Determining the amount necessary for a comfortable retirement is a tough question for many working individuals. According to Americans with retirement accounts, the magic number is a significant $1.8 million.
This figure is derived from a recent survey conducted by Charles Schwab, which questioned 1,000 individuals with 401(k) plans from a variety of providers about their anticipated savings required for a comfortable retirement. This estimated amount shows an increase from the previous year when participants stated they would need $1.7 million for retirement.
Marci Stewart, the Director of Communication Consulting and Participant Education for Schwab Workplace Financial Services, suggested that workers have adjusted their retirement saving targets in response to sharp inflation and market instability. This shift also underlines the often daunting "retirement gap" – the substantial difference between individuals' current savings and the amount they will need during retirement.
"There's no question that a discrepancy often exists between what people say they need for retirement and what they currently have," Stewart stated in an interview with CBS MoneyWatch.
Last year, the average U.S. retirement account held just $113,000, as per data from Vanguard. Even those at or over the retirement age of 65 need to catch up with an average account balance of $233,000.
A retirement savings of $1.8 million may seem excessive when compared to average account balances, but it may not necessarily mean an opulent lifestyle. According to the traditional guideline of withdrawing 4% of savings each year post-retirement, a retiree with $1.8 million in their account, retiring at 65, would have an annual income of $72,000.
Inflation Impact
As Schwab's research discovered, the triple threat of rising inflation, increasing interest rates, and significant market fluctuations over the past year have negatively impacted workers' confidence in achieving their retirement savings goals. The survey found that only 37% felt highly confident about saving the necessary amount for retirement, a 10% decrease from 2022.
Stewart commented, "There are two main concerns troubling people today - inflation and market volatility. Despite reduced inflation numbers, individuals continue to feel the pinch on their paychecks… and with higher interest rates, borrowing money has become more costly."
Despite these hurdles, workers have not reduced their savings efforts, as observed by Schwab. In 2022 and 2023, Americans reported contributing nearly 12% of their pretax income to their 401(k)s.
Stewart noted this is "reassuring because it indicates people are still prioritizing their retirement savings."
