RIA Survey: $1 Million Not Nearly Enough for Retirement

While the average American family believes $1 million is the gold standard for retirement savings, a new survey by Scottrade Advisor Services finds that most independent advisers think this number is probably way off.

Seventy-one percent of RIAs said that the average family needs to save double or triple that amount, according to a survey by the St. Louis-based investment firm. The 2009 Registered Investment Advisor Study, which polled 226 registered investment advisers from Aug. 12 through Sept. 30, focused on the four main segments of the population: Generations Y and X, Baby Boomers and seniors.

The recommended investment goals for Generation Y (ages 18-26) are the greatest. More than three-quarters (77%) of advisers recommend a goal of at least $2 million, while more than 40% of RIAs say Generation Y should be aiming for more than $3 million in retirement funds. Generation X (ages 27-42) should save between $2 million and $3 million, according to 46% of RIAs surveyed.

Another 22% said that Gen X-ers should have $3 million in retirement funds. Thirty-five percent of advisers polled feel that boomers (ages 43-64) need between $2 million and $3 million to retire, with another 13% believe that they should have more than $3 million. Meanwhile, another 35% of RIAs say Boomers should have a retirement goal between $1.5 million and $2 million.

Seniors (ages 65+) are the only generation for whom $1 million might be sufficient savings for retirement according to many of the advisers surveyed. Forty-four percent of RIAs said that $500,000 to $1.5 million is a sufficient target for seniors. Only 20% of advisers recommended a savings goal between $1.5 million and $2 million.

Sheryl Garrett, the founder of The Garret Planning Network, an international network of fee-only advisers, said that younger people often have an “illusion of wealth,” in which $1 million sounds like an endless supply of money. But once you take a million dollars and factor in that an 18-year-old might not retire for another 49 years — a conservative annual inflation rate of 3% would place that $1 million at something closer to $4.3 million, Garrett said.

“For the younger age groups, my advice is to not plan on Social Security income,” she said. “It’s kind of like planning on getting an inheritance when you look at your parents and they’re barely making ends meet.”

Garrett also cautioned that when RIAs are looking at what the average American family would need to live on, they are talking about an income that hovers somewhere in the $50,000 range. This does not take into consideration those who are used to living on $75,000 or $100,000. All of the projections also don’t take into consideration the periodic big expense or significant long-term care costs. Garrett said that her parents, who are in pretty good health, still have to spend about $1,000 a month on medical costs.

She said that she looks at four variables of retirement planning — how much we save (or don’t spend); how much return we can get on our investments on retirement; working longer; or dying earlier. Not surprisingly, “dying earlier” is not part of Garrett’s financial planning process.

“Most Americans don’t tend to take much responsibility or accountability for how much influence we have on our spending and how much longer we can work,” she said. “We don’t have much control over our investments—we can come up with a sane asset allocation and see how the markets play out. The real obligation we have is always saving a little something.”