How much money do you need to retire? We all have different answers to that question, based on our stations in life and our retirement expectations. The recently released Fall 2016 edition of the semi-annual Merrill Edge® Report provides insight into retirement perspectives and the corresponding concerns of one economic segment — "mass affluent Americans" (defined as U.S. households with investable assets between $50,000 and $250,000).
You might think this group would expect to need well over $1 million to live comfortably in retirement. You would be wrong. The majority of households surveyed (56%) think that their retirement needs will be below $1 million. An astonishing 9% of respondents think they will need $100,000 or less.
In addition, another 19% said they simply don't know their "magic number" for retirement, and it's reasonable to assume some of them would estimate less than $1 million in retirement needs. Only 24% said they required $500,000 to $1 million in retirement funds — 14% expect to need from $1 million to $2 million and 9% expect to need more than $2 million.
These values are reasonably consistent with a 2015 survey by the Employee Benefits Research Institute (EBRI) covering a broader economic spectrum. The EBRI study found that 69% of their respondents expected to need less than $1 million for retirement, while 10% expect to require at least $1.5 million in retirement.
Is this realistic? Perhaps it may be, because the very nature of retirement appears to be changing. According to the head of Merrill Edge Aron Levine, past reports have revealed a changing definition of retirement and the newest report "questions if the milestone as we know it today is nearing extinction."
Essentially, millennials expect retirement to be more of a semi-retirement. Survey results show that 83% of millennials intend to work during retirement in some fashion; the direct opposite result from current retirees (83% of whom do not work in retirement). If you plan to work throughout retirement, it stands to reason that you expect to need a smaller nest egg.
The majority of the two preceding generations also expect to work during retirement. 64% of Baby Boomers and 79% of Generation X respondents plan to do so.
The trend toward working in retirement may be a reflection of changing desires, but it also likely has roots in basic insecurity and uncertainty about the economic future. Among all non-retirees, 40% reported that reaching their expected retirement number will be "virtually unattainable" or at least "difficult" — a disturbing finding given that the corresponding expectations are so low.
Younger generations, perhaps burned by the effects of the Great Recession, exhibit a preference for taking matters into their own hands. Half of millennials surveyed think that they will need some form of side job to meet their retirement goals. A 70% majority of millennials characterize their investment approach as "hands-on," as do 72% of Generation X respondents. Millennials are also more receptive to online financial advice and are the most likely to employ a financial advisor in the next five years.
Back to the original question: how much do you need to retire? Have you given your magic number any thought? Why not do so today? Start by going over your retirement goals and expectations to determine your needs. Online calculators are available to help you determine the size of your required nest egg, your expected Social Security benefits, and the amount you will need to contribute toward retirement to meet your goals.
You may still decide that you want to work in retirement — but with some planning today, at least you can have the choice of a traditional retirement or the semi-retirement expected by the millennial generation.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.