Americans Now Seek 53% Bigger Nest Eggs, on Average, for Retirement. Here's Why.
Northwest Mutual has released its 2024 Planning & Progress Study -- and it offers some eye-opening findings concerning retirement. For example, it found U.S. adults thinking they will need $1.46 million to retire comfortably -- a figure fully 15% higher than the 2023 estimate and a whopping 53% higher than the 2020 retirement sum.
Here's a look at why there was such a big jump, and what the information means for you.
Image source: Getty Images.
What happened?
You can probably guess why that necessary nest egg estimate jumped so much in four years: inflation. Inflation has averaged around 3.2% over many decades, but it has occasionally been significantly higher or lower than that rate. Check out the inflation rate in recent years:
Year
Annual inflation rate
2023
3.4%
2022
6.5%
2021
7%
2020
1.4%
2019
2.3%
Data source: usinflationcalculator.com.
See? There were some steep inflation rates in recent years. And some categories saw especially rapid price increases. Per the U.S. Department of Agriculture, "From 2019 to 2023, the all-food Consumer Price Index (CPI) rose by 25% -- a higher increase than the all-items CPI, which grew 19.2% over the same period."
People have been feeling the pinch at the supermarket and elsewhere, and it's making them want to be ready for continued steep increases. In Northwestern Mutual's report, fully 51% of respondents cited inflation as among the greatest threats to financial security -- ahead of healthcare costs and personal debt, among other factors.
It's just an average
Of course, it's important to remember that the $1.46 million figure above is just an average. We're all different, with different needs and spending habits. And where we live makes a big difference, too. Check out the cost-of-living indexes for some American urban areas as of 2024, per the Council for Community and Economic Research -- and note that the national average score is 100:
Urban Area
Cost of Living
New York (Manhattan), New York
231
San Francisco, California
170
Washington, D.C.
145
Boston, Massachusetts
144
Oklahoma City, Oklahoma
84
Amarillo, Texas
83
Richmond, Indiana
82
Decatur, Illinois
79
Data source: Council for Community and Economic Research.
How much do you need to retire with?
All the above is interesting, but each of us should be crunching our own numbers to arrive at an estimate of how much we will need to retire comfortably. A good way to go about this is to make a list of all your expected expenditures in retirement and how much you think they'll cost you per month upon retirement.
For example, estimate your spending on housing, food, clothing, entertainment, utilities, taxes, insurance, travel, healthcare, and other categories. If it all comes to, say, $80,000, or about $6,700 per month, you can start thinking about how you'll generate that income. Some of it might come from Social Security, but probably not too much of it; the average monthly Social Security retirement benefit was $1,919 as of July, amounting to about $23,000 annually. Even if you're expecting, say, $36,000 from Social Security, or $3,000 per month, you'll still need to find another $3,700 in income. That critical retirement income might come from dividends, interest, pensions, a reverse mortgage, or other sources.
It's smart to read up on retirement withdrawal strategies, such as the flawed-but-informative 4% rule, which can help you determine how big a nest egg you'll need based on your desired income. For example, if you are going to take out 4% from your nest egg in your first year of retirement and you need $44,000 in income for the year ($80,000 less $36,000 in Social Security benefits), you can multiply that $44,000 by 25 to arrive at an initial nest egg of $1.1 million.
How to make your retirement nest egg bigger
If you find that you're behind the ball in your retirement saving and investing, know that you have some options. A powerful one is to simply delay retiring by a few years if you can. You'll be able to sock away more money into your retirement accounts, and it will have more time in which to grow for you. You'll also reduce the number of years that your nest egg will be needed to support you.
Delaying retirement is smart when it comes to Social Security, too, because you can make your benefit checks bigger by waiting to start collecting them. (For most folks, the best strategy is to wait until age 70.)
So take some time to come up with your own retirement plan and to figure out how much you will need to retire.The $22,924 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" ›The Motley Fool has a disclosure policy.
Welcome to Billionaire Club Co LLC, your gateway to a brand-new social media experience! Sign up today and dive into over 10,000 fresh daily articles and videos curated just for your enjoyment. Enjoy the ad free experience, unlimited content interactions, and get that coveted blue check verification—all for just $1 a month!
Account Frozen
Your account is frozen. You can still view content but cannot interact with it.
Please go to your settings to update your account status.
Open Profile Settings