The average American now thinks they will need $1.27 million to retire, a 2023 Northwestern Mutual study found. And while that may seem like a lot of money, high-net-worth individuals — those with more than $1 million in investable assets — believe they will need more than double that to retire comfortably, with the average person in this pool estimating they will need $3 million.
There are two main reasons why a high-net-worth individual could have a much higher retirement savings goal than the average American, the first of which is their expectations for their lifestyle in retirement.
“For a high-net-worth individual, the operating expenses for what they’re accustomed to are probably different from an average American, so the difference has to do with the lifestyle that they want to live if they don’t want to adjust to a different lifestyle in retirement,” said Aditi Javeri Gokhale, chief strategy officer, head of institutional investments and president of retail investments at Northwestern Mutual.
The second reason is that they may be planning to leave a larger financial legacy.
“How much you want to leave behind in terms of legacy may be different for a high-net-worth individual versus the average American in terms of gifting, charitable contributions and stuff like that,” Javeri Gokhale said.
There’s quite a difference between the $1.27 million the average American thinks they will need for a comfortable retirement and the $3 million wealthy Americans think they will need — but which figure is closer to the truth? Javeri Gokhale said that it really depends on the individual.
“I wish I had a magic number, but it’s completely different [for each person] based on risks, lifestyle, how much you want to leave for legacy, even how much you want to travel in retirement,” she said. It also depends on your personal circ*mstances: “You could be single, you could be married, you could have aging parents, you could have two kids, three kids, four kids, so that’s why having that magic number is very difficult.”
To find your specific number, Javeri Gokhale recommends meeting with a financial professional.
“That’s where connecting with an advisor and coming up with a plan is important,” she said.
Can the Average American Achieve a $3 Million Nest Egg?
If you crunch the numbers and decide that $3 million is your retirement goal, you might not know how to get there or if that’s even possible. But Javeri Gokhale said hitting that number is more achievable than it might seem — if you plan properly.
“The planning is the same no matter how high your goal is, but the margin for error is smaller when the stakes get higher,” she said. “So it’s really important to start early, and it’s really important to plan comprehensively.”
When formulating your retirement plan, it’s important to “be very open and honest about your financial needs, how much debt you have and your risk-taking appetite,” Javeri Gokhale said. “If you budget carefully, invest intentionally, eliminate debt and accommodate for risk, is it achievable? Absolutely, but you’ve got to take these steps.”
The 95th percentile, with a net worth of $3.2 million, is considered wealthy, facilitating estate planning and possibly owning multiple homes. The top 1%, or the 99th percentile, has a net worth of $16.7 million and represents the very wealthy, who enjoy considerable financial freedom and luxury.
With proper planning and management, $3 million is ideal for a relaxing, financially stable retirement. That said, if, for any reason, you do want to increase your retirement savings, here are some options you can consider: Considering higher-risk investments, which also come with potentially higher returns.
According to the MacroMonitor, by 2022-23, the number of U.S. households with $3 million or more in financial assets represents 3.2% of all households, totaling 4.6 million.
U.S. wealth percentiles provide clearer picture of where you rank. According to Schwab's 2023 Modern Wealth Survey, its seventh annual, Americans said it takes an average net worth of $2.2 million to qualify a person as being wealthy. (Net worth is the sum of your assets minus your liabilities.)
Retiring at 50 is a great goal to have. If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
Living off the interest of $3 million is possible when you diversify your portfolio and pick the right investments. Here are six common investments and expected income for each year: Savings and money market accounts. Savings accounts are one of the most liquid places to hold your money besides a checking account.
You can probably retire in financial comfort at age 45 if you have $3 million in savings. Although it's much younger than most people retire, that much money can likely generate adequate income for as long as you live.
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.
Bottom Line. A $3 million portfolio will likely be enough to allow a retired couple to spend reasonably and invest with moderate caution without any worries of running out of money. However, if expenses rise too high, it's entirely possible to drain a $3 million portfolio in well under 30 years.
If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
The keys will be controlling expenses, utilizing tax-advantaged accounts strategically, having supplemental income sources if possible, and making sure you have health insurance coverage figured out. With proper planning and discipline though, many find $700k is an adequate amount to retire on at 50.
Yes, $800k provides a healthy nest egg that allows for annual withdrawals of around $32,000 from the age of 60 to 85, spanning 25 years. If $32,000 per year, or $2,667 per month, is sufficient to cover your retirement lifestyle, then $800k gives you an adequate buffer.
Living off the interest of $3 million is possible when you diversify your portfolio and pick the right investments. Here are six common investments and expected income for each year: Savings and money market accounts. Savings accounts are one of the most liquid places to hold your money besides a checking account.
Top 2% wealth: The top 2% of Americans have a net worth of about $2.472 million, aligning closely with the surveyed perception of wealth. Top 5% wealth: The next tier, the top 5%, has a net worth of around $1.03 million. Top 10% wealth: The top 10% of the population has a net worth of approximately $854,900.
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