Americans Believe They'll Need Nearly $1.5 Million To Retire. Is That Enough?

Key Takeaways

• Americans now estimate they need $1.46 million for a comfortable retirement, up $200,000 from last year, a recent Northwestern Mutual survey finds.
• Inflation may be a key factor driving higher retirement savings estimates, according to one expert.
• Retirement savings needs vary based on factors such as lifestyle, location, healthcare and Social Security.

In comparison to last year, Americans think they'll need a lot more to live comfortably in retirement.

A recent survey by Northwestern Mutual, a financial services and insurance company, found that people, on average, estimated they would need $1.46 million to live comfortably in retirement. That's up $200,000 from a year ago.

According to Keller Lindler, a financial advisor at Northwestern Mutual, Americans might be increasing the amount they think they need for retirement due to inflation, which has remained above the Fed's 2% annual target for years now. ($1.46 million is in also line with the amount people thought they would need in 2024.)

What This Means For You

Your ideal retirement savings amount should be personalized based on your needs and circumstances. You can use guidelines and rules-of-thumb to help guide you in the process, but working with an expert, like a certified financial planner, might be a better option for some.

"I think a lot of it [the increase] has to do with persistent inflation because it's pushed up the cost of everything people are purchasing," said Lindler.

While this data can be useful in understanding how much people, on average, think they'll need in retirement, the amount an individual should save for retirement ultimately comes down to a variety of factors like their standard of living, where they live, their healthcare needs, when they plan to collect Social Security, and more.

Figuring Out Your Ideal Retirement Savings Number

There are a few rules-of-thumb that people can use to help them understand how much they should aim to save.

The 4% rule is a popular heuristic in the retirement planning community. With the 4% rule, retirees withdraw 4% of their nest egg the first year, annually adjusting for inflation after that. If you follow the 4% rule, you should aim to save 25 times the amount of your annual living expenses. This means that if your annual living expenses were $50,000, you might aim to save $1.25 million, under the 4% rule.

Yet the 4% rule doesn't account for taxes or Social Security, so you may consider working with a financial planner to get a fuller understanding of how this rule will work in practice.

"When I have conversations with clients, I ask 'how do you feel about your finances? How do you feel about your future?" said Lindler. "Working with a financial planner honestly helps alleviate a lot of that pressure."

But if you want to figure out how Social Security fits into the picture yourself, try an online calculator, available on the official Social Security website, to understand how much your monthly (and annual) benefit will be.

You should also consider taking stock of where your retirement savings are held to understand what type of tax bill you incur in retirement—what type of accounts do you have and how are they taxed?

Fidelity offers retirement savings guidelines that include Social Security. These guidelines assume that someone will have the same standard of living in retirement, wait until age 67 to collect (full retirement age for those born in 1960 or later), invest in a target-date fund, and not collect a pension.

According to Fidelity's guidelines, at age 67, an individual should aim to have 10 times their pre-retirement income saved. For someone who lives off of $50,000 a year, that means they should have at least $500,000 saved at retirement age.