The amount of money investors believe they need to retire has increased dramatically and is exceeding the current pace of inflation, according to Northwestern Mutual.

The so-called magic number that investors say they need to retire is $1.46 million based on the responses from more than 4,500 adults who participated in Northwestern Mutual’s 2024 Planning & Progress Study. That number represents a 15% increase over last year’s report, which was about $1.27 million.

The amount has increased 50% since 2020, which the company calls significant. While inflation has risen almost 5% every year in that time, the amount investors believe they need to retire has been outpacing it, the firm said.

“That magic number has grown significantly higher than just inflationary adjustments,” said Loren Hsiao, partner and private wealth advisor for 22 One Advisors, a Northwestern Mutual Private Client Group, based in Dallas. “I have to imagine there is a little bit of a gut reaction to some of the last few years [and] just a lot of uncertainty.”

In the four years that the magic number has increased, the nation has faced a pandemic, geo-political turmoil, rising interest rates, inflation, and the ongoing threat of a recession.

“I gotta think that all those specific headlines play a little bit of a role and a little bit more of a tense answer, which drives that magic number to a higher growth than just inflationary adjustments,” Hsiao said.

Even though investors believe they need more to retire comfortably, the study found that their overall savings has dropped. The average amount that U.S. adults have saved for retirement dropped to $88,400 this year from $89,300 in 2023 and it is more than $10,000 off its five-year peak in 2021, the study found.

There are a couple of reasons for this shift, according to Hsiao. One is about extra expenses investors are contending with, including rising housing prices, inflation and student loan payments restarting after they were paused during the pandemic.

“On one hand there are real economic conditions that have caused our investors to just save less than they were before,” he said. “Those are real elements they have to contend with.”

However, that is not the case for everyone as there are still those who can save but don’t. In those instances, they are spending their money in less productive ways to satisfy immediate needs and not long-term goals, he said.

“There is a consistent trend of people who can save, but they just don’t do it because there is the siren call of consumerism in terms of impulse purchases,” Hsiao said.

The younger generations appear to be taking their retirement more seriously at a younger age than the older generations, the study found. For instance, the average age that Americans began to save for retirement is 31. However, those in Generation Z who responded said it was 22 compared to the baby boomer and older generations that said it was 37. 

Millennials said the age to start saving for retirement is 27, while members of Generation X said it was 31. 

Finally, millennials and Generation X plan to work until 64 and 67, respectively, the survey found. The average age most people expect to work is 65, according to the study.

With costs rising and investors’ expectations of what they need to retire increasing, those are the times that a financial advisor needs to step in to help their client get through it. They can encourage their clients when things are difficult, act as a cheerleader when the client achieves certain milestones, and serve as an academic who can educate the client on financial products and strategies that will help them achieve their goals, according to Hsiao.

“If you can marry and tie those three things together of the encourager, the cheerleader, and the academic, that’s going to be a significant benefit to the client,” he said.