Americans believe they need $1.46 million to retire comfortably. But why?

A new survey from Northwestern Mutual found that Americans now believe they’ll need to save $1.46 million to retire comfortably. That figure has jumped 15% over the past year and 53% since 2020, Northwestern Mutual reported. Americans’ actual savings are far off from that goal, according to the survey, which found that the average amount U.S. adults have saved for retirement is just $88,400. “The typical worker has a $1.37 million gap between their actual savings and their retirement aspirations,” CBS News noted in its report on the new research.

Gen Z and retirement

Aditi Javeri Gokhale, chief strategy officer at Northwestern Mutual, told CBS MoneyWatch that the 53% change since 2020 stems, in part, from workers expecting to spend more time in retirement due to retiring earlier, living longer or both. The survey found that many members of Gen Z, for example, believe they’ll retire at 60. For those 3 in 10 Gen Zers who say it’s likely or highly likely they’ll live until age 100, that means they’d need to cover 40 years with retirement savings. Members of Gen Z currently have an average of $22,800 in retirement savings, but their retirement goal is $1.61 million, Northwestern Mutual reported. “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,” Gokhale said to USA Today.

What’s the right amount for retirement?

Gokhale suggested that some respondents might have simply guessed how much they’ll need for retirement. “There is no major calculation; it’s a feeling,” Gokhale told CBS News. “Some of them probably have done some math, in terms of saving and in terms of average burn to operate (in retirement), but it generally comes (down) to feeling.” CBS News noted that financial needs in retirement can vary widely based on people’s spending habits and their location, among other factors. “Using the rule of thumb to withdraw 4% of one’s retirement savings annually, a nest egg of $1.46 million would result in about $58,400 in annual income. After adding in Social Security benefits, which is about $23,000 annually, that results in retirement income of about $81,000 each year — or above the median household income of $74,580,” CBS News reported.

Retirement savings tips

Taxes can play a significant role in how much you have to spend in retirement — and not enough people prepare for this, according to the new survey. It reported that only 30% of respondents “have a plan to minimize the taxes they pay on their retirement savings.” If you’re looking to prepare for retirement, here are some suggestions:

• Utilize both traditional and Roth IRA accounts: “Doing so will give you taxable and tax-free withdrawal options in retirement,” according to Fidelity.
• Set up a health savings account for medical expenses: “Withdrawals for qualified expenses are tax-free,” per USA Today.
• Meet with a financial adviser: AARP shared a study that found about 6 in 10 adults 50 or over have not met with a financial professional for retirement. “If you are trying to do this on your own, it becomes very very overwhelming and disheartening,” Gokhale told CBS News.