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Many individuals are experiencing an ongoing disconnect between their savings and their anticipated retirement needs.
This year, however, trends indicate that many Americans are adjusting their expectations regarding retirement finances.
According to a recent study by Northwestern Mutual, the average amount that Americans believe they will require for a comfortable retirement in 2025 has decreased to $1.26 million—down by $200,000 from the previous year’s estimate of $1.46 million. This data was gathered from over 4,600 adults surveyed in January.
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“The shift in Americans’ expectations for a comfortable retirement is evident,” stated John Roberts, chief field officer at Northwestern Mutual. He attributes this adjustment to the easing of inflation, which has led people to rethink their financial outlook.
The average projected retirement savings goal for 2025 aligns closely with figures from prior years: $1.27 million in 2023 and $1.25 million in 2022.
Though this new target is a reduction, Roberts highlights that it remains “significantly higher than what many have actually managed to save.”
Examining ‘Magic Number’ Against Typical Retirement Savings
Last year, favorable market conditions contributed to record-high retirement account balances.
As of the fourth quarter of 2024, average balances for 401(k) plans and individual retirement accounts (IRAs) reached their second highest levels on record, thanks to improved saving habits and stock performance, according to recent findings from Fidelity Investments.
The average 401(k) balance was reported as $131,700, while the average IRA balance was $127,534.
However, recent market fluctuations have impacted these gains. As of April 21, the S&P 500 index has registered a decrease of approximately 10% year-to-date, with the Nasdaq Composite down over 15%. Additionally, the Dow Jones Industrial Average has fallen by 8%.
“The turbulent market of 2025 has affected many savers negatively,” commented Winnie Sun, co-founder and managing director of Sun Group Wealth Partners. “It is likely that your portfolio value has decreased since the start of the year.”
Declining Confidence in Retirement Readiness
Despite the reduced savings expectations, over half (51%) of respondents in Northwestern Mutual’s study anticipate that they will outlive their retirement savings. Only 16% considered this outcome “very unlikely.”
Comparatively, last year, 54% of workers who had not yet retired expressed confidence in being financially prepared when their retirement began.
Currently, only about two-thirds (67%) of individuals in their saving phases report feeling assured about their retirement readiness—this marks a decline of 7 percentage points from the previous year, as detailed in a separate Retirement Planning study by Fidelity.
The shift towards personal responsibility for retirement security contributes to a decrease in confidence. “Today’s generation of workers may be the last to rely on stable income sources, like pensions, for retirement,” remarked Rita Assaf, vice president of retirement offerings at Fidelity.
“This transition emphasizes the need for early financial planning,” Assaf added.
Guidelines for Retirement Planning
Fidelity suggests several foundational principles for effective retirement planning. These include saving ten times your annual earnings by the time you reach retirement age and following the “4% rule,” which allows retirees to withdraw 4% of their retirement funds, adjusted for inflation, each year.
Some experts contend there isn’t a one-size-fits-all retirement savings figure, but beginning with a goal of saving 15% of your pre-tax income can provide a solid foundation.
If retirement is still a number of years away, financial advisor Sun recommends consulting with a knowledgeable professional to assess future income requirements and formulate a strategy proactively.
For those nearing retirement, Sun advises ensuring a well-funded emergency reserve, assessing spending habits, considering a home equity line of credit if applicable, exploring ways to supplement income, and consulting an advisor to gain a comprehensive understanding of what retirement will entail.
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