There’s long-running belief among many clients that $1 million is the magic number when it comes to retirement. As in, clients believe they need to accumulate at least that much to maintain a high standard of living in retirement.
To be sure, it’s an ambitious goal. Assuming a retirement age of 67 and annual returns of 6%, which is conservative, a 35-year-old worker needs to save $864 per month to get to $1 million. By waiting 10 years, the amount need to get to a $1 million retirement more than doubles to $1,831 per month. Those examples illustrate the benefits of getting started early and putting time to work in clients’ favor because the worker that starts saving for retirement at age 25 needs to put away just $440 monthly to get to $1 million in 42 years.
Those examples are instructive, but they’re arguably too rosy because retirement struggles are real and some clients segments face the challenge of knowing what it takes to have a comfortable retirement while currently not having the resources to get to that destination.
Interestingly, a new survey indicates many American workers believe it’ll take $1.1 million to adequately prepare for retirement while some younger demographics believe the figure is closer to $1.3 million.
Reviewing the Findings
Schroders 2023 U.S. Retirement Survey is the source of the $1.1 million referenced above, but the survey contains some potentially ominous details advisors need to be aware of.
For example, just 21% of those polled believe they can get to $1 million for retirement, down from 24% last year. Worse yet, nearly 60% of those queried say they have less than $500,000 socked away for retirement while more than a third say that figure is $250,000 or less. Plus, there’s concerning data regarding younger clients.
“Millennial workers (ages 27-42) expect on average it will take about $1,300,000 to retire comfortably, but only 29% say they expect to reach $1,000,000 in retirement savings. Almost half (49%) say they expect to have less than $500,000 saved, including 27% with less than $250,000 in savings by retirement,” notes Schroders.
Even more concerning is that roughly a quarter of workers in the 60-67 age group believe they have adequate reserves set aside for retirement. Translation: Advisors have a lot of work to do on the retirement front with a broad cross-section of clients.
“There are profound gaps between what American workers say they need for a comfortable retirement and what they expect to have,” said Deb Boyden, Head of US Defined Contribution, Schroders. “This could be from a lack of planning, or for many it might just be too hard to save and invest enough to reach their retirement goals. The fact that, once again, so few Americans nearing retirement are confident they have enough money speaks volumes about the work we still need to do.All of us, from employers to advisors to our industry, must do more to make it easier for American workers to reach retirement security.”
Retirement Anxiety Is Real
Beyond the obvious of shoring up a portfolio, there are other compelling reasons for advisors to address retirement planning with clients, not the least of which are mental and physical wellness.
“Almost two-thirds (64%) of working millennials and 53% of older workers are concerned that financial stress will negatively affect their overall health,” adds Schroders. “The majority of older workers (56%) and working millennials (55%) said the 2022 stock market greatly increased their anxiety. Almost half (49%) of millennial workers have lost sleep worrying about their financial situation, as have 40% of workers 45 and older.”
Bottom line: No one should be suffering mental or physical anguish due to retirement anxiety. Advisors can help clients address near- and long-term retirement concerns while planning for the fact that while $1 million or $1.1 million might not be attainable, retirement can still be enjoyed.