their lifestyle in retirement , so they need a lot of their assets to support those needs . At the same time , he says , his clients with $ 500,000 in savings will never touch their assets because they have pensions and Social Security and they live a lifestyle where they don ’ t spend as much . They look at their assets purely as a legacy for their kids . “ It really comes down to what kind of a lifestyle they are used to and what their goal is around their assets .”
He believes the arbitrary $ 1 millionplus figure that respondents say they need for retirement could well be an aspiration for the average earner who might have an income of $ 50,000 . “ Those people are honestly just getting by and that ’ s the vast majority . They are just attempting to scrounge and save whatever dollars they can into a retirement plan . So I think it ’ s one of those things where $ 1 million is an aspirational number ,” he says .
On the other hand , he notes that some people with a higher than median income think they need $ 1 million or $ 2 million . But those people , he says , represent a small fraction of the population , maybe 10 % of America .
Even so , the surveys posing the question “ How much do you think you are going to need for retirement ?” are taking the wrong approach , because the average reported number sends the wrong message and “ does not tell you anything about what you should be doing so you could retire successfully ,” says David Blanchett , managing director and head of retirement research at PGIM DC solutions .
“ Part of me feels like some of these surveys are almost like an arms race . You see $ 1.2 million , you see $ 1.8 million and , sure , next year we ’ ll see $ 2 million , and the next year we ’ ll see $ 5 million and whatever else it is ,” Blanchett says . “ I just worry it ’ s an inaccurate representation of what most Americans need to retire .”
He prefers to focus on factors such as age , lifestyle and how much income one will need outside of pensions and Social Security benefits . The average person , he stresses , has “ significantly less ” than $ 1 million in retirement savings , but he stresses that this does not mean that you cannot have a good retirement .
An Old Argument
Back in 2006 when the first baby boomers were turning 60 , former Esquire editor Lee Eisenberg authored a personal finance book called The Number : What Do You Need for the Rest of Your Life And What Will It Cost ? For a certain generation contemplating a still-distant retirement at that time , the question made sense as a conversation piece . Today , with retirement becoming a reality for more people , there ’ s immediacy involved .
Another September report about retirement , this one by Goldman Sachs Asset Management , found that 39 % of working baby boomers and half of Gen Xers report having less than $ 100,000 saved for retirement .
“ The key is to start saving when you can and kind of figure out things as you go .”
— David Blanchett
Blanchett adds that it ’ s good to have a goal so you can replace your pre-retirement income when you stop working . And while he says many people are unable to save because , well , life happens , it doesn ’ t mean they won ’ t have a great retirement .
“ It might just mean you remain the same way before you retired ,” he says . “ It might require some sacrifices and possibly some changes , but the key is to start saving when you can and kind of figure out things as you go .”
Surveys touting a so-called magic number for retirement should be approached with caution because they frequently are about getting clicks , say Blanchett and others . “ They really get traction ,” he adds . “ It ’ s pretty clear if you throw out a big number , it gets a lot of coverage .”
Power said this about the big numbers , “ I mean , they are fun to look at and they make the reader think about their own position , but I think the important thing is the number doesn ’ t really mean much .” He added that how you live in retirement is a matter of personal preference .
For example , Power said , someone believing they can live comfortably on $ 75,000 a year might sound crazy . Yet that ’ s doable with proper planning , especially if you don ’ t have a mortgage . The other key factors would include where you live and the cost of living in that city or town .
Power , however , acknowledged that $ 75,000 might not work so well in highcost areas such as suburban Boston , where he resides . “ But you never know ,” he said , citing a friend who has lived comfortably in the Villages , Fla ., on about $ 45,000 a year for almost a decade .
“ He had Social Security and a little bit of a pension , and he drew money from savings , which covered all his needs ,” Power said . This friend had paid off his mortgage , “ owned a car , paid his bills , had folks providing services to him , and he went out to dinner and did stuff ,” Power said . “ Life was not terrible at all .”
And though Power said it might be a little harder today to emulate the lifestyle his friend lived given the price of a home and other living expenses in Florida and elsewhere , “ conceptually , the idea is not vastly different .”
Savers should focus on how much they are going to get in guaranteed income from Social Security and / or a pension and / or an annuity , and how much they have to save to be able to draw on a monthly , quarterly or annual basis to supplement that income , Power said . “ That is the number you ’ ve got to work through .”
To get there , Cirksena suggests working with a retirement planning specialist . “ Not your everyday financial advisor and not necessarily a firm that works with everybody whether they are 30 years old or 50 years old and have $ 10,000 or $ 10 million ,” he says .
“ Go sit down with somebody that specializes in retirement planning [ because ] that is going to be tailored specifically to you and your life and your lifestyle ,” he says . “ So it ’ s not going to be some arbitrary number .”
DECEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 49