While calculating the amount of money they'll need for retirement, many people seem to be guessing.
A new report from data firm Escalent suggests that the most common way people set retirement savings goals is simply by doing the math 'off the top of their head,' according to survey responses from about 4,000 savers participating in a retirement plan.
Sonia Davis, lead author of the report, said that participants aren't able to grasp how much money is required to live comfortably in retirement until they get really close to making that important transition.
Four out of 10 responders admitted to calculating their retirement savings goal off the top of their head, or without much thought, according to Escalent. Other frequently used methods of determining how much money they will need to retire include using online calculators, consulting a financial advisor, and creating personalized spreadsheets.
The firms also asked savers to estimate the amount of money they'll need in retirement. The answers, predictably, varied widely by age.
Gen Zers - born after 1996 - reported thinking they'd need the least amount: about $500,000. Younger,'Second wave' baby boomers - generally considered to be born between 1956 and 1964 - said they'll need the most, $1.2 million on average. The overall average was around $950,000, a lower reading than many previous surveys.
Americans have been saying they'll need at least $1 million to retire comfortably. A June report by Northwestern Mutual put that price tag at $1.3 million. In an August reading from Charles Schwab, workers expected they'll need almost $2 million.
Retirement savers are prone to external factors, such as inflation and stock market volatility, which can cause them to raise their expectations for how much money they think they'll need to sock away for their golden years.
As Escalent's report suggests, people could just be winging it when asked.
At least a quarter of the survey respondents had the right idea by consulting a financial advisor to help them come up with a tailored figure. If you want to be able to maintain a high standard of living, you can save up between 8 and 12 times your annual salary, and if you're down to 67, a good rule of thumb is to have saved up between 8 and 12 times your annual salary, depending on the standard of living you want to maintain.
Jill Cornfield, 58, has covered retirement for more than 10 years. Money's Terms of Utilization and Privacy Notice are valid and I consent to the processing of my personal information.
Americans are saving more and feeling better about retirement, the report says.
The number of 401 millionaires is up as account balances surge.
All information provided here is accurate as of the published date.