Achieving Retirement Goals: What Percentage of Workers Need Over $1 Million for a Comfortable Retirement?
Retirement savers in the United States are making strides towards securing their financial futures, with 401(k) and individual retirement account balances reaching record highs in the second quarter of 2024. According to data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans, positive market conditions and improved savings behaviors have contributed to this positive trend. Notably, the number of 401(k) millionaires has also reached an all-time high.
Despite these encouraging statistics, there remains a gap between what savers are currently putting away and what they believe they will need for a comfortable retirement. A recent report by Bankrate.com revealed that 35% of Americans feel they will require more than $1 million to retire comfortably, while an additional 10% believe they will need between $750,001 and $1 million. However, only 49% of respondents expressed confidence in their ability to meet their retirement savings goals, with 48% admitting that they are unlikely to save the necessary amount.
Factors such as debt, inadequate income, and delayed retirement planning have contributed to 40% of workers falling behind in their retirement savings efforts. A CNBC survey of over 6,600 U.S. adults conducted in early August found that older generations, particularly baby boomers, are more likely to regret not saving for retirement earlier in life. This sentiment was echoed by Jacqueline Reeves, the director of retirement plan services at Bryn Mawr Capital Management, who emphasized the importance of starting to save for retirement as early as possible.
According to Bankrate, failing to save for retirement early enough is the biggest financial regret for 22% of Americans. Reeves emphasized the importance of consistent saving over time, stating, “If you do less at 30, you’ll still have more at 60 than if you did more at 50.”
The Retirement Savings Gap
Multiple studies have highlighted the significant retirement savings shortfall facing Americans as they approach their retirement years. An August survey by LiveCareer revealed that 82% of workers have considered delaying their retirement due to financial constraints, while 92% fear they may need to work longer than originally planned. Additionally, approximately half of Americans express concerns about running out of money once they stop working, with 70% of retirees wishing they had started saving earlier.
The Transamerica Center for Retirement Studies’ Retirement Outlook of the American Middle Class report found that only 1 in 5 middle-class households are very confident about being able to retire comfortably. The study defined the middle class as households with an annual income between $50,000 and $199,999. Catherine Collinson, CEO and president of Transamerica Institute, noted that many middle-class Americans are at risk of not achieving a financially secure retirement in the wake of the post-pandemic economy and high inflation rates.
Strategies to Overcome a Savings Shortfall
While many workers may feel behind in their retirement savings journey, there are actionable steps they can take to improve their prospects for a secure retirement. Mark Hamrick, senior economic analyst at Bankrate, emphasized the importance of prioritizing retirement savings and highlighted the potential for individuals to achieve their goals through information, focus, and hard work.
One effective strategy recommended by experts is to make automatic contributions to a retirement savings plan and consider opting into an auto-escalation feature if available. This feature automatically increases the savings rate by 1% or 2% each year up to a predetermined cap, ensuring that savings grow steadily over time.
For individuals closer to retirement, catch-up contributions can provide a significant boost to their nest egg. Savers aged 50 and older can contribute an additional $7,500 to 401(k) plans and other retirement accounts in 2024, beyond the standard employee deferral limit. Similarly, catch-up contributions for IRAs allow individuals to contribute an extra $1,000 on top of the $7,000 limit for the year.
Seeking guidance from a financial advisor and utilizing resources such as the National Foundation for Credit Counseling can also help individuals develop a robust long-term financial plan. By taking proactive steps and making informed decisions, individuals can enhance their retirement savings outlook and work towards a financially secure future.
