Americans believe they will need to save $1.2 million to retire comfortably, according to a new survey from global investment manager Schroders.
However, only 30% of workplace retirement plan participants surveyed said they thought they would reach the $1 million savings mark before retirement, the study found.
More than half — 51% — said they expect to have less than $500,000 saved by the time they retire, including 24% who say they will have less than $250,000, according to the survey, which surveyed 1,500 investors between March and April.
The results showed that reasons why retirement savings are not meeting their goals include rising expenses, credit card debt and competing expenses. Notably, according to the survey, 33% of respondents have credit card debt that exceeds their retirement savings. Meanwhile, 55% said they are unable to save 10% of their salary for retirement due to competing expenses, and 69% said rising costs have made retirement unaffordable for their generation.
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“Many investors are simply struggling to translate their good intentions into long-term readiness for retirement,” said Deb Boyden, head of Americas defined contribution at Schroders.
As people face difficult trade-offs, retirement savings may be a top priority, according to Schroeder’s research. According to the results, some respondents decided to reduce their plan contributions or take out a 401(k) loan to achieve other financial goals, such as reducing debt, paying for emergency expenses or keeping up with the rising cost of living.
What to give priority instead of the “magic” pension number
The idea of a “magic” retirement savings number that can unlock your ideal retirement is not new.
Earlier this year, Northwestern Mutual found that $1.46 million is the threshold Americans say they need to retire comfortably in 2026.
Of course, the amount of retirement savings people think they need can fluctuate depending on the cost of living: Northwestern Mutual’s estimate is up $200,000 from last year. Schroeders fell from $1.28 million. Moreover, these may just be assumptions.
“It’s hard to save for a future that seems abstract when the present seems urgent,” said Douglas Bonepart, a certified financial planner and president and founder of Bone Fide Wealth in New York. Bonepart is also a member of the CNBC Council of Financial Advisors.
Rising expenses, credit card debt and competing expenses are not excuses; they are reality, Bonepart said.
If you feel like you’re falling short on your retirement savings, he says, it can help to stop chasing numbers and start building habits.
While a goal like $1.2 million may seem far away if you have a balance of $12,000, someone who consistently saves money, works to reduce high-interest debt and invests early “may close more opportunities than they think,” Bonepart said.
Whether the $1 million retirement savings benchmark is right for you will depend on where you live, your lifestyle and when you retire.
“You may need more or significantly less,” Bonepart said. “It depends.”
Retirement savings aside
To achieve your retirement savings goals, you need to invest that money correctly.
However, Schroeder’s survey found that 24% of pension plan participants do not know where their retirement savings are invested. Among those in the know, a breakdown of all types of retirement savings accounts showed a significant portion allocated to cash (26%), nearly equal to stocks (27%).
“For participants with a long-term outlook, excess cash flow can result in significant opportunity costs,” Boyden said.
These cash reserves are mainly driven by the desire for security (53% of respondents); desire to diversify investments – 44%; and are waiting for the right moment to invest – 33%.
To assess whether you are on track for retirement, consult with a reputable financial advisor or take advantage of the educational resources provided through your workplace retirement plan.
“Most people who feel stuck haven’t sat down with someone to make a plan,” Bonepart said. “This conversation alone can make a difference.”
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