Americans Think They Need $1.8 Million to Retire. Here’s How You Can Get There

Americans believe they’ll need at least $1.8 million to retire, an increase from last year’s magic number of $1.7 million. However, not very many are confident they’ll be able to get there. These are the two top-line takeaways from this year’s 401(k) Participant Study published by Charles Schwab, the annual study that tracks important retirement data and gauges American sentiment.

Reaching the $1.8M Savings Target

Survey participants in the Schwab study say they expect that they’ll need $1.8 million in savings before they can retire. Getting there by age 67 (the new official retirement age, per the Social Security Administration) will take a lot of work and saving. But it’s important to remember that you can do it, especially if you start early. For example, let’s assume you take advantage of both a 401(k) and an IRA, allowing you to maximize the IRS contribution limits for each. Then let’s say you invest those assets entirely in an S&P 500 index fund, giving you the market’s long-term average return of 9.82% per year. With this investment profile, assuming you start with nothing, here’s how much you need to approximately save each month in order to reach around $1.8 million in your retirement savings by 67:

• Age 25: $242 per month ($1.8 million by age 67)
• Age 35: $646 per month ($1.79 million by age 67)
• Age 45: $1,940 per month ($1.79 million by age 67)

If you start saving for retirement at age 55, you’d need to contribute $6,600 a month, or $79,200 a year, to reach $1.8 million by age 67. But then you’d run into the aforementioned IRS contribution limits, which total $37,500 in 2023 even when accounting for catch-up contribution provisions. In turn, you’d have to make up the difference by investing in a standard taxable account, which doesn’t have the same tax advantages as its retirement account counterparts. This will likely result in a heftier tax bill when you’re retired and even beforehand. We can’t overstate the value of time here. Even if you are nearing age 40, this is still something that you can reasonably accomplish with hard work and diligent savings. But by your mid-40s, you’ll need to save nearly $2,000 per month in order to reach the $1.8 million target. That may be unrealistic for many people. But it’s also worth noting that the survey participants may be overestimating how much they’ll need. This is a survey of retirement plan participants, not retirement advisors. A common rule of thumb is that you should have around 10 times your annual salary in retirement savings by age 67. Since the average American household earns around $71,000 per year, this means retirement will cost more like $710,000 in savings. That’s still a lot of money, but for many people, it’s a much more attainable goal than $1.8 million.

Many People Aren’t Optimistic About Retirement

According to Schwab, only about 37% of survey participants say they think it’s “very likely” they will meet their retirement goals. Just under half the people surveyed (49%), report that they think it’s somewhat likely they will hit their numbers. Only about 14% think it’s unlikely they will get there at all. There’s some basis for their concerns. Americans’ retirement savings consistently lag behind their needs. Among households that have retirement savings, the median account held just $65,000 the last time the Federal Reserve studied the issue. For people between 55 and 64 years old, the median retirement account holds just over $71,000, according to Vanguard’s “How America Saves 2023” report. That’s a far cry from the $1.8 million the Schwab respondents say they’ll need.

Confidence Is Trending Negative

Overall, survey participants report more negative numbers than they did last year. Expected retirement savings are up somewhat in Schwab’s 2023 survey. In the 2022 edition of the survey, investors expected they’ll need $1.7 million to reach their retirement goals. Over the past year, that number has increased, and it appears that has a lot to do with inflation. In 2023, a two-thirds majority of investors told Schwab that inflation will be their top retirement obstacle. In fact, increased pessimism is the dominant theme of Schwab’s report across the board. In the 2022 results, almost half of all respondents said they’re very likely to meet their retirement goals. One year later, only about 37% of respondents said the same thing. In 2023, more people reported more obstacles to retirement than in the previous survey, including inflation and stock market volatility. All in all, survey respondents said they expect to need more money, and that they expect to have a harder time getting it, than in last year’s edition of these numbers. Schwab generated this data through an online survey of 1,000 401(k) plan participants. The survey also reflects an ongoing trend of negative perception in the economy at large. Individuals and households report strong pessimism, to the point where nearly half the country inaccurately believes that the United States is currently in a recession.

Bottom Line

Charles Schwab has published its annual report on retirement savings. According to their survey, investors expect it will cost $1.8 million to afford their own retirement, an increase from last year’s savings target of $1.7 million.

Retirement Planning Tips

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• How much money will you have in savings by the time you retire? If you’re unsure, SmartAsset’s retirement calculator can help you estimate how your current savings will grow over time. The free tool can also tell you how much retirement income you can expect to generate in your golden years.
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