That’s up from $1.25 million last year, the financial services firm found, based on an online survey of 2,740 adults conducted between February and March.
Respondents in their 50s expected to need the most when they retire — more than $1.5 million, the survey found. For those in their 60s and 70s, who are close to or in retirement, those expectations dropped to less than $1 million.
It’s not surprising that expectations for retirement needs are getting higher amid higher inflation, said Alap Patel, a Chicago-based certified financial planner and wealth management advisor for Northwestern Mutual.
If you retire at 60 and live to 100, you have to worry about what costs will be over 40 years, he noted.
“It’s not just about your expenses, but it’s also the mentality of feeling assured that you can spend money throughout retirement,” Patel said.
Savings fall far short of retirement goals
Yet across all age groups, the amount respondents said they currently have saved toward retirement fell short of their million dollar-plus goals — with an average of just $89,300 set aside, a 3% increase from 2022.
Those closest to retirement had more saved, but not by much, with an average of $110,900 for those in their 50s, $112,500 for those in their 60s and $113,900 for those in their 70s.
Older cohorts are not only adjusting down their expectations for how much they will need in retirement, they are also planning to work longer, the survey found.
Americans plan to work until age 65 on average, according to the results. That is up from 64 last year and 62.6 in 2021.
Baby boomers plan to work the longest, until age 71, the survey found. Gen Xers plan to work until 65, millennials until 63 and Gen Z until 60.
The biggest retirement worry was declining health, with 44%; followed closely by outliving savings, with 43%; and boredom, with 31%.
Another recent survey from research and consulting firm Cerulli Associates found the biggest worry for both retirement savers and retirees, with 58%, is outliving their money.
Many people can get lost in the numbers of what they should save.
“A lot of people get so overwhelmed that the number is so big that they have to save this much by this age,” said Winnie Sun, managing director and founding partner of Sun Group Wealth Partners in Irvine, California. She is a member of CNBC’s Financial Advisor Council.
Calculating your own retirement ‘magic number’
Rather than think about a big goal number for retirement, Patel said he urges clients to identify their income needs.
To get an idea of where your money is going, take a look at your credit card and bank statements.
By multiplying your estimated annual budget — for example, $100,000 — by a factor of 25, you may arrive at a generic lump sum you may need to cover your retirement years which, in this example, would be $2.5 million, Patel said.
By cutting your spending, you may also reduce the amount of money it will take to cover your retirement needs.
To help people start tackling those bigger goals, Sun said, she typically breaks them into “more bite-size chunks of activities that they can do.”
That may include a debit card or credit card fast for at least one month to better track their budget. “That will give them a sense of how much they’re spending,” Sun said.
Or instead it may include a savings challenge, like setting a goal for a certain amount of money to stash away in the next three months.
“If we put pressure to have them do it sooner, even when they think they’re not ready, it will help develop better patterns long term,” Sun said.
Everyone typically has three types of expenses, Patel said. The first group includes mundane costs such as utilities, groceries and property taxes, that need to be paid regardless of what happens with your investments or in the economy.
“If the markets are down 30%, it doesn’t matter,” Patel said. “You have to pay your property taxes.”
The second category is discretionary expenses, such as going on vacation or eating out, that can be reduced in the event the economy pulls back. The third category is aspirational spending, such as paying for a trip for a big anniversary or a child’s wedding.
“As you think about retirement, in an ideal world, you would have enough guaranteed zero-risk income to cover your guaranteed expenses,” Patel said.
Social Security benefits may cover some of those monthly income needs. Respondents to Northwestern Mutual’s survey said they expect those benefits to cover 28% of their overall retirement funding. To find out how much you may receive, check your Social Security statement.
In addition, retirees may want to consider adding annuities, Patel said. If you and your spouse need $6,000 per month in income in retirement, and Social Security benefits provide $5,000, you may purchase an annuity to cover the remaining $1,000 per month, he said.
By having your monthly expenses covered with guaranteed income, you may be more comfortable taking more risk elsewhere in your portfolio, he said.
To get assurance your plan will work, it helps to talk with a trustworthy financial advisor.