For many folks, retirement has become a guessing game.
In fact, they have no idea how much they need to have saved for retirement, according to a survey by the nonprofit Transamerica Center for Retirement Studies (TCRS), in collaboration with the Transamerica Institute.
Based on median numbers, workers surveyed estimate they will need $500,000 by the time they retire in order to feel financially secure. Estimated needs vary by generation with baby boomers estimating they will need $750,000, Generation X and millennials estimating $500,000, and Generation Z estimating $250,000. Approximately 1 in 5 workers across generations estimate they will need to save $2,000,000 or more including baby boomers (24%), Gen X (22%), millennials (21%), and Generation Z (17%).
So how did they come up with those lofty figures?
They apparently threw a dart. Among those providing an estimate, nearly half of workers said they guessed the amount they need to save for retirement.
Said Catherine Collinson, CEO and president of Transamerica Institute and TCRS: “That’s a big worry because retirement security is shaky enough for many workers and not taking it seriously will have repercussions.”
The survey — which polled 5,725 workers at for-profit companies between Nov. 8 and Dec. 13, 2022 — found roughly 4 in 10 workers across generations, including Gen Z, millennials, Gen X, and baby boomers, guessed their needs, while approximately 1 in 5 workers used a retirement calculator or completed a worksheet and even fewer workers based their estimate on an amount given to them by a financial adviser.
'Prefer not to think about retirement'
As if that’s not eye-watering enough, a sizable 42% of workers agree with the statement, “I prefer not to think about or concern myself with retirement investing until I get closer to my retirement date,” including 13% who strongly agree and 29% who somewhat agree. Generation Z and millennials are more likely to agree with this statement than Generation X and baby boomers (56%, 47%, 40%, and 25%, respectively).
“That’s stunning,” Collinson added. “It's not really negotiable to prefer not to think about it. Estimating savings and retirement income needs and goal setting serves as the basis for future financial security.”
Yes, the retirement landscape will change along the way, as will our own personal circumstances, but it's important to start with savings goals and then to update them along the way.
Another concern among generations closest to retirement: About 1 in 3 of Gen X and over one-quarter of baby boomers do not have any financial strategy for retirement.
Of course, no one wants to outlive their savings, and that possibility is already top of mind for many workers. On average, Americans say there is a 45% chance they outlive their savings, and one-third haven’t taken any steps to address the possibility of outliving their savings, according to a recent Northwestern Mutual study.
On average, Americans expect they should save $1.27 million for a comfortable retirement, the report found. The trouble is the average amount that US adults have saved for retirement is some $89,000, or just 7% of that target amount.
That study of 2,740 US adults aged 18 or older was conducted online between Feb. 13 and March 2, 2023.
So what’s lurking behind this eyes closed shut, bury your head in the sand approach?
Dan Ariely, a professor of psychology and behavioral economics at Duke University, told Yahoo Finance: “There are a couple of reasons why. The first is that it's long in the future, and in general, we have a hard time thinking about something that’s long in the future. We don't sleep enough. We text and drive, we overeat; we don't take our medication.”
The second thing: Most people feel that they're failing in doing the right thing for their retirement, Ariely said. And who wants to think about things that they're failing on? So we don’t.
“It's quite clear to people that if they look at their savings and what they've done so far, they're not going to come up with an answer that says, oh, I've saved too much. I need to slow down or just ride on track,” he added. “Retirement is actually incredibly complex, and coming up with the right answer is not easy,” he said.
Here’s Ariely’s suggestion for the industry:
“There are all of these calculators that say, oh, you need $4 million to retire,” he said. “That’s not going to happen for almost everybody, it creates the feeling of failure. I think that what the savings industry needs to do is to say, how do we give people the feeling that they're successful? How do we give people the sense that they're not failures? How do we give people a sense of progress, a sense of achievement? That’s incredibly important.”
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.