Workers say they need over $1M to retire — most expect to miss that

·6 min read

Americans estimate they’ll need more than $1 million to retire comfortably — but most aren’t bullish about meeting that goal.

Millennial workers predicted they will need to accumulate $1.3 million, according to a new retirement survey from investment manager Schroders. Just 29% expect to reach that target.

Older workers 45 and older are even more pessimistic. While they guess it will take $1.1 million for a comfortable retirement, only 21% foresee hitting that benchmark, down from 24% when the survey asked that question last year.

The results add to the many data points showing how far behind workers feel when it comes to saving for retirement and underscore how crucial it is for Americans to redouble their efforts to save more.

“American workers are losing ground on retirement readiness and increasing the risk of outliving their assets,” Deb Boyden, Schroders’s head of U.S. defined contribution, told Yahoo Finance. “Collectively, we all need to do more to help improve the savings and retirement security of American workers.

‘Likely needing to make modest to significant adjustments’

Many predict they’ll sock away less than half of what’s needed, according to the Schroders survey of 2,000 workers between the ages 27 and 79 conducted earlier this year.

Nearly half of millennials (49%) said they’ll accrue less than $500,000 for retirement, including 27% who said they’ll likely have less than $250,000. And 59% of workers 45 and over said they expect to have less than $500,000, including just over a third (34%) forecasting less than $250,000 in savings.

The fear of not having enough money saved to retire is a persistent sentiment that has cropped up in myriad studies.

Depressed worker feel tried after overwork and disappointed for his job or being fired.
(Photo: Getty Creative)

“Our latest Retirement Savings Assessment reveals an overall decline in retirement preparedness, with over half (52%) of those surveyed likely needing to make modest to significant adjustments to their retirement lifestyle if they don’t take action to make up for the shortage,” Rita Assaf, vice president of retirement products at Fidelity Investments, told Yahoo Finance.

The Fidelity online survey of 3,569 working households earning at least $25,000 annually with respondents ranging in age from 25 to 75, was conducted from August 22 through September 26, 2022.

American savers are estimated to have only 78% of the income needed to cover expenses during retirement, according to the assessment report, a five-point decline from the all-time high of 83% in 2020.

More than one-third (34%) of households are in the red on the preparedness spectrum, meaning significant adjustments may be likely, Assaf added.

‘Lack of education and planning across the board’

What’s behind the inadequate readiness?

“It boils down to a lack of education and planning across the board,” Boyden said. “More needs to be done by the industry and employers to improve education and create better asset allocation strategies that help workers save more and stay the course through the market’s ups and downs.”

Along with saving less than they need, people are also investing more conservatively, Assaf said, which are natural reactions during a challenging financial environment, from the pandemic to market volatility to the latest turmoil in the banking industry.

Finances and economy concept.Close up hand of business woman accountant or banker making calculations.
Just 46% of workers have even tried to calculate how much money they will need to pay for living expenses in retirement, down from 50% in 2021, according to a survey from the nonpartisan Employment Benefits Research Institute (EBRI). ( Getty Creative)

Another problem is ignorance. Few workers have run the numbers to determine how much they’ll need in retirement.

The question is a deviling one for certain, but just 46% of workers have even tried to calculate how much money they will need to pay for living expenses in retirement, down from 50% in 2021, according to a survey from the nonpartisan Employment Benefits Research Institute (EBRI), which surveyed 1,545 workers.

“Determining how much you need for retirement is important,” Christine Benz, Morningstar’s director of personal finance and retirement planning, 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.

The problem of expectation versus reality for retirement savings is also exacerbated by the fact that most people retire earlier than they had thought they would, which means more years to finance with savings.

Moreover, most Americans underestimate their health care costs in retirement, and that’s a quandary because those future bills may turn out to be considerably higher than you expect.

How to catch up

For the two-thirds (69%) of U.S. private-sector workers with access to a workplace retirement savings plan, the time is now to accelerate your savings habits.

“In general, we recommend people aim to save at least 15% of their pre-retirement income each year, which includes any employer match, with a goal to save 10 times your pre-retirement income by age 67,” Assaf said. To get a sense of how that plays out, think if it as 1x your [current] income by age 30, 3x by 40, 6x by 50, and 8x by 60, she added.

Those who can’t afford to increase their savings rate to the recommended 15% should just get started, even if it is a small amount. Bumping your retirement savings up 1% more each year can have a “tremendous impact in the long term,” she said. The math: For a household making $60,000, 1% equals saving an extra $50 a month. “That could translate into an additional $270 of monthly retirement income with compound interest and market growth,” Assaf said.

Fidelity's 2023 Retirement Savings Assessment
Fidelity's 2023 Retirement Savings Assessment

And if you are considering changing jobs this year, steer clear of the temptation to cash out some or all of your retirement accounts — something 41.4% of workers between 2014 and 2016 did. A whopping 85% emptied their balance.

For younger workers, it’s also important to tune out the day-to-day, month-to-month, and even year-to-year ups and downs in the market. For instance, as equity and bond markets dropped in 2022, average participant account balances decreased by 20% from year-end 2021, according to a recent Vanguard report.

That could make anyone nervous, but as Boyden said: “Markets will always sway, but those who develop and stick to a plan will put themselves in the best position possible to enjoy a comfortable retirement.”

And for people who are getting close to retirement with fewer years to save and concerned they won’t have enough, it’s worthwhile to look at all of the ways they can catch up.

“These levers include delaying retirement, turbocharging retirement savings in the years leading up to retirement, reducing expenses — especially through high-impact changes like relocation or downsizing — delaying Social Security, considering an annuity, and so on,” Benz said. “It may be that several incremental changes rather than one or two big, sweeping ones can help make a retirement plan add up.”

Kerry is a Senior Reporter and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.

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