Many Americans believe they need more than $1 million to retire comfortably as inflation impacts savings.
- Those 45 and older say it will take $1.1 million, according to the Schroders 2023 U.S. Retirement Survey, which polled 2,000 American investors earning a median household income of $75,000.
- Millennials questioned in the survey say their target is $1.3 million to live a comfortable life after retirement.
- Others say it would take $3 million to $5 million for them to feel wealthy, according to a recent report from Edelman Financial Engines.
Why it’s news
As the cost of living in the U.S. continues to increase, American workers are beginning to think that much higher savings are needed to live comfortably after retirement, and experts believe the number is likely to continue rising.
American workers 45 and older say it will take $1.1 million to be comfortable, while millennials say their target is $1.3 million, which has heavily increased over the years as living costs have risen.
While many think around $1.3 million will be adequate to retire, others believe the range is actually around $3 million to $5 million, according to a recent report from Edelman Financial Engines.
There are many variables to take into account when planning to retire, mainly how much you plan to spend after retirement. The 4% rule says you can probably spend about 4% of your savings each year in addition to your Social Security benefits and traditional pension if you have one.
Depending on your goals and plans for retirement, $1.3 million is enough to withdraw $52,000 per year for 25 years, according to Investopedia. Depending on lifestyle choices, that could easily sustain some, while others it would not be enough.
“It used to be if you were a millionaire, it was a foregone conclusion that you were wealthy,” says Edelman Financial Engines’ financial planning director Isabel Barrow. “Now we’re seeing, even if you are an actual millionaire, only 30% actually consider themselves wealthy.”
As the needed retirement number increases, it is becoming more difficult for workers to hit those targeted numbers. Just 29% of millennials and 21% of those over 45 say they expect to reach $1 million in retirement savings, according to Schroders, and 59% of older workers and 49% of millennials expect to save less than $500,000.
Prices of houses, cars, education, and everyday products are rapidly increasing, leaving Americans with less money available to put into savings. Many financial advisors suggest Americans attempt to avoid those high prices if they can, but most are necessities that cannot be easily avoided.
“Cars, housing, food, gas prices, they’ve all gotten more expensive,” says Barrow. “Even though every year it might not seem like that much of a bite, when you compound that, it’s a pretty significant shift. And it’s unlikely to go down by a whole heck of a lot. Once it goes up, it tends to stay there.”
A significant issue is that as inflation increases and prices continue rising, many workers’ salaries stay the same, causing many Americans to take money from their savings to survive.
The vast majority of workers say they worry about money each day, according to the Schroders survey, including 85% of millennials.
As the prices continue to rise, more Americans are working extra jobs, or side hustles, to create additional cash flow.
A 2022 survey from Insuranks found that 93% of Americans have some side hustle in addition to their full-time or part-time job. Of those who work side hustles, 80% have a full-time job. Both full-time and part-time workers say they dedicate 13 hours per week to their side hustle.
Though a side job cuts into free time and can sometimes bring on added stress, the majority of respondents stated they plan to continue working the side hustle saying the inconvenience was worth it.
Most people working side hustles are doing so to have extra cash, whether that cash is needed to pay for necessary expenses or for spending money.