The “magic number” that most Americans believe they need to retire comfortably has dropped by $200,000, to $1.26 million, since last year, despite ongoing economic volatility and recession concerns.
The majority of people believe they need less money to live a happy life after they stop working, according to a new study from financial services company Northwestern Mutual. However, the bad news is that more than half of Americans believe they will run out of savings before they shuffle off this mortal coil.
Retirement planning varies greatly from one person to the next, and often factors in things like when they want to retire, where they will live, and what kind of lifestyle they want to lead. But as a rule of thumb, Northwestern Mutual recommends that people aim to replace around 80% of their pre-retirement income for each year of their planned retirement.
John Roberts, chief field officer at the company, stated that while the “magic number” for comfortable retirement has retreated to 2022–23 levels, possibly due to lower inflation levels, it still remains “far beyond what many people actually saved.”
He added that Americans are now more concerned than in years past about the state of their savings versus their future needs, with the vast majority of people tormented by “financial anxiety.”
The amount that people need to invest each month to reach the $1.26 million goal by the traditional retirement age of 65 heavily depends on when they start saving, according to the “Planning and Progress Study 2025.” The basic idea is that the longer you wait, the more you need to invest.
For example, a 20-year-old would need to set aside about $330 a month toward retirement, while a 30-year-old would need to invest more than double that amount so as not to fall behind. Someone in their 40s would have to save $1,547 monthly, and a person a decade older would be looking at nearly $4,000 in savings per month.
The median household income in the U.S. in 2023 was just over $80,000, according to the latest available U.S. Census Bureau data. Based on that figure, Americans need to have stashed away a staggering 15 times their yearly income to reach the magic number of $1.26 million.
Where are the best places to retire on a budget
Americans who think they have enough to retire but are looking to make their dollars go further can find what they’re looking for in retirement-friendly towns that combine affordability with desirable amenities, such as urban centers and medical facilities, set against the backdrop of pleasant weather.
According to the Realtor.com® rankings of America’s best retirement towns, five cities scattered across Florida, Arizona, and New Jersey stood out for their reasonable median list prices below $406,000 and low prices per square footage.
Sun City Center, FL, was ranked the most retiree-friendly town, followed by Whiting, NJ, and Green Valley, AZ. Another Garden State entry, Manchester, NJ, came in fourth, with The Villages, FL, rounding out the top five.
People investing in the stock market toward their retirement should typically expect 10% annual returns, which would translate to about $126,000 per year for retirees to live on, explains Realtor.com senior economic research analyst Hannah Jones.
With this six-figure yearly income, the general guidance on affordability would suggest that $37,800 per year, or $3,150 per month, could go toward housing expenses. This payment would afford a $460,000 home, assuming the current mortgage rate of 6.62%, a 20% down payment, and a further 1.7% set aside for home insurance and taxes.
“The median home is priced below this level in all of these markets, and buyers can get the most bang for their buck in areas where price per square foot is lowest,” Jones adds, referring to the five most affordable retiree-friendly towns.
The top 5 retirement towns: Get the most bang for your buck
1. Sun City Center, FL
Median list price: $284,950
Price per square foot: $186
The 55-plus community of Sun City Center, just 30 minutes outside Tampa, has jumped to the top spot for retirees looking for somewhere new to settle down. Residents can ditch many of the trappings of their pre-retirement life, including their car and lawn mower.
Sun City Center also boasts lower homeowners association dues than many other places in the state, which lowers the overall cost of living for its residents.
It’s not all sunshine in the Sunshine State. People should be aware of some drawbacks, says Irma Sanabia, a real estate agent with Coldwell Banker.
They include the 55-plus community’s strict age restrictions—something doting grandparents should keep top of mind before they move in.
2. Whiting, NJ
Median list price: $225,000
Price per square foot: $213
Located near the state’s Pine Barrens, Whiting can provide residents with the benefits of an adult community setting where they can still appreciate plenty of wide-open spaces that are lush and green. This is also the perfect spot for anyone who wants easy access to the beach in their golden years without living in the more expensive coastal towns.
Whiting is also centrally located between New York City and Philadelphia.
