Personal Financeretirement
Apr 03, 2024 10:59 AM EDT
Americans have ambitions for their retirement, with the median worker believing they need $1.46 million to retire comfortably - a leap of 53% from their savings target in 2020, according to a new poll from Northwestern Mutual.
However, the survey found that the average amount maintained in a retirement account now is just $88,400, meaning that most people are far from achieving that goal. This indicates that the difference between the average worker's actual savings and their desired retirement income is $1.37 million.
Aditi Javeri Gokhale, chief strategy officer at Northwestern Mutual, told CBS MoneyWatch that Americans today feel they need to save more for their golden years than they did in 2020, when the average worker estimated that a comfortable retirement would require $951,000 in savings. This is because of the impact of inflation and other financial pressures.
However, she also mentioned that a lot of workers anticipate living longer lives and retiring earlier, which might also help to explain why individuals think they need larger nest eggs than they did a few years ago.
According to the report, Gen Z workers, who are presently in their early 20s, plan to retire at age 60 and nearly one-third believe they will live to 100. This means they will need to save money for a 40-year retirement.
Furthermore, the fact that Social Security's trust fund reserves are expected to run out in 2033 and that, should the program not be strengthened before then, payouts may be reduced is another reason why more people are concerned about Social Security.
Given that the study also revealed that only around half of boomers, many of whom are already retired, said they genuinely know how much they need to retire, Gokhale speculated that many of the 4,588 individuals who replied to the financial services company's poll provided an estimate of their own.
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Stated differently, a large number of Americans are approaching retirement without ever taking the time to sit down and determine what they actually need, even while some have spoken with a financial advisor or created a thorough plan for their future.
Retirement requirements do, in fact, differ greatly depending on a person's level of living during their working years, local cost of living, taxes, and other financial factors. If an individual were to take out 4% of their retirement savings on a yearly basis, they would receive around $58,400 in income from a $1.46 million nest account.
Retirement income of over $81,000 annually is obtained after factoring in Social Security benefits, which come in at roughly $23,000 annually. This is more than the $74,580 median family income.
Of all, the majority of Americans have significantly less saved than $1.46 million, and many have no savings at all when they approach retirement.
The report highlights the DIY attitude of the present retirement system, which some experts claim has developed from the switch from pensions to 401(k) plans, the latter of which are managed by employers to give employees a reliable source of income in retirement.
However, employees who participate in 401(k) plans usually choose their own assets and determine how much of their salary to save.
Teresa Ghilarducci, a retirement specialist and professor at The New School for Social Research in New York, is one of the system's detractors. She said that the present strategy has left behind the lowest 90% of workers. To begin with, just 50% of American workers can even access retirement plans; the remaining workers must devise their own savings plan.
However, more study suggests that there are other obstacles to overcome. According to an AARP research released earlier this year, around six out of ten adults over 50 had never met with a financial expert. The report cites a variety of reasons for this, including the worry that they don't have enough funds to support the appointment or that it is too costly.
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