According to a survey by Northwestern Mutual, the average American believes they need to have saved $1.26 million by the time they reach 65 to retire comfortably. However, financial experts argue that this figure falls short of the actual amount required. Taking into account factors such as inflation, healthcare costs, and lifestyle preferences, $1.5 million-which many perceive as an ideal retirement fund-barely covers the necessary expenses.
Taylor Kovar, CEO and founder of 11 Financial, and Hilary Hendershott, President and Chief Advisor at Hendershott Wealth Management, both emphasize that $1.5 million is not an end goal but more of a milestone in savings. Retirement is complex, with unpredictable variables like the stock market, health costs, inflation, and lifespan dramatically affecting financial plans.
On the basis of a conservative 3% withdrawal rate, a $1.5 million retirement fund generates about $45,000 per year. Coupled with an average Social Security check of around $24,000 annually, most Americans would be looking at an annual retirement income of about $69,000 for a period of 30 to 35 years. This is not sufficient in 22 out of 50 US states. Hawaii, the priciest state to retire in, requires nearly $130,000 annually, indicating a necessary retirement fund well beyond the $1.5 million mark.
Other hidden costs contribute to these calculations. Healthcare can be a significant burden before Medicare comes into play, while travel, home maintenance, and familial expenses can also strain a retirement budget. And, as Ryan Greiser, a financial advisor and co-founder of Opulus, points out, inflation is one of the most significant threat to retirement plans.
For those looking to retire early, these factors compound issues. Greiser recommends individuals shifting towards work that feels more meaningful rather than completely stopping, while Kovar emphasizes the necessity of a robust, tailored plan for early retirement.
Advice for those looking at a full retirement in their 50s or 60s is clear: it will require discipline and a strategy that considers an increase in annual expenses and potential emergencies. The consensus among experts appears to be that, while life is expensive, $1.5 million is not adequate for a comfortable retirement. Those hoping for early retirement would need to continue working in some capacity, or significantly bolster their savings now to effectively counter inflation, healthcare costs, and unforeseen expenses during retirement.