Every retiree needs a magic number, which is simply the amount of money you need saved to see you through retirement. A Kiplinger article, The Magic Number Needed to Retire Comfortably is More Than You Think, has some excellent insights.
Average American doesn’t have enough
The article references a 2024 Planning & Progress Study that found most respondents believe they need nearly 1.5 million dollars in the bank to comfortably retire. How much money needed to retire is often underestimated.
The study also found the average amount saved for retirement by U.S. adults is a mere $88,400, which is actually less than 2023’s $89,300. It seems that for some Americans, saving for retirement in the USA is getting harder, not easier.
Consider that about 11,000 Americans will turn 65 every day through 2027, and only half of Baby Boomers and members of Generation X think they’ll be financially prepared when they reach their preferred retirement age.
Many expect to outlive their money
The article provides more eye-opening data about how both Baby Boomers and Gen Xers are faring in terms of preparing for retirement. Presently, just less than half of both Boomers and Gen Xers think they’ll be fully financially prepared for retirement, and may not have the retirement income they need.
While anxiety about whether you’ll be ready for retirement is normal, the fact that nearly half the members of both those generations think they’re currently underprepared is alarming to me.
That data also reveals that 42 percent of Gen Xers and 37 percent of Boomers think, as currently situated, they’ll likely outlive their retirement money. Gen Xers, as well as Millennials, report they expect to need about 1.6 million dollars in the bank to comfortably retire. And high-net-worth people, who are those with more than one million in investable assets, think they’ll need almost four million dollars saved to secure their ideal retirement benefits.
Generation Z is ahead of the curve
Here’s where the data really gets interesting. On average, American adults say that they began saving for retirement around age 31. But those in Generation Z typically began saving for retirement payments at about age 22, or a full decade earlier than previous generations. They report they began earlier to make securing their own ideal retirement more likely.
Interestingly, age 22 is 15 years earlier than the average Baby Boomer began saving for retirement checks.
The article quotes a financial expert from Northwestern Mutual who notes that recent bouts of inflation pushed people to focus more on their nest eggs. Because of inflation, many people saw their financial magic number go up.
Meet with your financial services professional
Step one is a sit-down with your financial services professional. As you alluded to a few moments ago, there’s no universal magic retirement number.
Perhaps, during your meeting with your financial services professional, your retirement plan will reveal that your magic number is much lower than you expect because your home is paid off and your goals for retirement are modest.
But if your meetings reveal that your magic number is higher than you expected, or if you knew your number but are running behind on reaching it, there are options.
Potential options
Maybe you aren’t fully maxing out your 401(k) or an IRA. Perhaps a conversation about an annuity is warranted — though those aren’t a good fit for everyone. It’s also possible that a more aggressive asset allocation could help you energize your income for retirement a bit.
Long story short, you have options. Don’t panic. Adjust your strategy with the help of your financial services professional and then maintain the discipline to stick to that strategy.
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