Data & Research April 2, 2024

‘Magic Number’ for Retirement Hits All-Time High

Northwestern Mutual finds Americans now target $1.46 million for retirement, while a separate Lincoln Financial study shows inflation as consumers’ top concern.

Reported by

Americans’ view of the price of retirement has gone up significantly in recent years, with everyday costs creating additional financial strain, according to research reports released Tuesday.

According to a survey of 4,588 U.S. adults conducted in January by Northwestern Mutual and the Harris Poll, the average “magic number” savers target for retirement has hit a high of $1.46 million, 15% higher than last year’s figure and a whopping 53% higher than 2020. Current retirement savings reported by the cohort, however, fell to an average of $88,400 in 2024, as compared with $89,300 in 2023, according to the survey.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“In 2023, the soaring cost of eggs in the grocery store symbolized inflation in America. In 2024, it’s nest eggs,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual, in a statement. “People’s ’magic number’ to retire comfortably has exploded to an all-time high, and the gap between their goals and progress has never been wider. Inflation is expanding our expectations for retirement savings and putting the pressure on to plan and stay disciplined.”

People’s retirement expectations have increased substantially since 2020, according to Northwestern Mutual, with the annual breakdown below:

2024

2023

2022

2021

2020

Amount expected to
need to retire comfortably

$1.46M

$1.27M

$1.25M

$1.05M

$951,000

 

Millennials have the highest expectations for what they need to enjoy a comfortable retirement at $1.65 million; Generation Z savers came in second at $1.63 million; Generation X earmarked $1.56 million; and Baby Boomers had the lowest expectation at $990,000. High-net-worth individuals, designated as people with at least $1 million in assets, are hoping to save an average of $3.93 million to retire comfortably.

Meanwhile, the decline in average retirement savings as compared to “magic number” expectations means a widening gap between actual savings and retirement goals, according to Northwestern Mutual.

2024

2023

2022

2021

2020

Amount saved for retirement currently

$88,400

$89,300

$86,900

$98,800

$87,500

Gap between retirement goal and current savings

$1.37M

$1.18M

$1.16M

$951,000

$864,000

Inflation Top Financial Concern

Separate research released by Lincoln Financial Group on Tuesday reiterated the concern among consumers of inflation’s impact on everyday spending and saving. The firm’s survey of 1,031 U.S. adults found inflation ranked as the top financial concern for 66% of respondents.

Two concerns tied for second most common response  at 59%: worries about having enough income in retirement and about whether income would keep up with the rising cost of living. The fourth-ranked concern was supporting oneself or one’s family due to a disability or chronic illness (51%).

Generationally, Lincoln Financial’s 2024 Financial Concerns Report, which it released in April because it is Financial Literacy Month, found differences, including:

  • Generation X was most concerned with having enough income in retirement (64%);
  • Millennials were the most concerned generation overall, particularly when it came to finding affordable housing (52%) and paying for childcare (37%); and
  • Baby Boomers were the only generation to cite “protecting myself against identity theft, cybersecurity, fraud, etc.” in their top three concerns (54%).

When it comes to trying to solve for financial concerns, Lincoln Financial found that consumers tend to focus on topics such as affording the cost of living, as opposed to seeking retirement saving products or income solutions. Survey respondents, for instance, were most likely to discuss or research ways to address paying monthly bills (81%), inflation (77%), paying for education expenses (77%), paying off or reducing debt (76%) and finding affordable housing (75%).

Lincoln did not immediately respond to a request for the percent of respondents who listed researching or discussing retirement solutions or insurance products.

Silver Tsunami

In publishing its survey, Northwestern Mutual noted the respondents’ concern about retirement preparedness as America faces the “silver tsunami” of retirees amid Peak 65, when an estimated 11,000 American will turn 65 every day through 2027.

