor Statistics. Furthermore, a substantial portion of workers are liquidating these retirement savings to meet living expenses. Fidelity reports showed that in the third quarter of 2023, 2.3% of employees made hardship withdrawals from their 401(k) accounts, an increase from 1.8% the previous year.