» Retirement Crisis Update: Amount That Americans Say They’ll Need to Retire Jumps 20% in a Year

Retirement Crisis Update: Amount That Americans Say They’ll Need to Retire Jumps 20% in a Year

Isaac Nuriani |

Nov 4, 2022

Inflation and economic volatility have wreaked havoc on retirement planning this year
Amount that retirement savers say they’ll need to retire comfortably has jumped 20% in a year

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Inflation has been significantly elevated for a year and a half. And since the end of 2021, it’s been stuck at or near four-decade highs. Many of the consequences you’d assume would result from high levels of persistent inflation have indeed come to pass.

For example, the percentage of American households struggling to make ends meet has been steadily rising.[1] So has the number of Americans living paycheck to paycheck.[2] The number of Americans working multiple full-time jobs reached an all-time high in August and is just below that figure right now.[3]

Retirement savers, in particular, have seen their fortunes change significantly over a relatively short period. High inflation has forced savers to limit or altogether suspend contributions to retirement plans.[4] More generally, household wealth has taken a severe beating this year amid heightened economic volatility cued by the Federal Reserve’s effort to rein inflation in with higher interest rates. In fact, some estimates put the loss of household wealth at as much as $10 trillion in 2022.[5]

Given these developments over the last 12 to 18 months, the findings of Northwestern Mutual’s most recent Planning & Progress Study are not a surprise – but they are worth noting.

Among the more revealing pieces of information to emerge from the study is the amount Americans now say they’ll need to retire comfortably: that figure jumped a whopping 20% from last year to this year.

That’s just one piece of telling information revealed by this year’s study.

We’re going to look closer at some of the more relevant numbers to see what they mean. But, already, one thing seems clear: The fallout from the current economic environment is likely aggravating the American retirement crisis that’s been evolving for decades.

I’ve spoken before about the retirement crisis. The term refers to the simple yet stark mathematical reality that Americans have saved a lot less than they’ll need to retire. One estimate puts the total shortfall in retirement savings at slightly more than $7 trillion.[6] And that figure predates the events of this year.

Results of the 2022 edition of the Northwestern Mutual Planning & Progress Study are worth a closer look, in my opinion, because they underscore just how quickly the retirement crisis may be worsening. Normally, these kinds of annual surveys reflect changes at a more incremental level year to year. But the magnitude of the changes evident in this year’s results reveals just how disruptive this economy has been to the efforts of savers who are trying to ensure financial viability in retirement.

By implication, they also emphasize the importance of implementing strategies to help limit the impact of these disruptions on retirement accounts. Before I close out this week’s article, we’ll look at one strategy that some savers might consider useful.

There’s a fair bit of information to go over this week, so let’s get started.

Retirement Account Balances Are a Mere Fraction of What Americans Say They’ll Need

When Northwestern Mutual conducted the 2021 edition of its Planning & Progress Study, headline inflation in the U.S. was at 2.6%.[7] At that time, survey respondents said they would need $1.05 million to enjoy a comfortable retirement.[8]

When Northwestern Mutual conducted its 2022 edition of the survey, headline inflation was 7.9% – more than three times higher than it was at the time the 2021 survey questions were asked.[9] And this time survey respondents said they would need a lot more money to retire comfortably: $1.25 million…a 20% increase over the previous year’s figure.[10]

A 20% increase in just one year is an enormous jump. It speaks volumes about the impact retirement savers believe the past year has had on their projected financial viability.

That said, even as big as this one-year jump is, it still may be well short of the amount ultimately required for the secure retirement that savers are seeking. Even if annual inflation were to average a mere 3% over the next 20 years, it would reduce the purchasing power of a nest egg by nearly half in today’s dollars.[11] And there’s a growing number of forecasts that say inflation over the long term could be every bit of 3% or more.[12]

Not only do savers believe they’ll need considerably larger account balances by the time they retire, the study revealed another antagonizing factor: Those same savers are contending with sizable drops in the current value of their nest eggs.

According to the survey results, the average size of Americans’ retirement savings sank 11% from last year – dropping from $98,800 in 2021 to $86,869.[13]

In addition to demonstrating the impact of recent economic volatility on retirement accounts, this particular piece of data illustrates something else: Just how woefully behind their “target” retirement figure Americans actually are. It’s clear why there’s a retirement crisis to begin with – average account balances aren’t even 10% of the amount that Americans say they’ll need when it’s time to stop working.

And if you think that $86,869 figure is skewed by younger survey respondents and not representative of Americans nearing retirement age, think again. According to a study conducted by Vanguard, the median retirement account balance of those aged 55 to 64 is just $89,716 – very close to the average retirement account figure reported by Northwestern Mutual.[14]

There’s something else: Even though the results were published recently, the 2022 edition of the Northwestern Mutual survey was conducted back in February…one month before the first rate hike of this tightening cycle and prior to the bulk of the economic volatility we’ve experienced this year. In other words, it’s reasonable to consider that the noted average retirement account balance might even be lower if the survey had been conducted more recently. For that matter, the figure that savers would say they’d need to comfortably retire might be even higher than $1.25 million if the survey was conducted later in 2022.