According to the firm’s “2024 Planning & Progress Study,” just half of Boomers+ (49%) and Gen X (48%) believe they will be financially prepared when retirement comes. Meanwhile, only 30% of Americans noted having a plan to minimize the taxes they pay on their retirement savings which means most have failed to identify a potential shortfall.

“Putting money into a 401(k) may not be enough to retire comfortably if the financial plan doesn’t address the impact of taxes on retirement income,” said Javeri Gokhale. “Most people don’t realize that their retirement income may be taxed about 20% or 30% when they withdraw and spend it. When they recognize the impact, it’s often too late for them to adjust.”

Correction: fixes error in company name throughout.

Compliance April 1, 2024

Chamber of Commerce, ERIC Ask DOL for Modifications to Auto-Portability Proposal

Lobby groups asked the Department of Labor to remove the requirement that plans must appoint an official to monitor portability transactions.

Reported by

Two key industry groups asked the Department of Labor to reduce disclosure and other regulatory requirements in its retirement plan automatic portability proposal. The proposal was issued in January, and the comment period expired on Friday, with the lobby groups U.S. Chamber of Commerce and ERISA Industry Committee among those weighing in with request for changes.

The proposal would codify the SECURE 2.0 Act of 2022’s Section 120, which seeks to reduce leakage in the retirement system by allowing auto-portability service providers to charge a reasonable fee for transferring retirement assets from a safe harbor individual retirement account to a participant’s new defined contribution plan.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Providers could do this without the participant’s affirmative consent, provided the provider sends notice to the participant informing them of their ability to opt out. The proposal states that automatic portability transactions are intended to “benefit participants and IRA owners that are unresponsive or considered missing.”

As the proposal is written, in order for a provider to charge the participant, as opposed to charging one of the participating plans, the provider must provide notice to the participant, disclose its fees to the participant and maintain the same investment selection when possible, among other requirements.

Appointed Plan Official

The ERISA Industry Committee on Friday asked the DOL to remove certain requirements in the proposal, starting with the mandate that participating plans appoint a plan official “responsible for monitoring transfers into the plan and ensuring that the rolled-over funds are invested properly.” ERIC’s comment called this provision “unduly burdensome” and stated it would discourage sponsors from participating. If the DOL decides to keep this provision, according to the ERIC comment, the plan’s recordkeeper should be able to fulfill this requirement.

The Business organization U.S. Chamber of Commerce, which also submitted comments on Friday, concurred that this provision should be removed because many plan sponsors lack access to retirement accounts to confirm the transfer. Instead, the Chamber of Commerce’s comment stated, the DOL should require the portability provider to maintain policies and procedures that ensure the “automatic portability transaction will be invested in accordance with a participant’s election or the default election if there is no current election.”

Other Provisions

Both ERIC and the Chamber of Commerce also asked the DOL to remove the requirement that portability providers make non-English disclosures and call centers available if they notify a participant who lives in a county in which at least 10% of the residents are literate only in a particular non-English language.

ERIC wrote that this provision “will simply serve to increase the administrative costs of sponsoring a retirement benefit, which will ultimately be borne by participants.”

In its call for comment, the DOL had asked for opinion on whether it should require portability providers to keep insurance for digital data breaches in a final rule. The Chamber of Commerce answered that plan sponsors should not be required to keep insurance and this decision should be left to the provider.

The proposal also requires portability providers to acknowledge that they are a fiduciary when effecting portability transactions. The Chamber of Commerce requested that the DOL clarify that the fiduciary relationship extends only to the IRA owner in the portability transaction, not to the IRA itself or to the participant in an ongoing relationship that extends past the portability transaction.

Compliance Period

The proposal has an effective date of 60 days after its finalization. ERIC recommends that this be extended to at least 180 days, and the Chamber of Commerce recommended 12 months. The Chamber of Commerce noted that many provisions will require the negotiation of new contracts, which it argued cannot be done in 60 days.

The DOL has not announced a date for a final auto-portability rule.

«