Americans Now Say They Need $1.5 Million to Retire

2 comments

1. From the article:

   Retirement is becoming an even more distant goal as higher costs cut into American budgets.

   A typical person now believes they need $1.5 million to retire comfortably, which is nearly 17 times more than the $88,400 savers have set aside on average, a Northwestern Mutual study shows.

   Gen Z and millennials set the bar for a comfortable retirement the highest, at more than $1.6 million. Gen X was close behind. And the generation closest to retirement, the baby boomers, set the bar lowest, at $990,000. “Boomers have a better feel for their numbers and they don’t believe they will live as long as Gen Z, which expects to retire at 60 and live to 100,” said Javeri Gokhale.

   Breaking out the size of current retirement accounts by generation reveals the daunting obstacles for savers of all ages. The average amounts saved were $22,800 for Gen Z, $62,600 for millennials, $108,600 for Gen X and $120,300 for boomers.

   “Many people put money in 401(k)s but don’t realize that in retirement that income will likely be taxed at about 20% or 30%,” said Javeri Gokhale. Withdrawals from traditional 401(k)s in retirement count as ordinary income so that can push retirees into a higher tax bracket.

   Of the 30% of Americans surveyed who did have a plan to minimize taxes on retirement income, about a third said they would make strategic withdrawals from traditional tax-deferred and after-tax Roth retirement accounts in order to stay in a lower tax bracket.

2. The source data is important, as averages can be misleading, especially if the study is factoring in very low and zero dollar retirement accounts, which will drag the average way down. It would be nice to see the median. If the average boomer only has $120,000 in their retirement accounts, they’re fucked beyond belief – especially if they think they’ll need $990,000 in retirement. Considering they’re all 60+ now, when are they going to catch up? They won’t.

   Also, $1.5M at the classic 4% withdraw rate is only $60,000 / year, and that’s pre-tax. If millennials and gen z think that’s going to be enough in 25-40 years… it ain’t.