- Studies show that Americans have higher expectations when it comes to what they earn and what they save.
- Experts say there are some helpful tips to keep in mind as rising inflation prompts an increase in those lofty targets.
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When it comes to living comfortably and retiring, Americans have big numbers on their minds about what they want.
This is due to high inflation over the past 12 months, peaking at 9.1% in June 2022, according to consumer price index data.
The pace of inflation has slowed since then, with the CPI up just 3% year-on-year as of June, but surveys show many Americans feel they lack the necessities of life.
Americans say that to feel financially secure or comfortable they must: Average income is $233,000, according to a recent Bankrate survey. But a June survey of more than 2,500 adults said respondents needed to earn an average of $483,000 a year to feel rich.
“Inflation is the main reason Americans feel they need to make so much more just to be comfortable,” said Bankrate analyst Sarah Foster.
Meanwhile, a recent survey by Northwestern Mutual found that Americans have another big number in mind for a comfortable retirement: $1.27 million. That’s up from $1.25 million last year, according to the company’s recent survey of more than 2,700 adults.
The fact that retirement expectations are changing due to rising costs of living is not surprising, according to Chicago-based Northwestern Mutual wealth management adviser Arup Patel. As retirement approaches, he said, people are starting to realize not just how expensive things are now, but how expensive they can be when you retire — a stage in life that can last as long as 40 years.
Foster said Americans’ high expectations speak to the scars high inflation may leave on their wallets.
“If we can actually bring inflation down to a more optimal level, then half the battle is over,” Foster said. “It may take longer to recover from that.”
Rather than being overwhelmed by big number goals like salary and retirement funds, Americans may benefit from keeping two important things in mind.
Biggest financial regret Not saving enough for early retirementanother recently discovered bank rate study.
There’s a reason for that. Compound interest allows you to earn money from the interest you earn. Investing for many years can get you pretty wealthy.
But leaving the market can cost a lot, Foster said, with investors in their 20s taking a three-year hiatus from investing could lose nearly $200,000 in revenue, assuming $200 monthly contributions and an 8% annual return.
Take small steps and don’t put too much pressure on yourself.
Inflation may make retirement savings more difficult, but it’s important not to give up completely, she says.
“Take small steps and don’t put too much pressure on yourself to maximize your 401(k),” said Foster.
If the company can maximize its competitiveness, it’s worth celebrating, she said.
“It’s important to make sure we find a way to keep all of these goals within budget,” said Foster.
Budgeting always involves tradeoffs, says Patel. amount spent and amount saved.
As your income increases, you may want to upgrade your lifestyle and monthly expenses. But that will mean more income you’ll need in retirement, Patel said.
That’s why he advises clients to put themselves in situations where they can save enough to match the pace of retirement. Then you can spend your money guilt-free.
Getting an expert opinion can help you know if you can confidently retire.
“It’s very important to work with your financial planner to better define what that means to you,” says Patel.
For example, whether you retire at 55 or 70 makes a big difference in your financial needs.