The wide majority of Americans think they need $1.8 million to retire in peace, according to the 2024 401(k) Participant Study by Charles Schwab. Even if this hasn’t changed much since 2023, it is up from $1.7M in 222.
For many people out there, that figure feels completely out of reach, especially as inflation remains the main obstacle (48%) to saving for a comfortable retirement. Workers cited stock market volatility as the second biggest worry at 36%, which is down from 42% last year.
The study also found out that people expect to retire at age 65 and have their own retirement savings last for a minimum of 23 years if using 401(k) plans to save more.
Retirement goals
On a positive note, workers are more and more confident they will manage to reach their retirement savings goals since 40% of Gen Xers and 50% of Gen Z individuals are still optimistic. Approximately 43% of workers now believe they are highly likely to achieve their retirement savings goals, which is up from 37% in 2023, as the study showed.
Workers feel more optimistic about their retirement prospects, and especially about an improved economic climate that would further boost financial confidence. Moreover, many people expect their 401(k) to be their number one source of retirement, especially amid the uncertainty around when Social Security might run out of money.
With that being said, the most recent report from the program’s trustees shows that the long-term outlook for Social Security has improved a little bit, with the program paying full benefits for 11 more years.
After that, Social Security seems to face quite a significant funding shortfall. The Schwab report also shows that workers within 10 years of retirement could expect to rely quite a lot on Social Security, especially compared to workers who are 11 or more years away from retirement.
Primary retirement income
Workers surveyed still expect 43% of their retirement income to come from their 401(k), as the study showed, while 34% expect to come from their own 401(k) and 9% expect to get it from a partner. That’s really up, especially in comparison to 40% in 2023.
Moreover, most people (92%) seem to pay a lot more attention to how their 401(k) performs, while only 8% (down from 12% last year) had zero idea which investments they held in their 401(k). There’s quite a difference between the amount that most people feel they need to retire and the average 401(k) balances that are held by each and every generation. The average 401(k) balance was $125,900, since March this year, according to Fidelity Investment’s “Building Financial Futures” report and reported by Kiplinger.
The average IRA balance for all ages at the end of the second quarter of 2024 was $129,200. That’s really up 14% from 2023, according to Fidelity Investments. IRA balances have also shown a wide gap between generations and what they require to retire comfortably.
In the end, when we add the total average balances for 401(k) and IRA accounts, we also notice that baby boomers have amassed $478,400. That’s not really chump change, but it’s still far from the goal of $1.8 million.
Even so, changes are expected to come to both 401(k)s and IRAs in 2025, which could imply more money in your pocket at retirement. We made a list of the average 2024 401(k) and IRA (second quarter) balanced by age based on Fidelity data.
- Gen Z – born between 1997-2012/ age 12-27 – average 401(k) balance: $11,300 – average IRA balance: $6,100 – Total 401(k) and IRA balance: $17,400
- Millennials – born between 1981-1996/ age: 28-43 – Average 401(k) balance: $59,800 – average IRA balance: $22,600 – Total 401(k) and IRA balance: $82,400
- Gen X – born 1965-1980/ age: 44-59 – average 401(k) balance $241,200 – average IRA balance: $94,100 – Total 401(k) and IRA balance: $252,600
- Baby Boomers – born 1946-1964/ age 60-78 – average 401(k) balance $241,200 – average IRA balance: $237,200 – Total 401(k) and IRA balance: $478,400
Roadblocks to saving
As inflation and stock market volatility, as well as a scary rise in the overall cost of living, there are increasingly more reasons to be concerned. On top of that, a new series of worries emerged in 2024, like:
- meeting monthly expenses (35%)
- remaining up to date with monthly expenses (32%)
- paying down debt (27%). That figure is also up from 24% last year
- paying for their children’s education (21%)
Challenges for 2025
In 2025, many of the same issues and worries persist. Even if inflation has dropped considerably from a high of 7% in 2021 to 2.6% today, it is still a matter of concern for many people trying to get by on a fixed income.
On top of that, the prices of many household goods still shake up our finances. For example, the average price of a gallon of milk is $4.04, a dozen eggs could set you back $3.37, and ground beef is still at an all-time high of $5.59 a pound, according to the CBS Price Tracker.
The price of a gallon of gas, car insurance, high utilities, and rent make paying down debt difficult. Moreover, the state of the economy has plenty of people wondering if buying a home, much less reaching that $1M goal, is still a huge part of the American dream. That’s exactly where a financial planner could help.
Investing in their future
Increasingly more people (61%), up from 55% last year, declared that they need the help of a professional with financial planning for the future. Most of them, meaning 61%, are quite comfortable using artificial intelligence tools such as ChatGPT for help, even if most of them prefer the advice of a professional human (60%), over a computer program, as the study showed.
According to Marci Stewart, director of client experience at Schwab Workplace Financial Services, “both serve a purpose.” He also added that “people start digitally since they can be anonymous, and there’s also no judgment if you haven’t been doing what you think you should.”
As far as money is concerned, there’s still a source of trust for financial advice. They also want reliable sources, even if they also check out social media and other tools.
How do you want to live in retirement?
All these things are worth questioning. Do you expect your expenses to go down when you retire? Well, we call that a below-average lifestyle. Or, do you plan to spend as much as you do now? That’s also average. If you expect your expenses to be more than they are now, then we can start talking about above average.
Let’s take some hypothetical investors who plan to retire at 67. For example, Joe is planning to downsize and live frugally in retirement. Hence, he expects his expenses to be much lower. His savings factor could also be closer to 8x than 10x.
Elizabeth, on the other hand, plans to retire at 67 years old, and her goal is to keep her lifestyle in retirement. Her savings factor is 10x. Sean, on the other hand, sees retirement as a new opportunity to travel wherever he pleases, so it could make sense for him to save more and plan for a higher level of retirement spending. His savings factor is 12x at 67 years old.
There are two things you need to consider: when you plan to retire and what kind of lifestyle you want to have. Then, there’s also the question of what should be done if you feel you are a bit behind.
If you’re under 40, for example, the simplest answer is to save more and invest for growth through a diversified investment mix. Naturally, stock could come across as a roller coaster compared to bonds and cash, so you might have to be comfortable with such risks.
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