Americans are rethinking how much they should budget for retirement and many believe they will need more money to retire comfortably, according to a recent survey by Northwestern Mutual.
Survey respondents estimated that they would need $1.25 million to feel secure in retirement, a 20% increase from last year, when respondents calculated that they would need $1.05 million, the survey said.
Yet with inflation and higher living costs, Americans are spending more on everything from food to fuel. As a result, average retirement savings have dipped 11% to $86,869 from $98,800 a year ago, the survey said.
"It's a period of uncertainty for many people, driven largely by rising inflation and volatility in the markets," Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual, said. "We've also seen upticks in spending year-over-year not only as a result of inflation, but also as people have resumed a sense of normalcy in their lives following the earlier days of the pandemic.
"These factors are leading many people to recalibrate their thinking about how much they'll need to retire and how long it will take them to get there," Mitchell added.
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Inflation is the biggest threat to retirement savings
Forty-one percent of survey respondents said that inflation was the most significant obstacle to reaching financial security in retirement, while 39% blamed the economy.
Inflation remains well above the Federal Reserve's 2% target. The November Consumer Price Index (CPI), a measure of inflation released by the Bureau of Labor Statistics, showed that inflation rose 7.1% annually.
In November, the Fed announced its fourth 75 basis point rate hike this year and in December, it announced a 50 basis point rate hike in an effort to meet its goal. The December rate hike brought the federal funds rate to a targeted range of 4.25% to 4.5%, the highest level in 15 years.
"With inflation rising at the fastest pace since the 1980s, many Americans have seen their savings begin to erode and their debt levels rise in recent months," Mitchell said in September.
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How Americans are addressing retirement shortfall
Aside from needing to save more, survey respondents also said that they planned to work longer. The expected retirement age rose to 64, up from 62.6 last year, the survey said.
Moreover, 33% of Americans said that they expected to live to 100 years old. A third of respondents also said that they believe there is a chance that they may outlive their savings.
In addition to working more years, Americans said that they are taking these steps to address the possibility of outliving their savings, the survey said:
- 25% said they've increased savings
- 22% put together a financial plan
- 21% purchased investments
- 18% discussed options with family
- 18% sought advice from an advisor
- 16% purchased insurance
If you are retired or are preparing to retire, paying down debt with a personal loan can help you reduce your interest rate and your monthly expenses. You can visit Credible to compare multiple personal loan lenders at once and choose the one with the best interest rate for you.
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