Americans are increasingly feeling the pressure of saving for retirement, with a new study showing that the average amount respondents believe they will need to live comfortably in retirement is $1.46 million. This figure is up 53% from 2020 and 15% from the previous year, reflecting the rising cost of living. Despite this daunting goal, many savers currently have an average of $88,400 saved towards retirement, leaving them feeling behind. However, experts advise that focusing on a specific “magic number” should not be the priority when planning for retirement.
Financial advisors stress the importance of having a high savings rate and appropriate asset allocations as key components of building wealth. Fidelity suggests a framework for evaluating retirement savings progress based on age, starting with saving your salary by age 30 and increasing to ten times your salary by age 67. Vanguard recommends ramping up annual retirement savings rates to 12-15% of income and investing in an appropriate asset mix to improve the sustainable investment rate.
While having a clear retirement plan is crucial, there is no one-size-fits-all number that applies to everyone. Factors such as income, desired lifestyle, healthcare costs, and longevity all play a role in determining the actual amount needed for retirement. Fidelity encourages individuals to create a personal retirement plan tailored to their specific circumstances. Incremental increases in retirement savings contributions, such as boosting contributions by 1% each year, can have a significant impact in the long run.
Experts emphasize that accumulating wealth does not necessarily mean visibly displaying wealth, as seen in the concept highlighted in “The Millionaire Next Door.” Those who save and accumulate wealth without spending it ostentatiously often end up with more than they ever expected. Financial advisors recommend focusing on saving and investing wisely, rather than solely fixating on achieving a specific retirement number. Building wealth through consistent saving and appropriate asset allocation is key to reaching financial goals in retirement.
Ultimately, having a magic number in mind for retirement savings can serve as a starting point for a broader conversation on financial planning strategies. While the $1.46 million average retirement goal may seem overwhelming for many Americans, financial advisors stress the importance of prioritizing a high savings rate and prudent investing over fixating on a specific number. By focusing on incremental increases in savings contributions, creating a personalized retirement plan, and prioritizing long-term financial stability over immediate spending, individuals can work towards building wealth and achieving their retirement goals.
