New Survey Shows ‘Nest Egg Inflation.’ See What This Means for Your Retirement

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Are you worried about saving for retirement? The average American believes they’ll need $1.46 million to retire comfortably. Learn how this could impact you. [[{“value”:”

During recent times of high inflation, the price of eggs at the grocery store became shockingly high — and now the typical American’s retirement “nest egg” goal is getting more expensive, too. According to a new survey from Northwestern Mutual, Americans now believe that they will need $1.46 million to retire comfortably, up from $1.27 million last year.

Let’s see what this “nest egg inflation” means for your retirement investments, and how you can put yourself in a stronger position to build wealth and retire.

Future retirement dreams are getting more expensive

If you want to have a higher income in retirement, along with Social Security or employer pensions, that means you need a bigger amount of retirement savings in your 401(k), IRAs, or other investment accounts. Having a bigger retirement nest egg gives you the ability to withdraw 3% or 4% of your savings per year from your retirement accounts for the rest of your life, without depleting your nest egg.

There’s no one right answer for how much cash you need to save to retire. But some Americans refer to this retirement target amount as their “magic number.” As the cost of living goes up, it’s understandable that most Americans also expect that their “magic number” for future retirement will need to get bigger. Northwestern Mutual’s 2024 Planning & Progress Study found that Americans’ retirement magic number has increased 15% since last year, and 53% since 2020.

Americans need to save more money for retirement

Most Americans unfortunately are not saving and investing anywhere near enough money to actually make retiring with $1.46 million a reality. The Northwestern Mutual study also found that the average American has only $88,400 saved for retirement in 2024 (down from $89,300 in 2023).

Looking at a breakdown of retirement savings by age, the survey also found that different generations have different magic numbers. For example, baby boomers (who are closest to retirement) believe that they need a nest egg of about $990,000 on average, while the youngest Gen Z cohort thinks they’ll need a nest egg of $1.63 million. The survey also found that older generations tend to have more money saved for retirement on average — but it’s still not enough.

Every generation is still facing a big gap between people’s actual retirement savings and their preferred “magic number.” Here’s a breakdown from the Northwestern Mutual study:

How to improve your chances of a comfortable retirement

The Northwestern Mutual study is a worrisome sign for many Americans’ retirement savings. Social Security income alone is likely not enough to live comfortably in retirement. Unless you have a generous pension from an employer, most Americans need to save and invest significant amounts of money so they have an additional source of wealth to generate income in retirement.

But if you’re still at the early or middle stages of your career, you still have time. Use your 401(k) or other employer retirement plan if you have one, and contribute enough to get your full employer match if it’s offered. Open IRA accounts — traditional IRA and Roth IRA if you qualify. Use a taxable brokerage account to buy stocks and ETFs to invest in the future growth of a diversified mix of the world’s most successful companies.

Let’s say that you’re 40 years old in 2024, and you want to retire in 25 years. Even if you don’t have a dollar saved for retirement, if you start today, you still have time to build up a significant nest egg.

If you save $500 per month ($6,000 per year), and bump up your retirement savings by 1% per year, and you invest your money in a diversified mix of stock and bond ETFs that deliver an average annual return of 8%, after 25 years you’ll have $515,257. If you save $1,000 per month ($12,000 per year) and increase your annual contributions by 1%, after 25 years you’ll have $1,030,513.

Bottom line

There are no easy answers to the big “retirement gap” between Americans’ dream nest eggs and the reality of Americans’ poorly funded retirement savings accounts. Social Security benefits only replace about 40% of the average worker’s pre-retirement income, and as of January 2024, the average Social Security retirement benefit check was about $1,907 per month.

Unless you can live comfortably on $1,907 per month (or less), Americans need to save more money for their own retirements. Fortunately, there are excellent ways to save for retirement at work and on your own with traditional IRAs, Roth IRAs, and taxable brokerage accounts. Don’t worry too much about a “magic number.” Instead, make a long-term plan to buy stocks and invest for your future.

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