Those details aside, these two pieces of information still make it abundantly clear that the pressures on retirement savers – already substantial thanks to the challenges posed by a longstanding retirement crisis – are mounting quickly.

Adding to the urgency of the situation is the continued deterioration in the condition of Social Security – a reality clearly not lost on survey respondents.

Nearly Half of Survey Respondents Say Social Security Could Be History

It’s almost impossible to understate the role that an at-risk Social Security program could play in exacerbating the retirement crisis. And it’s clear that survey respondents have real concerns about the long-term viability of Social Security.

In fact, 45% of respondents said they can imagine a time when Social Security no longer exists.[15] At first glance, it appears a rather stunning figure. But the assessment actually seems reasonable when you consider the relevant Social Security trust fund’s fast-track toward depletion.

According to the most recent data, Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will have the ability to pay scheduled benefits for just 12 more years. After that, ongoing tax revenue will be able to cover just 77% of scheduled benefits.[16]

Given the importance Social Security has come to have in the financial sustainability of America’s seniors, the consequences of such a big drop in benefits would be dire, to say the least.

“Social Security is the major source of income for most of the elderly,” notes the Social Security Administration (SSA). Currently, nearly 90% of Americans aged 65 and older are receiving a Social Security benefit.[17]

Making a potentially terrible Social Security situation even worse is this bit of information: We’re about to see a wave of people transitioning to the Social-Security-eligible age bracket. According to SSA, the number of Americans 65 and older will jump from 58 million to 76 million by 2035. That’s a 30% increase in just the next 13 years.[18]

It remains to be seen what – if anything – will be done to shore up Social Security between now and then. In light of the growing stresses on the nation’s fiscal outlook by a fast-rising national debt – something I wrote about recently – it’s difficult to imagine a meaningful, lasting solution to the Social Security dilemma that doesn’t eventually include a significant benefit cut. That may not be the equivalent of Social Security’s disappearance altogether, as 45% of the Northwestern Mutual survey respondents suggest is possible – but for the large number of Americans who are so dependent on the benefit, it may not feel much different.

And so, it seems, the retirement crisis remains in full effect. Not only that, events of the last year and a half likely made it a lot worse, as evidenced by key data from Northwestern Mutual’s Planning & Progress Study 2022.

10 Years After: By 2018, Retirement-Age Savers Still Had Not Recouped Wealth Lost in the 2008 Financial Crisis

Consider the following:

10 years after the 2008 financial crisis, neither the “Silent Generation” – Americans born between 1928 and 1945 – nor Baby Boomers (born between 1946 and 1964) had fully regained the wealth they lost.[19]

10 years later. Depending on the age of an impacted person, the negative implications could be nothing short of life-changing.

The fact that so many older Americans still had not recovered what they’d lost in the financial crisis even 10 years after the fact is an important reminder of why taking steps to hedge one’s retirement savings is every bit as important as positioning that savings for growth.

In order to effectively hedge against economic uncertainty, however, savers need to be sure they’ve included among their holdings those assets that have the potential to strengthen in the face of that uncertainty. Precious metals are examples of such assets.

I’ve detailed numerous times how both gold and silver thrived during recent and high-profile periods of economic upheaval. I again will mention two of those occasions. As events of the 2008 financial crisis played out and fallout lingered, gold and silver rose significantly. From December 2007 to December 2011, gold increased roughly 125% and silver jumped 140%. Both metals also surged in 2020 as the global economy suffered the worst effects of the pandemic. During that year, the price of gold climbed 25% while silver grew roughly 50%.[20]

Overall, the results of the Northwestern Mutual survey suggest a further intensification of the retirement crisis. In real time, we’re seeing savers’ expectations grow while their resources dwindle. And these changes are moving the needle further in the direction of financial fragility.

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[1] Jessica Dickler, CNBC.com, “66% of American workers are worse off financially than a year ago due to inflation, report finds” (October 19, 2022, accessed 11/3/22).

[2] Jessica Dickler, CNBC.com, “63% of Americans are living paycheck to paycheck — including nearly half of six-figure earners” (October 24, 2022, accessed 11/3/22).

[3] Federal Reserve Bank of St. Louis, “Multiple Jobholders, Primary and Secondary Jobs Both Full Time” (accessed 11/3/22).

[4] Sarah O’Brien, CNBC.com, “54% of adults say they have stopped or reduced their retirement savings contributions due to inflation, study shows” (October 28, 2022, accessed 11/3/22).