For Many Americans, Their “Magic Number” is Rising

A man and a women sitting in front of a laptop in their living room discussing their finances

What’s your number? You know, that magic number you’re aiming to have saved in order to finally leave the work force behind and retire? Should you have one? A lot of folks do, and how they come up with it sometimes appears to lack any real thought. You might recall TV commercials or ad campaigns from financial companies that ask you what your “number” is, with folks holding up signs that show different values. And of course, the financial pundits and so-called experts like to preach their ideal retirement figures to the masses, too, as if we’re all exactly the same.

The fact is, everyone’s retirement will be different – your pre-retirement income, your home size and location, your hobbies, entertainment costs, family make up and locations, and much more. Some folks plan to downsize in retirement, perhaps selling the large family home and moving into something smaller now that the kids are out. But most people I talk to anticipate spending close to – if not more than – what they spend during their working years. They may take up new hobbies, travel to exotic locations, or pursue other items on their bucket list that come with a price tag.

At the end of the day, only you can know how much your retirement lifestyle will cost based on your unique situation and goals. This means that your savings goal will probably be different from others. Another key consideration is how you’ll turn that big pile of money you’ve accrued over your working years into an income stream that can support you for life. The same sum of money might translate into different monthly income amounts depending on where it’s invested. For example, if your retirement funds are invested almost exclusively in market-based investments that are subject to volatility and loss, a large downturn could curtail your lifestyle if you want some assurance that it can last the 20-30 years that many of us expect to live in retirement. Having at least a portion of your monthly income in a vehicle that provides protection from market loss can help you better weather down markets and help your assets last longer.

Whether you have an income plan in place or not, the so-called “number” that many Americans are striving for is increasing. In today’s uncertain economy, rising inflation and market volatility are causing many to become more conservative in their estimates. In fact, according to a new study by Northwest Mutual, many people now believe they will need as much as $1.25 million to enjoy their golden years₁.  And unfortunately, this same study found that the average retirement savings actually dropped to $86,869, an 11% drop from $98,800 last year.

The report suggests that many Americans are clearly not feeling very optimistic about retirement, with forty-three percent believing they won’t be financially ready when the time comes. 

And get this, even with these dire figures, a full 36% of those responding admitted to not proactively addressing the possibility of outliving their savings. The sources of income they are primarily relying on to fund their golden years are their 401(k) plan (27%), followed closely by Social Security (26%) and personal savings or investments (22%).

Another likely result of the past few years’ market uncertainties, the study found that many Americans have extended their anticipated working years to 64 from 62.6, with one-third of those surveyed expecting to live to age 100 and another third anticipating that there’s 50% chance they might outlive their savings. Fifty-nine percent of those who have delayed retirement feel they’re able to continue to work and save due to additional flexibility with remote work arrangements. 

And while a quarter of Americans said they plan to retire later than they had anticipated, 15% say that they plan to retire earlier.  In fact, forty-four percent of those who plan to retire early cite spending more time with family and loved ones, with 34% saying they have come to realize that personal mission is more important than saving for retirement. A lucky 32% say they can afford it. 

When asked what’s more important, the study found that most adults (60%) prioritize personal fulfillment such as doing something that they care about over salary and income potential (40%) in their careers. This suggests that while some Americans have ratcheted up their ideal “number”, others may be willing to sacrifice some of their earthly possessions and material needs for a more gratifying and fulfilling retirement. Whatever your retirement aspirations are or what your magic “number” might be, make sure you have a system in place to turn that number into income that can support you for life. 

And as always – be vigilant and stay alert, because you deserve more!

Have a great week folks.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. 

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