Americans are now looking for a 53% larger nest egg, on average, for retirement. Here’s why.

Northwest Mutual has released its 2024 Planning and Progress Study — and it offers some eye-opening findings on retirement. For example, it found that US adults believe they will need $1.46 million to retire comfortably — a figure 15% higher than the estimate for 2023 and 53% higher than the retirement amount in 2020.

Here’s why there was such a big jump and what the information means you.

Image source: Getty Images.

What happened?

You can probably guess why that required estimate has grown so much in four years: inflation. Inflation has averaged about 3.2% over many decades, but has occasionally been significantly higher or lower than this rate. See the inflation rate of recent years:

Data source: usinflationcalculator.com.

See? In recent years there have been some steep inflation rates. And some categories saw particularly rapid price increases. According to the US Department of Agriculture, “From 2019 to 2023, the Consumer Price Index (CPI) for all foods increased by 25%—a larger increase than the CPI for all items, which increased by 19.2% over the same period “.

People have felt the need at the supermarket and elsewhere, and it makes them want to be prepared for continued steep increases. In the Northwestern Mutual report, 51 percent of respondents cited inflation as among the biggest threats to financial security — ahead of health care costs and personal debt, among other factors.

It’s just an average

Of course, it’s important to remember that the $1.46 million figure above is just an average. We are all different, with different needs and spending habits. And where we live makes a big difference, too. Check out cost-of-living indexes for some American urban areas as of 2024, according to the Community and Economic Research Council — and note that the national average score is 100:

Data source: Community and Economic Research Council.

How much do you need to retire?

All of the above is interesting, but each of us would have to run our own numbers to arrive at an estimate of how much us will have to retire comfortably. A good way to do this is to make a list of all your expected retirement expenses and how much you think they will cost you per month in retirement.

For example, estimate expenses for housing, food, clothing, entertainment, utilities, taxes, insurance, travel, healthcare, and other categories. If it all adds up to, say, $80,000, or about $6,700 a month, you can start thinking about how you’re going to generate that income. Some of it might come from Social Security, but probably not much; the average monthly Social Security retirement benefit was $1,919 in July, worth about $23,000 annually. Even if you’re expecting, say, $36,000 from Social Security, or $3,000 a month, you’ll still need to find another $3,700 in income. That critical retirement income could come from dividends, interest, pensions, a reverse mortgage, or other sources.

It’s smart to read up on retirement withdrawal strategies like the flawed but informative 4% rule that can help you determine how big of a nest egg you’ll need based on your desired income. For example, if you plan to withdraw 4% of your nest egg in your first year of retirement and need $44,000 in income for the year ($80,000 less $36,000 in Social Security benefits), you can multiply that $44,000 by 25 to get it reaches an initial nest egg of $1.1 million.

How to make your retirement nest egg bigger

If you find that you’re behind the ball on saving and investing for retirement, know that you have a few options. A powerful thing is to simply delay retirement for a few years if you can. You’ll be able to stash more money in retirement accounts and have more time to grow for yourself. You’ll also reduce the number of years your nest egg will need to support you.

Delaying retirement is smart when it comes to Social Security, too, because you can boost your benefit checks by waiting to start collecting them. (For most people, the best strategy is to wait until age 70.)

So take the time to create your own retirement plan and figure out how much you he will have to retire.