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The “magic number” that Americans believe they need to have reserved for retirement jumped from last year as some expressed concern about their retirement savings.
Northwestern Mutual released a study Wednesday that found that the value of retirement savings Americans think they need to retire comfortably up to $1.46 million.
That figure is an increase of $200,000 from last year’s edition of the report and is in line with the estimated magic amount from 2024, the company noted.
“The new ‘magic’ number reflects a confluence of factors — from continued inflation and longevity to uncertainty about the future of Social Security,” said John Roberts, chief executive officer of Northwestern Mutual.
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The number of Americans who think they need to prepare for retirement rose last year. (Spencer Platt/Getty Images)
For high-net-worth Americans, defined as having $1 million or more assets that cannot be investedthe magic number is even higher at $2.67 million, on average.
“Retirement is becoming increasingly complex, and Americans are responding by setting higher expectations of what they will need. The key now is to combine those expectations with a thoughtful, comprehensive financial plan that will enable them to reach their unique goals,” said Roberts.
The report found that 46% of Americans say they don’t expect to be financially ready for retirement, and 48% say they are likely to outlive their savings. It also found that only 23% of Americans who are saving for retirement say they have one year or less of their income set aside.
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Americans’ “magic number” for retirement has risen to $1.46 million. (Angela Weiss/AFP for Getty Images)
The report notes that while there is no universal retirement number for all Americans, Northwestern Mutual recommends that people plan to replace about 80% of their pre-retirement income.
It also explained a few more Sixth retirement rules for Americans to consider as they think about how much they should save for retirement.
The so-called “25x rule” suggests that a person should save about 25 times their expected annual income. Using the study’s $1.46 billion “magic number,” that would be enough to generate about $58,000 in annual retirement income, the report said.
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The report detailed several rules of thumb for retirement savings. (Stock)
Another rule of thumb is the $1,000 per month rule, which states that for every $1,000 in required monthly retirement income, there should be $300,000 in savings. For example, with $1.46 million in retirement savings, it will generate about $4,800 in retirement income per month.
“These rules of thumb can certainly give Americans a ballpark estimate of their own wealth management goals. But they don’t include major retirement risks — like rising health care costs or a long-term care event,” Roberts said.
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“And they don’t consider any of the unique estate planning goals that Americans hope to pass on to the next generation,” he added, noting that doing financial planning with an advisor can be beneficial.
