By Chavvi Agarwal
Wealth of Geeks
Wealth of Geeks
Americans’ ideal retirement savings target reaches unprecedented heights, soaring well beyond inflation rates. Northwestern Mutual says future retirees’ current target of $1.46 million is more than twice the amount they thought would suffice when the pandemic started.
The life insurance company recently released their 2024 Planning & Progress Study, part of their proprietary research series that explores Americans’ attitudes, behaviors and perspectives across a broad set of issues impacting their long-term financial security.
“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. Inflation is expanding our expectations for retirement savings, and putting the pressure on to plan and stay disciplined,” explains Aditi Javeri Gokhale, Chief Strategy Officer, President of Retail Investments and Head of Institutional Investments at Northwestern Mutual.
“Making a ‘magic number’ appear isn’t about waving a wand; it’s about using time-tested techniques and learning from a skilled advisor.”
In every demographic, there exist significant disparities between individuals’ retirement savings goals and their current savings.
How Much Has It Changed
Today, American adults estimate they’ll require $1.46 million for a comfortable retirement, marking a 15% surge from last year’s $1.27 million. This figure surpasses the current inflation rate of around 3%. The arbitrary “magic number” skyrocketed 53% in just five years, a significant departure from the $951,000 target reported in 2020.
Breaking it down by generation, Gen Z and millennials anticipate requiring over $1.6 million for a comfortable retirement. Meanwhile, high-net-worth individuals — those with over $1 million in investable assets — speculate they will need nearly $4 million.
While the typical U.S. adult’s retirement savings declined from $89,300 in 2023 to $88,400 in 2024, savings remain notably lower than the 2019 peak of $98,800.
Gen Z Starts Saving Early
The research reveals, on average, Americans start saving for retirement around age 31. However, Gen Z begins saving much sooner, at age 22, nearly a decade earlier. In contrast, boomers and older generations state they started 15 years later, around age 37. Millennials and Gen Xers began their retirement savings journey at ages 27 and 31, respectively.
With a head start — nearly a decade earlier than previous generations — Gen Z hopes they’ll be able to retire sooner. This foresight will likely benefit these groups and generations after, as three in 10 American millennials and Gen Z respondents report they might live to age 100.
“These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America,” explains 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 post-career lives. The good news is that they are investing earlier so they can save the money they need to enjoy it.”
The research explores pressing challenges associated with retirement planning and shows that baby boomers and Gen Xers lack confidence in their preparedness.
How to Better Prepare for Retirement
There are many helpful ways to stay abreast of retirement planning. Utilizing savings strategies, incorporating online services, or communicating with professionals can inform retirement preparations, boost bank balances, and bolster economic knowledge and market understanding.
Start Tax Planning
Only three in 10 (30%) Americans have a plan to minimize the taxes they pay on their retirement savings.
“Putting money into a 401K may not be enough to retire comfortably if the financial plan doesn’t address the impact of taxes on retirement income,” says Javeri Gokhale. “Most people don’t realize that their retirement income may be taxed about 20% or 30% when they withdraw and spend it. When they recognize the impact, it’s often too late for them to adjust.”
The life insurance company recently released their 2024 Planning & Progress Study, part of their proprietary research series that explores Americans’ attitudes, behaviors and perspectives across a broad set of issues impacting their long-term financial security.
“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. Inflation is expanding our expectations for retirement savings, and putting the pressure on to plan and stay disciplined,” explains Aditi Javeri Gokhale, Chief Strategy Officer, President of Retail Investments and Head of Institutional Investments at Northwestern Mutual.
“Making a ‘magic number’ appear isn’t about waving a wand; it’s about using time-tested techniques and learning from a skilled advisor.”
In every demographic, there exist significant disparities between individuals’ retirement savings goals and their current savings.
How Much Has It Changed
Today, American adults estimate they’ll require $1.46 million for a comfortable retirement, marking a 15% surge from last year’s $1.27 million. This figure surpasses the current inflation rate of around 3%. The arbitrary “magic number” skyrocketed 53% in just five years, a significant departure from the $951,000 target reported in 2020.
Breaking it down by generation, Gen Z and millennials anticipate requiring over $1.6 million for a comfortable retirement. Meanwhile, high-net-worth individuals — those with over $1 million in investable assets — speculate they will need nearly $4 million.
While the typical U.S. adult’s retirement savings declined from $89,300 in 2023 to $88,400 in 2024, savings remain notably lower than the 2019 peak of $98,800.
Gen Z Starts Saving Early
The research reveals, on average, Americans start saving for retirement around age 31. However, Gen Z begins saving much sooner, at age 22, nearly a decade earlier. In contrast, boomers and older generations state they started 15 years later, around age 37. Millennials and Gen Xers began their retirement savings journey at ages 27 and 31, respectively.
With a head start — nearly a decade earlier than previous generations — Gen Z hopes they’ll be able to retire sooner. This foresight will likely benefit these groups and generations after, as three in 10 American millennials and Gen Z respondents report they might live to age 100.
“These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America,” explains 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 post-career lives. The good news is that they are investing earlier so they can save the money they need to enjoy it.”
