For decades, $1 million was the gold standard for retirement saving, the number that meant you'd made it and could now relax and enjoy your golden years. Today, many still see $1 million as the benchmark to measure their progress against. If you're one of those people, I have bad news: $1 million probably won't be enough.
This antiquated figure harks back to the day when workers could expect more support from the government and their employer, and their savings didn't have to last as long. But times have changed, and $1 million just doesn't get you as far today. Here's a closer look at why and how to figure out what you really need.
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The changing landscape of retirement planning in America
Forty years ago, average Americans retired in their early to mid-60s and could expect to live another 10 to 15 years. They saved what they could, but they didn't have to do it all alone. More than 80% of private-sector workers had pensions they could count on, and then there was Social Security. Full retirement age was still 65, so people didn't have to wait as long as they do today to receive their full scheduled benefit per check. Plus, everything was so much cheaper back then.
But things started to change in the 1980s. The government passed several laws that began the decline of the private-sector pension, and it made amendments to the Social Security program that increased the full retirement age, so workers had to wait longer to claim in order to receive their full benefit per check. The amendments also decreased the maximum benefit workers were entitled to if they delayed benefits until 70. At the same time, life expectancy was rising and inflation was reaching new heights, so people had to stretch their dwindling retirement dollars even further.
Today, only 15% of private-sector employees have a pension. Social Security's full retirement age is 67 for most working adults, and its future is more uncertain than ever. The average life expectancy is 78.6, but the Social Security Administration estimates that one in three 65-year-olds retiring today will live past 90 and one in seven will live past 95. That means your retirement savings may have to last 30 years or more if you intend to retire in your early 60s. And we haven't even talked about the biggest wrecker of wealth yet -- inflation. Annual inflation between 1980 and 2019 was 3.09%. That may not seem like much, but if you want the buying power that $1 million had in 1980, you now have to save approximately $3,276,000. That $1 million nest egg isn't looking so good now, is it?