Conventional wisdom says you need to save $1 million for retirement.
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That target may be easy to remember, but it falls short of the true cost of what's required for post-career comfort. Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.
Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.
"Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible," says Craig Hogan, Scottrade's director of customer-relationship management and reporting.
The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers' opinions on average investment goals in today's dollars for various groups.
Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.
Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.
For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.
According to Scottrade's analysis, seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.
Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.
"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"
While most people will spend less when they retire, inflation or the onset of a long-term illness could wipe out savings without proper protection or planning.
That said, there's no secret to meeting a retirement goal: maximize your contribution rate, have a greater tolerance for risk when you're younger and downshift to bonds as you grow older. Successful preparation, however, begins with setting a realistic goal and understanding your true financial picture.
Debt needs to be carefully considered as well as leaving money for the kids.
"There are two extremes," Smith says. "There are individuals who say, 'We don't care if we have anything left the day we die -- we are OK with that last check bouncing when we are gone.' Then there are the individuals who don't do anything in retirement because all of their decisions are made around, 'I've got to leave it for the kids.' "
-- Reported by Joe Mont in Boston.