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When it comes to living and retiring comfortably, Americans have some big numbers in mind for what they will need.
Blame high inflation, which peaked at a rate of 9.1% over the preceding 12 months in June 2022, according to consumer price index data.
While the pace of price increases has subsided since then — with the CPI up just 3% from a year ago as of June — surveys show many Americans feel they’re falling short of what they need to get by.
To feel financially secure or comfortable, Americans feel they would need to earn $233,000 on average, a recent Bankrate survey found. But to feel rich, respondents said they would need to earn $483,000 per year on average, the June survey of more than 2,500 adults found.
“Inflation is the main reason why Americans feel like they need to earn so much more than they already are just to feel comfortable,” said Sarah Foster, analyst at Bankrate.
Meanwhile, to retire comfortably, Americans have another big number in mind — $1.27 million — according to recent research from Northwestern Mutual. That is an increase from $1.25 million cited last year, according to the firm’s recent survey of more than 2,700 adults.
The fact that retirement expectations are changing is not surprising, due to higher living costs, according to Alap Patel, a Chicago-based wealth management advisor for Northwestern Mutual. As people approach retirement, they’re realizing it’s not just how expensive things are now, but how much more costly they may be during retirement — a life phase that could last as long as 40 years, he said.
The higher expectations Americans have speaks to the scars high inflation may leave on Americans’ wallets, according to Foster.
“Really getting inflation down to that more optimal level is half the battle,” Foster said. “Recovering from it might take even longer.”
Rather than get overwhelmed by big number goals for their salaries or retirement nest eggs, Americans may benefit from keeping two key things in mind.
1. ‘Take small steps,’ and invest consistently
The No. 1 financial regret is not saving for retirement early enough, separate Bankrate research recently found.
There’s a reason for that. Compound interest lets you earn money on the interest you earn. Over years of investing, that can make you substantially wealthier.
But taking time out of the market may result in substantial losses, according to Foster, who found investors in their 20s who take a three-year break from investing may lose almost $200,000 in earnings, assuming $200 per month in contributions and an 8% annual return.
While inflation may make saving for retirement feel more strenuous, it’s important not to give up altogether, she said.
“Take small steps, and don’t put so much pressure on yourself to max out your 401(k),” Foster said.
If you’re able to max out your company’s match, that’s something worth celebrating, she said.
“It’s all about making sure you find ways to fit all of these goals in within your budget,” Foster said.
2. Live within your means
Budgeting always requires a tradeoff, according to Patel — how much you’re spending versus how much you’re saving.
As your income goes up, it may be tempting to upgrade your lifestyle and monthly costs. But that will also increase the amount of income you need to replace in retirement, Patel noted.
Consequently, he advises clients to put themselves in a position where they’re saving enough to be on pace for retirement. After that, they can spend money guilt-free.
To know you can retire with confidence, it helps to get a professional opinion.
“Working with a financial planner to better define what that means for you is very important,” Patel said.
For example, whether you’re retiring at age 55 versus 70 will make a big difference in how much money you will need.