3. Green Valley, AZ
Median list price: $319,750
Price per square foot: $213
This picturesque community was considered the fourth best place to retire in 2023. Now, it has jumped to No. 2 on our list due in large part to the natural wonders of the area, which include bird-watching at the world-famous Madera Canyon. Outdoor enthusiasts will love Green Valley’s easy access to golf courses, pickleball courts, swimming pools, and hiking trails.
4. Manchester, NJ
Median list price: $405,000
Price per square foot: $246
Manchester Township held on to its fifth-place spot from last year, largely due to its proximity to everything from coastal hot spots to Philadelphia’s center city, which is about 52 miles away.
Retirees in Manchester Township might pay more in taxes—the state has the ninth-highest taxes in the country—but residents also get a lot by way of preserved open spaces and public parks. The quality of life is pretty good, too, with low crime rates and easy access to doctors.
5. The Villages, FL
Median list price: $393,450
Price per square foot: $258
It should be no surprise that another Florida town has made our list for the second year in a row. The Villages is experiencing a bit of a population boom, seeing a 4.7% increase in residents from July 2022 to July 2023. Fortunately, the area is big enough to accommodate the new residents because it spans three counties.
One reason this bustling planned retirement community has become popular is that it has almost everything someone in their second act might desire: more than 50 golf courses, libraries, restaurants, movie theaters, and town squares—all of which are easily accessible by the community’s extensive network of golf cart–friendly roads.
How are different generations approaching retirement?
A cross-generational look at the data reveals that a quarter of Americans of all ages have only one year or less of their current income set aside for retirement; 15% have double their current income; and 12% have triple their income.
Only 9% of survey participants indicated that they have saved more than 10 times their annual income. Among that most financially prepared group, baby boomers (born between 1946–64) led with 18%.
For Gen X (born between 1965–80), many of whom are now inching toward retirement, more than half have just three times their current income or less put away, and the majority of them (54%) believe they will not be financially prepared for their golden years.
Perhaps not surprisingly, more than 50% of study participants believe that they are facing the very real possibility of outliving their savings.
At the same time, over a third of Americans say they have not done anything to improve their bleak retirement prospects.
Young people start saving sooner, want to retire earlier
Overall, working-age Americans say they started saving toward retirement at age 31 and planned to retire at 65.
But a closer look at each generation suggests that Americans are starting to set money aside earlier in life, plan to move up their retirement, and expect to live longer than their parents and grandparents.
Out of all the generational groups, Gen Z (born between 1997–2012) appear to be the most savvy when it comes to retirement planning—and also the most confident about their future, with 63% of them believing they will be financially set when the time comes, the study says.
Members of that group start saving at age 24, with the goal of retiring at 61, and more than a third think it’s likely they will live to blow out 100 candles on their birthday cake.
Jones notes that climbing housing costs could affect the savings rate for young people, but could also explain why more younger households are opting to rent for longer rather than buy, as renting is far more affordable than buying across much of the U.S.
Meanwhile, Gen X has the most negative outlook on their retirement, with a majority of them (54%) saying they do not think they will be ready to retire. That’s significantly higher than baby boomers (44%), millennials born between 1981–96 (46%), and Gen Z (37%).
Even though Americans in their 20s appear to be the best prepared for retirement, they have one major blind spot that could haunt them in their golden years—and that’s prioritizing investment over insurance.
Six in 10 Gen Z and millennials concede that they are too focused on growing their wealth. For comparison, just over a third of baby boomers say they have this problem.
Not your parents’ retirement
When it comes to people’s most urgent questions about retirement, concerns about Social Security and inflation are more pressing than other planning challenges, including outliving life savings, planning for long-term care, managing taxes, and budgeting for health care.
For Gen X, whether Social Security will be available when they need it is nearly as important as how much they will need to retire comfortably. Gen Z’s concern about Social Security is dramatically lower.
Based on the data, about 80% of American adults say their vision of retirement differs from their parents’, and more than a third say they expect their retirement to last 10 years or longer than the previous generation’s.
But many would-be retirees do not expect their golden years to be all about leisure.
Two in 5 Americans say they plan to continue working through their retirement, and that share is even higher for millennials (45%) and Gen X (48%).
The boomer generation is the only one where the majority of respondents say they are not planning to lift a finger during their retirement.
As for why retirees choose to continue working, half of the respondents say they want to feel useful, and 48% say they will need the extra income to survive.
