The latest “magic” retirement benefit is $1.46 million, according to Northwestern Mutual's 2024 Planning and Progress Study. The numbers have been circulating in the economic press over the past week, sparking debate and some dismay online.
But financial advisers say there is no magic number that will guarantee everyone a comfortable retirement. While such numbers can be used as a general benchmark, each person's actual magic number needs to be, well, individualized.
“Each person's number is unique to them, including their lifestyle, risk profile, expected length of life, types of assets available to them, and goals they need or want to fund for retirement. ,” says Tricia Rosen. She is a Certified Financial Planner (CFP) based in Massachusetts.
And the truth is, most people in the United States, assuming they retire, won't retire with $1.46 million in savings. Ashley Ritterhouse, a Massachusetts-based CFP and founder of Curious Crow Financial Planning, says that while many people with low expenses and pensions don't need as much, others need more. I say there will be.
“Magic numbers may be motivating for some people, but they can have a negative impact on others,” Ritterhouse says. “Those who have not yet started saving for retirement may be reluctant to save because they think the $1.46 million goal is out of reach.” If someone who needs to save much more than that uses that as a benchmark, they could end up undersaving.”
The Northwestern Mutual survey, published annually since 2012, shows that “inflation expectations are first on the minds of Americans,” said Andrew Herzog of Texas-based CFP. I'm saying that. Over the past four years, the magic retirement amount reported in the study increased by 53% from $951,000 to $1.46 million.
“Americans feel like they're going to need more money for retirement,” Herzog said.
It also underscores Americans' growing doubts about Social Security's long-term viability, he says. While fears that Social Security will disappear completely are likely overstated, it is also possible that future retirees will no longer be able to rely on such generous benefits. Because of this, people, especially younger generations, are rethinking their retirement savings goals.
“When people are given numbers, they get a sense of clarity,” Rosen says. Savers also have a goal, as long as they understand that it can fluctuate over time and that it's only half of the retirement equation, the other half being expenses. There's nothing wrong with that.
To determine your magic figure, Herzog suggests using the 4% rule. This represents the annual withdrawal rate you must withdraw from your retirement account. So if his expected retirement expenses are, say, $70,000 a year, he would divide that by 4%. The result is he earns $1.75 million.
Most importantly, don't get discouraged by the idea of saving up a big number like $1.46 million, advisors say. Start saving and investing as much as you can and grow it over time.
“The $1.46 million number is an arbitrary number for most Americans,” said Charles Curry, a Florida-based CFP. “Some of the clients I speak with to develop their financial plans find that their magic retirement number is lower than they expected because of their lifestyle and living within their income range. Some people did.”
