Think you need $1 Million to retire? Real Numbers Are Different
The number of workers who believe they will need a seven-figure nest egg in retirement has increased significantly since last year, even as many older Americans today enter retirement with little to no savings.
In a report released Monday by Betterment at Work, 48% of workers surveyed said they think they would need at least $1 million in savings to be comfortable. That’s an 11 percent jump from last year.
These results reflect active American concerns about stubborn inflation, rising health care costs and questions about the long-term viability of Social Security. Financial worries hit a high of 90% in this year’s survey, with more than half of workers – and nearly 6 in 10 young people – considering delaying retirement because they haven’t saved enough.
“Expectations for retirement are growing faster than the reality of saving,” the report said. “The gap between what employees think they will need and what they expect to have continues to grow, raising questions about whether they have a clear strategy to achieve those goals.”
This $1 million goal will likely remain elusive for most of today’s workers. Betterment found that nearly 1 in 4 don’t expect to save that much by retirement, and other studies show that most older Americans have never saved six figures, let alone seven.
In fact, a separate report from the advocacy group Senior Citizens League found that 56% of Americans over the age of 65 retired with less than $50,000 (which, by comparison, just 4% of Betterment survey respondents said would be enough for a financially comfortable retirement). TSCL respondents calculated the amount saved in retirement accounts and regular savings accounts.
However, less than 5% retired with $1 million or more in savings.
Workers are being ‘misinformed’ about the Social Security funding crisis
A large part of the concern about Americans’ retirement income stems from the growing belief among workers that they will not be able to rely on Social Security, whose trust funds are scheduled to expire in 2035. Unless Congress intervenes, all beneficiaries will receive cuts across the board at that time.
A survey released Monday from the Cato Institute, a libertarian think tank, found that more than 4 in 5 working-age Americans expect to go back on Social Security. About half of those predict the plan will cover a “large” portion of their income in retirement.
Despite this, Cato found that 56% of retirees — and 70% of currently working Americans — believe their benefits will be cut.
Terminations may be the result of a lack of education about Social Security’s solvency and long-term viability. Cato found that many Americans are not sure how their retirement benefits are paid. (This follows TSCL research, which found that even 37% at the moment (Retirees don’t understand the details of Social Security’s funding issues.)
“Americans value Social Security highly but are misinformed” about how it works, the Cato researchers wrote.
Concerns, SECURE 2.0 help increase participation in 401(k)s
Despite the knowledge gap when it comes to Social Security, workers today have more opportunities to save for retirement, according to Betterment.
Its research found that availability and participation in 401(k) participation increased: The percentage of employers offering retirement benefits rose to 81%, up about 20 percentage points from just two years ago.
Among employees with access to 401(k) plans, a survey high of 91% reported participation.
While concerns about the future are contributing to that increased participation, structural changes will likely play a role, too: Last year was the first year that provisions from the 2022 SECURE 2.0 Act went into effect that made it so that when people take a new job that includes retirement benefits, they are automatically enrolled in a 401(k) instead of signing up for something, rather than enrolling themselves.
The study also found that 79% of 401(k) plans now have employer matching, up from 62% by 2021, giving people more incentive to save. About 90% of eligible savers contribute enough to receive a match.
Another piece of good news: While a $1 million nest egg may sound good, TSCL suggests that most people will probably be financially comfortable with half or a quarter of that amount. The report found that most seniors who think their finances are healthy have retired and have saved $250,000 to $499,999.
Betterment research found that 20% of respondents believed that having a nest egg in the range of $100,000 to $499,999 would provide a comfortable retirement, while another 7% said between $50,000 and $99,999 would be sufficient.
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