As the cost of living in the U.S. creeps further and further upward, American workers are rethinking how much they’ll need to save for a comfortable retirement. And it’s a lot more than they think they’ll be able to put away.
Those 45 and older say it will take $1.1 million, according to the Schroders 2023 U.S. Retirement Survey, which polled 2,000 American investors earning a median household income of $75,000. Millennials surveyed say their target is $1.3 million.
The Schroders results are actually lower than what many financial professionals suggest saving, and what other surveys have found Americans say they need to be comfortable in retirement.
Some Americans say it would take $3 million to $5 million for them to feel wealthy, according to a recent report from Edelman Financial Engines, a financial advisory firm in New York City. That will likely increase as millennials and Gen Z age and the cost of living continues to go up.
“It used to be if you were a millionaire, it was a foregone conclusion that you were wealthy,” says Isabel Barrow, financial planning director at Edelman Financial Engines. Now we’re seeing, even if you are an actual millionaire, only 30% actually consider themselves wealthy.”
Workers are shouldering more costs
It’s becoming increasingly difficult for workers to hit those retirement savings targets. Just 29% of millennials and 21% of those over 45 say they expect to reach even $1 million in retirement savings, according to Schroders. In fact, 59% of older workers and 49% of millennials expect to save less than $500,000.
As it stands, the median full-time American worker with a 401(k) had $35,354 socked away last year, according to Vanguard (the average, which is skewed by high earners, sits at $141,542).
Pensions are rare these days, so workers have to save more on their own than they did in the past. They are also competing with dramatically higher prices for just about everything, especially big-budget items like housing, transportation, and education.
Financial advisors say to try to limit those expenses to be able to save more, but it can be difficult given today’s cost of living.
“Cars, housing, food, gas prices, they’ve all gotten more expensive,” says Barrow. “Even though every year it might not seem like that much of a bite, when you compound that, it’s a pretty significant shift. And it’s unlikely to go down by a whole heck of a lot. Once it goes up, it tends to stay there.”
With wages not keeping up with inflation, it can all feel a little impossible. The vast majority of workers say they worry about money each day, according to the Schroders survey, including 85% of millennials (the survey did not include any Gen Z workers).
“We have in our minds this benchmark, millionaire status means something,” says Barrow. “It does, but it may not anymore be the goal that you need to hang your hat on. To feel wealthy or to be prepared for retirement, for many people that number is going to be significantly higher.”
