New Magic Number for Retirement Is $1.46 Million – Surprise
Written by: A. Hamilton
The new magic number for retirement is $1.46 million, according to a recent survey conducted by financial-services company Northwestern Mutual. This figure represents an increase from $1.27 million just a year ago and is over $1 million more than the average survey participant's nest egg.
But what does this rising magic number really signify? According to Northwestern Mutual, it reveals more about retirement anxiety than retirement planning. While $1.46 million may be a suitable savings target for higher-income households, it is important to note that most families with lower incomes likely require far less.
The disconnect in these nest-egg expectations can be attributed, in part, to the transition from pensions to 401(k)-type plans, which place the responsibility of investment and planning decisions on the individual.
Retirees with limited financial knowledge are now faced with the daunting task of making their nest eggs last for several decades, a challenge described by BlackRock Chief Executive Larry Fink as an "impossible math problem" in a recent letter to shareholders.
The concern is particularly pronounced among younger workers. Kurt Rupprecht, partner and private-wealth adviser at K Street Financial, a Northwestern Mutual Private Client Group, highlights that millennials, born between the early 1980s and late 1990s, have significantly raised their estimates compared to pre-pandemic levels. Millennials now anticipate needing $1.65 million for retirement, up from just under $1 million in 2020. Baby boomers, born between 1946 and 1964, also increased their estimate to $990,000, up from $830,000 in 2020, as reported in the Wall Street Journal.
Interestingly, individuals with at least $1 million to invest believe they will need around $4 million to retire comfortably, indicating a substantial disparity from previous years' estimates, according to a Harris Poll.
While financial advisors say there is no single true magic number or formula to determine when it is financially safe to retire. The actual amount required for a nest egg depends on various factors, including income, marital status, expected longevity, location of retirement, and whether one intends to leave money to heirs.
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While there are rules of thumb to gauge retirement readiness, such as Fidelity Investments' suggestion to save 10 times your annual salary by age 67, these guidelines are not definitive.
For instance, a household with a median income of $75,000 would need approximately $750,000 saved by age 67. On the other hand, a family earning at least $153,001, placing them in the top 20% of earners according to the 2022 U.S. Census, should aim to save $1.53 million or more.