According to Northwestern Mutual’s annual Planning and Progress Study, Americans' “magic number” for savings needed to retire comfortably in 2025 is $1.26 million.
This is about $200,000 less than the $1.46 million reported last year and nearly flat with 2022 and 2023 estimates. Much of the reduction is tied to a lower inflation rate, the study noted, with a number of other factors at play.
Experts generally counsel savers to think about retirement in terms of stable income streams and strategic risk moderation. Besides the "magic number" reduction, the survey reflects Americans’ more mixed expectations about life after work.
This includes 51% of Americans reporting that it is either “somewhat likely” or “very likely” that they will outlive their savings. In contrast, only 16% feel confident enough to say that the prospect of outliving their wealth is “very unlikely.” Meanwhile, 35% of Americans say that they have not taken steps to address that potential outcome.
The “magic number” may have come down, said John Roberts, chief field officer at Northwestern Mutual, but it remains far beyond what many people have saved. Nonetheless, across every generation, Americans report planning to retire earlier and expecting to live longer.
“One explanation for the new number could be inflation,” Roberts said. “While still people’s top concern, it isn't as elevated as it was in recent years. … At the same time, the level of concern about their current savings has ratcheted up. More than half of Americans believe outliving their life savings is a real possibility, and the vast majority are living with financial anxiety.”
Echoing the advice of many experts, Roberts said it is important to remember that retirement planning is deeply personal.
“Everyone deserves their own magic number that considers where they will live, what lifestyle they will have, their sources of income, and more,” he said. “Rules of thumb are everywhere, but nothing is better than a financial plan that’s personalized and custom-built just for you."
What It Takes to Hit the Number
Assuming that individuals save regularly and never borrow from their retirement savings accounts before reaching age 65, those starting at age 20 would need to invest $330 per month to accumulate the $1.26 million, the study found, while those starting at age 30 would need to set aside $695 per month. This assumes a 7% rate of return compounded daily.
Naturally, the longer they wait, the more they need to invest. People starting at age 40, for instance, would need to save $1,547 per month. If they postpone saving to age 50, they would need to invest $3,958 per month.
Northwestern Mutual recommends that people aim to replace about 80% of their pre-retirement income, but again, the “magic number” calculation for each person will depend on when they want to retire, where they'll live and what kind of lifestyle they want to maintain throughout their retirement years.
Generational Differences
The study also digs into each generation’s perspectives and behaviors.
Gen Z, for example, started saving at 24 on average and aims to retire at age 61, with 34% thinking it’s likely that they'll live to 100. Baby boomers, meanwhile, started saving at 37 and aim to retire at 72. Only 23% think it’s likely that they'll live to 100.
Gen Z is the generation with the most confidence in being financially prepared for retirement. Conversely, Gen X is the only generation with a majority of respondents saying that they do not think that they will be ready to retire.
“Younger Americans have ambitious financial goals, and they're taking action to reach them,” Roberts said. “If this generation determines how much they need to save, continues to generate wealth, and protects what they’ve already built, they could be in a strong position to achieve financial security.”
Nuanced Views on Social Security
Drawing back, concerns about Social Security and inflation are more pressing than other major planning challenges, including outliving life savings, planning for long-term care, managing taxes and budgeting for health care.
Only about 26% of Gen Xers and 27% of boomers say that they plan to delay receiving Social Security benefits as long as possible to maximize their monthly benefit. Those figures grow to 46% of Gen Xers and 45% of boomers who say that they plan to start receiving their benefit when they reach their full retirement age, while 28% say that they plan to start to receive payments as soon as they are eligible.
“There is no right or wrong way for people to claim Social Security benefits, but if people plan intentionally, it can pay to wait,” Roberts observed. “Anyone who activates payments at age 67 instead of age 62 could grow their checks by 30%, and if they wait to age 70, they could see an additional 24%.”
The study reports a sizable gap in Social Security importance among generations. For Gen X, the program's viability is nearly on equal footing to how much they will need to retire comfortably. For Gen Z, concern about Social Security's future is significantly lower.
“There's a huge difference in the way you might look at Social Security if your retirement years feel a long way off versus when they're fast approaching,” Roberts added. “For Gen X, the possibilities and practicalities of retirement are feeling very real right now. For Gen Z, they are likely more focused on other pressing financial matters.”
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