Americans expect to need $1.25M for a comfortable retirement, study finds

Americans worried about retirement savings.

By Ayo Mseka

Given inflation spikes and volatile markets, Americans surveyed expect they’ll need $1.25 million for a comfortable retirement – a 20% increase over last year’s expectations, according to Northwestern Mutual’s 2022 Planning & Progress Study.

In addition, Americans, on average, plan to work until the age of 64, which is up from 62.6 last year. At the same time, average retirement savings dropped from $98,800 in 2021 to $86,869 in 2022.

“This set of findings dove into retirement and revealed a stark contrast between expected needs for retirement versus what people actually have saved, said Andy Platt, managing director, Northwestern Mutual, Dayton, Ohio.

“Northwestern Mutual’s Planning & Progress Study examines the role finances play in people’s day-to-day lives – how they affect the way people live, feel and plan,” said Platt.

“The rise in inflation is making it harder to save. It’s also making everything look more expensive.” Andy Platt, managing director, Northwestern Mutual, Dayton, Ohio

Platt shared a couple of reasons so many survey respondents said they will need such a large amount – $1.25 million – to have a comfortable retirement, and why they have raised their anticipated retirement age.

A number of factors are converging at the same time, and they are leading people to feel crunched financially, Platt explained. “The rise in inflation is making it harder to save. It’s also making everything look more expensive.”

Meanwhile, he added that the drop in the markets is taking its toll on people’s investment portfolios and 401(k) plans. “You have a lot of people out there doing the math and are seeing the bar get higher right when it’s harder to save and accumulate. So they’re adding to the runway. They’ve extended out the amount of time they anticipate they’ll have to work,” he said.

Living longer, working longer

In addition, the survey said that one-third (33%) of Americans expect to live to 100, with an equal third (33%) predicting there is a better than 50% chance they may outlive their savings. At the same time, more than one in three (36%) report that they have not proactively taken any steps to address this concern.

The study also finds low levels of confidence among Americans about their retirement preparedness – and they don’t have great faith in Social Security as a backstop. More than four in ten (43%) people say they do not expect to be financially ready for retirement when the time comes and 45% say they can imagine a time when Social Security will no longer exist.

Prioritizing fulfillment over salary

Finally, the study uncovered interesting data about what Americans value in their work lives. It finds that most adults (60%) prioritize personal fulfillment over salary and income potential (40%) in their careers.

In light of this finding, what approach should advisors take as they work with their clients to secure a comfortable retirement?

“Life, like a good financial plan, is all about balance,” said Platt. “The benefit of working with an advisor is having an outside perspective on how to balance personal satisfaction and enjoyment with a desire to retire comfortably.”

“A good advisor,” he added, “knows how to listen, not just guide. It’s their job to look beyond the numbers and understand what success looks like case by case. To understand someone at that level, you have to start first with listening.”

The 2022 Planning & Progress Study was conducted by The Harris Poll on behalf of Northwestern Mutual and included 2,381 American adults aged 18 or older who participated in an online survey February 8-17, 2022.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].