$1.46 million is retirement's magic number? It's a fantasy for most.

By Paul Brandus

There's a lot missing from these projections

By now you've read on this site and perhaps elsewhere the latest figure on how much American adults think they'll need for a "comfortable" retirement: $1.46 million.

That's according to Northwestern Mutual, a financial-advisory and insurance firm, which makes this estimate every year. It also probably wants to sell you advice and fee-based products it says can help you achieve your financial goals.

Northwestern Mutual, via the Harris Poll, asked Americans in four key demographic groups to estimate what they think they'll need in retirement. Generation Z respondents (born between 1997-2012) said they'll need $1.63 million, while millennials (1981-1996 and now the largest group, even more numerous than baby boomers) said they'll need $1.65 million. Generation X (1965-1980) said they'll need $1.56 million. Boomers (born between 1946 and 1964 and now retiring at the rate of some 11,000 a day) offered a more modest figure: $990,000. Data was weighted where necessary by age, gender, race/ethnicity, region, education, marital status, household size, and household income to bring them in line with their actual proportions in the population.

Northwestern Mutual's report, while helpful in certain ways, raised eyebrows in others. For example, doesn't it seem odd that the Gen Z crowd, despite being younger than the millennials, estimates that they'll need less money in the future? Future inflation alone all but guarantees that they'll need more. A lot more. By way of illustrating this point, I'll note that even the oldest Gen Zers (again, born between 1997-2012) won't begin retiring for another 30+ years. The last 30 years, according to my inflation calculator, show cumulative inflation rising more than 109%. Yet they think they'll need less than millennials? I don't think so.

And even though the survey was weighted by gender, race and other variables, the final report appears to make no mention of this. It would have been useful to know, as data acquired elsewhere showed, that reaching a comfortable retirement will likely prove more elusive for women and minorities than others.

Take women, for example. On average, women continue to earn less than men - about 21% less, according to a 2022 Goldman Sachs study.

They were also far more likely, according to a separate Goldman report, to leave the workforce for extended periods to care for an aging parent. This means that women contributed about 30% less to retirement accounts over their working lives than men.

This is a retirement triple-whammy: women forfeit 1) the opportunity to earn and save, 2) the benefit of their investments compounding over time and 3) bigger Social Security benefits. As of 2022, checks are about 20% less for women than men, according to the Social Security Administration.

The data had some bad news for single women. According to Boston College's Center for Retirement Research, single women between ages 55 and 64 have about $88,600 in retirement savings, about two-thirds of what single men have ($136,685) and just a fifth of what married couples have ($423,800).

The challenge is even greater considering that women tend to live longer than men - nearly six years longer - according to the Centers for Disease Control and Prevention. That means women must get by for longer periods on a lot less.

In addition to lumping men and women together in its retirement report, Northwestern Mutual doesn't note the greater challenges that minorities have in reaching a "comfortable" retirement. For example, yet another Goldman report, this one from February, noted with a torrent of data that Black women "face the weight of combating systemic obstacles toward accruing wealth for themselves and their families."

Meanwhile, the retirement outlook is even more dire for Hispanics, who make up nearly a fifth of the country. According to the Employee Benefit Research Institute, Hispanic households have a median retirement account balance of about $31,000. This compares with $35,000 for Black households, and $80,000 for white households. Median, of course, means that half have more than these figures while half have less.

The $1.46 million figure that Northwestern Mutual came up with did what it was intended to do - generate headlines. It will probably also drum up new business. But the true retirement picture for most Americans is far more complex than one generic figure can possibly convey. It is also far more bleak: In 2022, nearly half of American households had no savings in retirement accounts at all, according to the Federal Reserve's Survey of Consumer Finances (SCF). Asking millions of Americans to estimate what they'll need to retire on and what they'll actually be able to come up with over their lives are completely different.

-Paul Brandus

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04-06-24 0915ET

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