One of the most challenging questions for workers is how much money they need to retire comfortably. According to a recent survey by Charles Schwab, Americans with retirement accounts believe that the magic number is an average of $1.8 million. This figure has increased from the previous year’s average of $1.7 million. The rising estimate can be attributed to the impact of inflation and market volatility, which has created a “retirement gap” between people’s savings and their actual retirement needs.
“There’s definitely a gap between what individuals think they need and what they currently have,” says Marci Stewart, the director of communication consulting and participant education for Schwab Workplace Financial Services.
According to Vanguard data, the average U.S. retirement account held $113,000 last year. Even those who are 65 or older, retirement age, have an average account balance of $233,000. While $1.8 million may seem like a large sum compared to these averages, it doesn’t guarantee a luxurious retirement. Following the 4% withdrawal rule in retirement, someone with $1.8 million would have an annual retirement income of $72,000 if they retire at 65.
Inflation Impact
A triple whammy of high inflation, rising interest rates, and market volatility in the past year has shaken workers’ confidence in meeting their retirement savings goals. According to Schwab’s survey, only 37% of respondents said they are very likely to save enough for retirement, a 10% drop from the previous year.
“People are concerned about inflation and market volatility,” added Stewart. “Although inflation numbers have decreased, individuals still feel pressure on their paychecks. Additionally, higher interest rates have made borrowing money more expensive.”
Despite these challenges, workers have not reduced their contribution to their 401(k) accounts. Schwab’s study found that Americans are consistently saving nearly 12% of their pre-tax income in their 401(k)s in both 2022 and 2023.
“That’s encouraging because it shows that people continue to prioritize their retirement savings,” said Stewart.
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