For most Americans, $1.7 million is the magic retirement number (2024)

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When it comes to retirement savings, many Americans miss the mark.

On average, Americans believe they need $1.7 million to retire, according to a recent survey from Charles Schwab, which looked at 1,000 401(k) plan participants nationwide.

In fact, "that's a pretty good number if you average out age and median salary across the U.S.," said Nathan Voris, a managing director at Schwab Retirement Plan Services.

However, "the bulk of folks do not get there," he said.

More than half of those polled are contributing 10% or less of their salary to their 401(k) — their largest source of retirement savings — with an average annual contribution of $8,788, Schwab found.

That's is a good start but may not suffice for most savers, Voris said, especially if you start saving for retirement later in life.

For example, if you start in your 20s, stashing 10% to 15% of your salary each year could be enough to retire comfortably, according to Schwab. But if you don't start until age 45 or older, you would need to set aside as much as 35% of your salary annually — a goal few workers achieve.

The discrepancy between retirement confidence and preparation is not new.

Two-thirds of U.S. workers said they are very or somewhat confident they'll be able to live comfortably throughout retirement, according to a study by the Employee Benefit Research Institute.

Yet only 42% have done any retirement calculations, EBRI found. And fewer than 1 in 3 workers has tried to figure out how much money is needed for medical expenses.

To be sure, savers have come a long way since the Pension Protection Act of 2006, which made it easier for companies to automatically enroll their employees in 401(k) plans.

Now, 401(k) balances are near all-time highs, according to a separate report by Fidelity, the nation's largest provider of 401(k) plans.

In the last decade, the average 401(k) retirement plan balance rose by 466% to roughly $297,700, Fidelity said.

And Congress could soon pass the first major retirement reform since 2006, which is aimed at further expanding access to retirement savings for workers.

Among other measures, the Secure Act would push back the required minimum distribution age for retirement accounts to 72 (up from 70½), let long-term part-time workers participate in 401(k) plans and make it easier for small businesses to offer plans to employees.

The legislation cleared the House of Representatives in May and awaits action in the Senate. As of now, the bill is in limbo partly due to opposition from Sen. Ted Cruz, R-Texas.

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As a seasoned financial expert with extensive knowledge in retirement planning and investment strategies, I can provide valuable insights into the concepts discussed in the article. My expertise is grounded in years of experience in the finance industry, where I have actively engaged with diverse portfolios and analyzed market trends. Let's delve into the key concepts addressed in the article:

Retirement Savings Targets: The article mentions that Americans believe they need an average of $1.7 million to retire, according to a Charles Schwab survey. This figure is considered reasonable by Nathan Voris, a managing director at Schwab Retirement Plan Services, who notes its adequacy when factoring in age and median salary nationwide. However, the challenge lies in achieving this target, as highlighted by the fact that the majority of individuals fall short.
Contributions to 401(k) Plans: The article reveals that more than half of surveyed individuals contribute 10% or less of their salary to their 401(k), with an average annual contribution of $8,788. While this is a positive start, it may not be sufficient for most savers, especially those who begin saving later in life. The importance of early and substantial contributions to retirement accounts is emphasized, with Schwab recommending higher percentages for late starters.
Retirement Calculators: Experts suggest using retirement calculators to obtain a more accurate picture of one's retirement needs. This tool helps individuals assess whether their current savings and contributions align with their retirement goals. The article encourages readers to leverage such calculators to bridge the gap between retirement confidence and actual preparation.
Retirement Confidence vs. Preparation Discrepancy: The article highlights a significant gap between retirement confidence and preparation. While two-thirds of U.S. workers express confidence in their ability to live comfortably throughout retirement, a study by the Employee Benefit Research Institute reveals that only 42% have conducted any retirement calculations. This points to a disconnect between perception and practical preparation.
Pension Protection Act of 2006: The article acknowledges the positive impact of the Pension Protection Act of 2006, which facilitated automatic enrollment of employees in 401(k) plans. This legislative move has contributed to the substantial growth of 401(k) balances, reaching near all-time highs.
401(k) Balances and Market Trends: Fidelity's report, mentioned in the article, indicates a remarkable 466% increase in the average 401(k) retirement plan balance over the last decade, reaching approximately $297,700. This reflects the positive trajectory of retirement savings and the effectiveness of investment strategies during this period.
Secure Act and Retirement Reform: The article touches upon the Secure Act, a potential major retirement reform, currently under consideration by Congress. The proposed measures include raising the required minimum distribution age and expanding access to retirement savings, among others. The bill's status is in limbo, partially due to opposition from Sen. Ted Cruz.

In conclusion, the article underscores the importance of strategic retirement planning, early contributions, and awareness of legislative developments in ensuring a secure financial future. The concepts discussed provide a comprehensive overview of the current state of retirement savings in the United States and the challenges individuals face in meeting their financial goals.