Americans think they'll need $1.5M to retire, but their savings are nowhere near that

There's a big difference between how much money Americans think they'll need for retirement and how much they've actually saved. In 2024, that gap grew into a chasm.

Every year, researchers at the insurance firm Northwestern Mutual determine "the magic number": the average dollar amount that Americans estimate it will take to retire in comfort. In 2024, that number rose to $1.46 million — a 15% jump from last year.

At the same time, Americans' real-life savings moved in the opposite direction. This year, the average American had $88,400 in retirement savings — down slightly from 2023's average of $89,300.

"In 2023, the soaring cost of eggs in the grocery store symbolized inflation in America. In 2024, it's nest eggs," Aditi Javeri Gokhale, Northwestern's chief strategy officer, said in a statement. "People's 'magic number' to retire comfortably has exploded to an all-time high, and the gap between their goals and progress has never been wider."

That gap has grown considerably in recent years. In 2024, it stands at $1.37 million — up 16% from last year, when it was $1.18 million. And in 2020, the difference was "only" $864,000, which means the gulf between Americans' expectations and their actual savings has grown by 59% in the last four years.

As one might expect, the shortfall was widest among Northwestern's youngest respondents. But that's not just because they've had the least time to save — it's also because they had the highest estimates of how much money they'll need in retirement. Millennials' "magic number," for example, was $1.63 million, compared to $990,000 for baby boomers.

What's driving up these expectations? And why are Americans falling so far short of them? Many wealth managers say it's the same answer for both questions: rising prices.

"I think most people increased their estimates … because inflation has taken a good-sized chunk of people's expendable income," said Crystal McKeon, a certified financial planner at TSA Wealth Management in Houston, Texas. "I think people are saving less because of inflation as well. If you have less money left over after your expenses, then you save less."

Though inflation has cooled in recent months, it has stubbornly remained above pre-pandemic levels. Since June 2023, the yearly change in the consumer price index has hovered around 3%, compared to 2.3% in February 2020. And in any case, most prices have remained high even as their rate of increase has slowed.

But that's not the only reason Americans have such lofty saving goals. In addition to inflation, many future retirees are aware that Social Security is headed toward insolvency (assuming Congress does nothing to save it). And then there's the fact that, on average, Americans are living longer than they used to, which means more years in retirement to pay for.

READ MORE: Almost 3 out of 10 Americans have no retirement savings

Added to all this is a general atmosphere of unpredictability. Politically, the country is in a hotly contested election year, leaving the future uncertain. Economically, it only just recently emerged from a period of intense stock volatility, and the Federal Reserve's long-awaited interest rate cuts have yet to arrive.

"In my opinion, the biggest factor contributing to this increase is the uncertainty in the markets, the economy and our current political situation," said Gregory Guenther, a financial planner at Grantvest Financial Group in Matawan, New Jersey. "I believe that uncertainty, paired with the current inflation, is the biggest reason for the substantial increase cited in the study."

Others questioned the value of Northwestern's calculations.

"Retirement is about having enough cash flow to live comfortably, and that is very different for different income levels," said John Power, principal of Power Plans in Walpole, Massachusetts. "There is no magic number."