As advisors know, clients often have a “magic number” when it comes to retirement savings aspirations and for what felt like a generation, maybe longer, that number was in the neighborhood of $1 million.
Likely due in part to the recent run of high inflation and subsequent interest rate increases, Americans’ attitudes on the magic number for maintaining a good lifestyle in retirement have shifted dramatically. Translation: many clients now believe they need significantly more to enjoy a nice retirement than they did just a few years ago.
That’s confirmed by new research from Northwestern Mutual. In 2020, the asset manager discovered those polled thought they need an average of $951,000 in retirement savings. That figure has since ballooned to $1.46 million. That’s a long way from the $88,400 in retirement savings the average American has.
“U.S. adults believe they will need $1.46 million to retire comfortably, a 15% increase over the $1.27 million reported last year, far outpacing today’s inflation rate which currently hovers between 2% and 3%. Over a five-year span, people’s ‘magic number’ has jumped a whopping 53% from the $951,000 target Americans reported in 2020,” notes Northwestern Mutual.
In Retirement, There’s Not Always Magic in Magic Numbers
On the surface, it can be construed as “bad news” that what clients think they need for retirement is rapidly increasing in exponential. However, it can be a positive for advisors.
First, those expectations imply a need, a willingness, or both, to work with advisors. Second, advisors know that the aforementioned $1.46 million figure is an average – it’s not applicable to all clients and many can enjoy strong retirements on significantly less money.
Advisors also know that there is no one size fits all approach in retirement planning. A number like $1.46 million is a good conversation starter and practical for goal-setting, but at the end of the day, retirement is personal. Nearly $1.5 million in retirement savings may be attainable for some clients. For many, it’s probably not and many of those clients don’t need that much.
The focus for advisors should be helping clients with realistic goal-setting, formulating comprehensive retirement plans and establishing pathways to reaching those goals. That’s what clients are likely to expect and appreciate.
Some Good News About Gen Z
Adults, including advisors, are apt to have plenty of preconceived notions about Gen Z, but that demographic deserves some credit because they’re taking retirement planning seriously. Obviously, that’s noteworthy to advisors.
Most Americans said they started saving for retirement at 31 years old, but for Gen Z, it’s 22. That implies Gen Zers are saving retirement as soon as they graduate from college.
“The hope among Gen Z is that by starting to save sooner, they’ll be able to retire earlier. They expect to retire at the age of 60, a dozen years before Boomers+ who say they’ll work until they’re 72. Millennials and Gen X’ers expect to work until 64 and 67, respectively. The average age most people expect to work to is 65,” adds Northwestern Mutual.