(Yahoo!Finance) - The gulf between what Americans estimate they’ll need in retirement and how much they actually have saved is disturbingly wide — no matter how old or young they are, according to a new survey.
On average, Americans expect they should save $1.27 million for a comfortable retirement, a new Northwestern Mutual study out this week found. The trouble is the average amount that US adults have saved for retirement is $89,300, or just 7% of that target amount, the report found.
The chasm between expectations and reality underscore how many Americans are woefully behind on their retirement savings, a fact that worries many of those surveyed.
“Retirement is top of mind for most Americans, more so than it's ever been before, given what's going on in the economy, the markets, and with inflation,” Aditi Javeri Gokhale, chief strategy officer, head of institutional investments, and president of retail investments at Northwestern Mutual, told Yahoo Finance. “There's a growing realization that ‘I need more money for retirement, and I'm not able to retire at the time that I thought I was.’”
Expectations vs. reality
Those figures vary by age.
Folks in their 50s spin the dial higher saying they expect they will need $1.56 million saved for retirement, while reporting $110,900 set aside right now. People in their 30s figure they’ll need $1.4 million to get by, with $57,400 saved today, while those in their 40s are a notch lower at a goal of $1.28 million with $77,400 saved at the moment.
The study of 2,740 US adults aged 18 or older was conducted online between February 13 and March 2, 2023.
Many people say they’re counting on Social Security to provide more than a quarter (28%) of their overall retirement income, the study found. That’s more than personal savings (22%) and on par with their retirement savings (28%).
Gen Z and millennials expect Social Security to make up 15% and 19% of their overall retirement income respectively, while boomers say it will account for 38% and Gen Xers estimate it will contribute 27% of their income.
'Number one concern'
Even so, nearly half of Americans (48%) estimate that they won’t have enough money saved to retire comfortably when the time comes, according to the findings. And on average, Americans say there’s a 45% chance that they will outlive their savings.
“My clients are realizing that they need more savings than they originally thought,” Misty Garza, a vice president and a financial advisor at Bogart Wealth, in McLean, Va., told Yahoo Finance.
“Outliving their savings is our clients’ number one concern. No one retires and wants to go back to work later in life because they ran out of money, or can’t make it on Social Security alone. Most of our clients are willing to work until they can achieve the retirement lifestyle they desire.”
Generation X is the most concerned with more than half (55%) saying they won’t be financially ready to retire, compared to nearly half of millennials (46%) and boomers (48%), according to the report.
About two-thirds of Generation Z (65%) — those workers aged 24 and younger — vow they’ll be good to go when they’re ready to step out of the workplace.
That’s some swagger. “But they have a long runway,” Javeri Gokhale said. “They've just started to be in the workforce, and most of them have really not felt, to be honest, a true economic downturn.”
'Spend some time crunching the numbers'
A reaction to the realization that they’re nowhere near their desired savings goals: Americans on average have pushed up their expected retirement age to 65 from 64 in 2022 and 62.6 in 2021, the study found.
Boomers, however, aren’t taking off quite so soon, and plan to retire at 71. Gen Z expects to retire more than a decade earlier at age 60. Millennials and Gen Xers anticipate working to age 63 and 65, respectively.
“While each person has their own definition of a magic age to retire, overall that number keeps getting pushed out by a couple of years,” Javeri Gokhale said.
Aside from delaying retirement, more than a quarter (28%) of Americans have increased savings to address their potential shortfall in retirement, while 22% put together a financial plan and 20% sought advice from a financial advisor.
Still, a third of those surveyed by Northwestern Mutual haven’t done anything at all.
“Determining how much you need for retirement is important,” Christine Benz, Morningstar’s director of personal finance and retirement planning, previously told Yahoo Finance. “So, it pays to spend some time crunching the numbers on how much you’ll actually need and how much you can reasonably spend each year in retirement.”
Benz suggests reaching out to an hourly, fee-only financial planner for help, or at least use a “good-quality retirement calculator or two.” Check out AARP, Bogleheads, Fidelity, or Vanguard on that front to start.
“I would say there are four or five reasons why it's a challenge for many people to work with a financial advisor,” Javeri Gokhale said. “First of all, they don't know where to go to get one. And then when they do, there’s an aspect of opening up about your finances and that brings a fear of judgment, and a lack of confidence. And there's also a lack of education.”
Then too, talking about money is very difficult for most people, she added. “The chemistry has to work for you to lower your guard. Talking about money to an advisor who you don't know at all is like going on a blind date.”
By Kerry Hannon · Senior Columnist
