If there was a magic number that guaranteed financial security in retirement, building a nest egg would perhaps be less stressful. But because each individual’s needs are unique, there’s no single guidance for retirement savings that could possibly apply to everyone. Your best bet is to think about what you want your retirement to look like, and then work with a financial advisor to meet your goals.
That said, Northwestern Mutual surveyed Americans across a range of ages last year to see how much money they thought it would take to retire comfortably. And the magic number to retire comfortably that they landed on was $1.46 million.
Of course, $1.46 million doesn't come close to reflecting the amount of money the typical American has saved. Across all age groups, the average amount saved for retirement was $88,400. Among baby boomers and older, it was $120,300. And among high-net-worth individuals with more than $1 million in investable assets, it was a surprising $172,100.
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Vanguard research doesn’t paint a much more positive picture. As of 2023, the last year for which data is available, average retirement savings among Americans ages 65 and over were $272,588, while median savings were $88,488.
A big reason for these large gaps between desired savings and actual savings is that many workers don't have the support of their employers to save and plan for the future. That's why BlackRock CEO Larry Fink insists that a secure retirement is mostly attainable for Fortune 500 workers, and not necessarily for the typical American.
But the reality is that even if you manage to accumulate a $1.46 million nest egg, it may not buy you the retirement you desire. Or will it? It depends on you.
What $1.46 million might do for you
With $1.46 million to your name, you would have an opportunity to enjoy a decent annual income from your savings alone, not accounting for income you get elsewhere, like Social Security benefits. If you were to apply the 4% rule to a nest egg that size, it would amount to an annual income of $58,400, not accounting for inflation-related adjustments.
Whether that amount, coupled with other income streams you might have, suffices, depends on where you live and how you choose to spend your days. Your healthcare needs will also play a role, as will the nature of your savings from a tax perspective. A $1.46 million Roth IRA buys you more financial flexibility as a retiree than $1.46 million that’s completely taxable.
But still, if we take the average monthly Social Security check of $1,981, and add it to the $58,400, that results in an annual paycheck of about $82,000. And that assumes only one person in your household is collecting Social Security. There may be a second set of benefits to enjoy as well, pushing your overall household income higher.
All told, with $1.46 million and other income streams, you’re potentially looking at a comfortable lifestyle, especially if you’re debt-free, but not necessarily a luxurious one. A single nice trip per year may be doable, but traveling abroad every three months may not be in the cards. You’ll need to think about whether you’ll be happy being comfortable, as opposed to being truly well-off.
Is $3.93 million the real ideal number? For high-net-worth individuals, yes
The income you earn during your working years might dictate what retirement nest egg you should aim for. Northwestern Mutual found that while Americans on the whole set their sights on $1.46 million, high-net-worth individuals said they'll need $3.93 million to enjoy retirement to the fullest.
Of course, your ability to build a nest egg beyond the $1.46 million mark might hinge on your income. Someone earning $200,000 may have an easier time maxing out a 401(k) plan than someone with a $65,000 salary.
But higher salaries also tend to come with higher living costs, not just due to lifestyle creep, but due to the fact that many people need to reside in expensive cities to earn the big bucks. So it’s not a given that you’ll be able to save three times as much for retirement each year earning $200,000 compared to someone earning $65,000.
Still, there’s nothing wrong with targeting a larger retirement savings balance than $1.46 million if you have lofty goals for your later years or want the option to do things like support charitable causes you care about or grown children. Your best bet is to set and work toward your goal from a relatively young age so that your money has time to grow.
It’s also wise to work with a financial adviser to set up a retirement portfolio that’s conducive to long-term growth. That could mean taking on more risk during your earlier years and reducing your risk profile as retirement nears.
Bottom line
At the end of the day, the $1.46 retirement savings goal Americans seem to have landed on should not be taken as gospel. You can use it as a starting point if so you choose. Or, you can chalk it up to an interesting piece of survey data that doesn’t influence your long-term plans in the slightest. The choice is yours, since ultimately, the only needs and goals you have to worry about are the ones you decide on yourself.
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