A significant number of young Americans are optimistic about retiring as millionaires, with the belief that they need to save over $1 million for retirement, according to Northwestern Mutual’s 2023 “Planning and Progress Study.” The study, based on 2,740 online interviews of U.S. adults over 18, reveals variations in the perceived retirement savings needs across age groups. Those in their 20s estimate needing around $1.2 million, while those in their 30s and 40s believe they’ll need approximately $1.44 million and $1.28 million, respectively.
However, the study also indicates that just over half of respondents feel financially prepared for retirement, highlighting the importance of personalized financial planning based on factors like location, post-retirement work plans, and healthcare expenses.
For those aspiring to set an ambitious retirement goal of $5 million by age 67, the calculations for monthly savings are based on different starting ages (21, 25, and 30) and annual rates of return (5%, 7%, and 9%). Additionally, it calculates the annual salary required to achieve this goal while saving either 10% or 15% of income. These calculations offer insights into the financial commitment needed to reach substantial retirement savings.
Starting at age 21, earning a 5% annual rate of return requires monthly savings of $2,324, with an annual salary needed between $185,942 and $278,899 to meet the 10% or 15% savings target. For a 7% annual return, the monthly savings decrease to $1,226, with required annual salaries between $98,064 and $147,089. With a 9% annual return, the monthly savings further reduce to $616, with required annual salaries between $49,312 and $73,964.
Similar calculations are provided for starting at ages 25 and 30, illustrating the impact of starting age and return rates on the required savings and annual salary targets.
It’s important to note that these calculations are based on certain assumptions and do not account for unpredictable life events or market fluctuations. Nevertheless, the analysis serves as a reference for individuals considering ambitious retirement savings goals and the associated financial commitments. Additionally, the importance of starting early to leverage compound interest is emphasized to maximize the impact of investments over time.