The research explores pressing challenges associated with retirement planning and shows that baby boomers and Gen Xers lack confidence in their preparedness.
How to Better Prepare for Retirement
There are many helpful ways to stay abreast of retirement planning. Utilizing savings strategies, incorporating online services, or communicating with professionals can inform retirement preparations, boost bank balances, and bolster economic knowledge and market understanding.
Start Tax Planning
Only three in 10 (30%) Americans have a plan to minimize the taxes they pay on their retirement savings.
“Putting money into a 401K may not be enough to retire comfortably if the financial plan doesn’t address the impact of taxes on retirement income,” says Javeri Gokhale. “Most people don’t realize that their retirement income may be taxed about 20% or 30% when they withdraw and spend it. When they recognize the impact, it’s often too late for them to adjust.”
Respondents’ top 10 strategies employed include:
1. Making strategic withdrawals from traditional and Roth accounts to stay within a lower tax bracket (32%).
2. Utilizing a mix of traditional and Roth retirement accounts (30%).
3. Making strategic charitable donations to reduce taxable income (24%).
4. Taking advantage of a Health Savings Account (HSA) or other tax-advantaged healthcare account (23%).
5. Using products like permanent life insurance or annuities for their tax benefits (22%).
6. Conducting Roth conversions before taking Required Minimum Distributions (RMDs) or Social Security (19%).
7. Employing qualified charitable distributions from an IRA (17%).
8. Contributing to other tax-advantaged accounts, such as a 529 plan (14%).
9. Leveraging the basis paid into the cash value of permanent life insurance to stay within a lower tax bracket (13%).
10. Taking advantage of a Qualified Longevity Annuity Contract (QLAC) to set aside funds for later in retirement (13%).
Put More Into Instruments
In 2024, younger employees are limited to contributing $23,000 to their 401(k)s and $7,000 to their IRAs. However, individuals aged 50 and above can contribute up to $30,500 to a 401(k) and up to $8,000 to an IRA.
Get a Side Hustle
Portfolio development and retirement savings are crucial parts of financial stability, but exploring additional avenues to boost your earnings, such as a side hustle, can be beneficial for those wanting to boost income without the red tape and time constraints of a traditional employment position.
A 2023 Bankrate survey states that 39% of Americans supplement their income through side gigs. Engaging in freelancing or consulting can offer extra income, especially if you’re lagging in retirement savings.
Reevaluate Obligations
As you approach retirement age, ensure you habitually reassess priorities and consider putting yourself first. Letting go of unnecessary obligations and making fewer sacrifices can prolong well-being and happiness. While this doesn’t mean abandoning responsibilities, it can promise a renewed life balance that prioritizes personal needs. Taking care of yourself allows you to better enjoy life and make the most of your time. Self-care isn’t selfish; prioritizing oneself can build a more fulfilling and meaningful life.
Are You Ready for the Future?
Proactivity, like utilizing sound financial strategies and adopting a side hustle, can help individuals navigate retirement planning and its complexities while achieving financial security and peace of mind in their golden years.
1. Making strategic withdrawals from traditional and Roth accounts to stay within a lower tax bracket (32%).
2. Utilizing a mix of traditional and Roth retirement accounts (30%).
3. Making strategic charitable donations to reduce taxable income (24%).
4. Taking advantage of a Health Savings Account (HSA) or other tax-advantaged healthcare account (23%).
5. Using products like permanent life insurance or annuities for their tax benefits (22%).
6. Conducting Roth conversions before taking Required Minimum Distributions (RMDs) or Social Security (19%).
7. Employing qualified charitable distributions from an IRA (17%).
8. Contributing to other tax-advantaged accounts, such as a 529 plan (14%).
9. Leveraging the basis paid into the cash value of permanent life insurance to stay within a lower tax bracket (13%).
10. Taking advantage of a Qualified Longevity Annuity Contract (QLAC) to set aside funds for later in retirement (13%).
Put More Into Instruments
In 2024, younger employees are limited to contributing $23,000 to their 401(k)s and $7,000 to their IRAs. However, individuals aged 50 and above can contribute up to $30,500 to a 401(k) and up to $8,000 to an IRA.
Get a Side Hustle
Portfolio development and retirement savings are crucial parts of financial stability, but exploring additional avenues to boost your earnings, such as a side hustle, can be beneficial for those wanting to boost income without the red tape and time constraints of a traditional employment position.
A 2023 Bankrate survey states that 39% of Americans supplement their income through side gigs. Engaging in freelancing or consulting can offer extra income, especially if you’re lagging in retirement savings.
Reevaluate Obligations
As you approach retirement age, ensure you habitually reassess priorities and consider putting yourself first. Letting go of unnecessary obligations and making fewer sacrifices can prolong well-being and happiness. While this doesn’t mean abandoning responsibilities, it can promise a renewed life balance that prioritizes personal needs. Taking care of yourself allows you to better enjoy life and make the most of your time. Self-care isn’t selfish; prioritizing oneself can build a more fulfilling and meaningful life.
Are You Ready for the Future?
Proactivity, like utilizing sound financial strategies and adopting a side hustle, can help individuals navigate retirement planning and its complexities while achieving financial security and peace of mind in their golden years.
