Survey Says $1 Million Retirement Isn’t What It Used To Be

One million dollars used to be the gold standard in terms of retirement goals. At least that was the figure so many clients aimed for years in search of what they perceived to be a “good retirement.” Many still view $1 million as the benchmark to shoot for in retirement savings, but advisors should note that figure is trending higher in dramatic fashion.

A recent Charles Schwab survey of 401(k) plan participants reveals workers believe they’ll need $1.8 million to enjoy a comfortable retirement, up from $1.7 million last year and 80% higher than the seemingly irrelevant $1 million.

One standard element in retirement planning that hasn’t changed and isn’t likely to is the need for income. It’s actually being accentuated due to rising interest rates. Fortunately, dividends are rising, too, and advisors have more alternative sources than ever before from which to source income.

Those are positives, but bond yields remain elevated indicating there’s some risk in an asset class relied upon by advisors to generate retirement income and provide ballast to clients’ retirement objectives. That’s just one reason why clients aren’t entirely sanguine regarding their retirement outlooks.

Understanding The Importance of $1.8 Million

As noted above, the $1.8 million mentioned by respondents in this year’s Schwab study isn’t that far beyond the $1.7 million highlighted in 2022, but the devil is in the details.

“While this amount hasn’t shifted drastically, only 37% of workers think it’s very likely they’ll achieve this target, down by 10% from last year. Confidence may have taken a hit, but savers are still hopeful: nearly half still feel somewhat likely to reach their goals and only 14% feel they are not at all likely to reach their goals,” according to Schwab.

Getting to $1.8 million, or whatever a client’s retirement goal is, isn’t impossible, but it requires some advantages, including employer-sponsored plans such as 401(k)’s. That should be a point of emphasis for advisors and employers alike because amid today’s tight labor pool, the fight for talent is intense and prospective employees want retirement benefits. Data confirm they’re capitalizing on such offerings.

“The 401(k) is becoming a non-negotiable for job seekers. When considering a new employer, 88% of workers say it is a must-have benefit and three in four would refuse a new job if it did not offer a 401(k) plan,” adds Schwab. “Compared to last year, more workers are also saving for retirement in a savings accounts (68% vs 61%), investing in an IRA (47% vs 33%) and investing through a brokerage account (38% vs 29%) as they look to augment their primary retirement fund with other methods of saving and investing.”

Good News for Advisors

Clients’ increasingly ambitious retirement goals shouldn’t be seen as a burden by advisors. Rather, those demands should be viewed as affirmation and opportunity.

Translation: For all the talk about artificial intelligence (AI) and technology disrupting the advisory industry, clients want a personal touch, particularly when it comes to lofty retirement goals.

“Half of workers would feel comfortable asking artificial intelligence tools like ChatGPT for help with financial planning, but for now, actual adoption is very low (4%). Workers are still most likely to follow advice from a human professional (95%) over computer-generated advice (74%),” concludes Schwab.

Related: Understanding Intricacies of Convertible Bonds