Guest Post by Peter Reagan

The average American needs $1.26 million to retire comfortably – but most have saved only a fraction of that. Inflation isn’t going away, Social Security won’t be enough, and the future will favor those who plan wisely – here’s how…

Baby boomers may already be into their retirements, but Generation X isn’t quite there yet. They are, however, edging ever closer to their last day of “work.”

Because of this, retirement planning and retirement figures are more-and-more on their minds.

It’s completely understandable. No one wants to reach retirement and not have the funds to live comfortably (whether you’re Gen X, Millennial, Gen Z, or younger)..

So, of course, coming up with a figure to save towards and a plan to get there are major parts of the whole retirement planning process (you are already doing both of those things, aren’t you?).

Which brings us to the first big question:

How much do you really need to retire in comfort?

That’s the million dollar question, isn’t it?

Well, it used to be… Yes, I’m being a little sarcastic. The goalposts just keep moving – in the right direction, for once!

For 2025, the “magic number” to retire comfortably is down to an average $1.26 million, a $200,000 drop from the $1.46 million reported last year, according to a new study from Northwestern Mutual…

That number went down – which is great news! In fact, for as long as I’ve been working with Birch Gold, this is the first time I can ever remember that magic number coming down (back in line with 2022-2023 estimates). That’s progress!

On the other hand, one and a quarter million is a lot of money. Unlike an emergency fund, or even a downpayment on a home, it’s not an easy amount to set aside. Especially when you consider how much the average American takes home…

Which is “only” $59,384. (The average household income is a slightly higher $80,000.) This means the average American will need to save every penny they earn for over 21 years to save enough to retire comfortably!

“Every penny” meaning none of it going towards taxes – let alone living expenses like food, utilities or housing. Vacations? Your kid’s college fund? Date night? Forget it.

Obviously, that’s easier to accomplish if your income is above average. Whether or not, that’s quite a lot to save.

Don’t get discouraged, though – there’s more good news.

Fortunately, most people have some savings

I’ve spent a lot of time writing about the American retirement crisis. Personal finance topics, too – how Social Security’s running on fumes. The importance of an emergency fund, the savings account illusion and wealth preservation strategies. I’d like to think I’m making a difference!

Unfortunately, despite my hundreds of articles, millions of words written on these crucial subjects, most people haven’t saved enough. Not even close:

The average 401(k) balance was $131,700 in the fourth quarter, while the average IRA balance stood at $127,534, according to Fidelity.

That’s a little over two years of gross income – it’s real progress! And it’s set aside in retirement savings accounts, not more accessible places like bank accounts or stashed under the proverbial mattress.

On the other hand, the average American has saved just one-tenth of the retirement savings they know they’ll need!

One-tenth.

If you knew that you were in that situation, wouldn’t you be concerned? Of course you would! In fact, many Americans are very concerned about this. :

Even after lowering the bar, more than half, or 51%, of Americans in Northwestern Mutual’s study expected to outlive their savings. Just 16% said that outcome would be “very unlikely.”

HALF of our fellow Americans expect to run out of money in retirement. Half.

And while having some money saved and invested is a good thing and far, far better than nothing, these figures are only the beginning.

The “magic number” will keep changing

Most financial planners and analysts work under the assumption that, on average, inflation will run about 2% per year. That’s built into their assessments of how much we should set aside today to retire years or decades in the future.

Unfortunately, that’s totally wrong. I looked at the numbers – since the establishment of the Federal Reserve, inflation has averaged 4% annually (even after the official inflation calculations were “improved”).

And what will inflation mean for Americans who want to retire? Well, it’s a little more complicated than just changing a single number in your spreadsheet. The Center for Retirement Research at Boston College had explains:

Older households have just had a sharp reminder that inflation may not be stable throughout retirement.  Experiencing a bout of high inflation later in life is generally harmful to financial well-being, but, as expected, the impact varies depending on the household’s specific financial profile: the extent to which income and assets grow with (or lag) inflation, and the amount of debt outstanding.

That’s right, because retirees are much more likely to be on a fixed income, they’re hit much harder by inflation. Inflation, the tax that nobody voted for and everybody pays, permanently destroys purchasing power.

Social Security’s cost-of-living adjustments (COLAs) don’t keep up – not only are they backward-looking, they’re based on deliberately flawed measurements.

Okay, so, to recap:

• You need about $1.25 million to retire (now)
• Most Americans just don’t have enough – and never will
• The magic number will keep changing thanks to inflation
• Social Security won’t help as much as you think

Let’s get back on track and talk about what we can do.

So, how much do you really need for retirement?

We hear that question a lot. And the best answer, for most people, boils down to, “More than you have now, a lot more.”

Unlike almost everything else in our lives, saving for retirement just isn’t something you can overdo.

If you’ll recall, I’ve talked before about Fidelity‘s benchmark savings levels by decade:

• 3x your annual income by age 40
• 6x your annual income by age 50
• 8x your annual income by age 60
• 10x your annual income by age 67

Even though this is just a generic guideline, it gives us a starting point… Do you have that much set aside now?

Probably not. Don’t feel bad – most of us are in the same boat.

Don’t let yourself fall into the obvious trap, either – the easiest way to fix a shortfall in your savings is overestimating long-term growth. “I’m such a great investor that I can count on 20% growth every year…” 

That’s tempting, isn’t it? And if you’re anything like me, it’s very tempting to “solve” this problem by fudging the numbers. That’s not the right solution! The federal government didn’t “fix” the inflation problem by fudging the numbers, they just covered it up.

But it’s impossible to predict future growth. The closest we can come to a crystal ball is a history book… Over the last half century, global economic growth has averaged 3.4% (after inflation). For that reason, I believe it’s reasonable to forecast our savings to grow at a maximum of 3.4% per year. I just don’t believe it’s responsible to think I, or anybody else, can beat the average consistently over the decades.

So, what is the real solution?

Saving your retirement starts here

The first part of the solution has to do with being aggressive, really aggressive, with your retirement savings if you’re behind what you need to have at your current age.

If that is your situation, then, your first job is to find ways to save more money, a lot more money, so that you can invest it to have a secure retirement. After all, we can’t make asset prices go up, but we can do our best to increase our income and to save more of it.

Along that same line, you may want to consider saving more than you think that you’ll probably need. That way you have a much better chance to make your savings last even if we see another “lost decade” of stagflation between today and your first day of retirement.

The best case scenario if you save aggressively is that inflation won’t be nearly that bad, and you’ll have the funds to finally take that once-in-a-lifetime trip during your retirement.

The second part of the solution is to diversify your savings. You want to be so thoroughly diversified that, no matter what happens in the years ahead – a new golden age, the next great depression or anything in between – you’ll have assets preserve and grow your wealth. Ideally you’ll include inflation-resistant investments as well as safe haven stores of value to get you through the bad times. And plenty of economically-sensitive assets that only grow during booms.

Diversification means no matter what happens, you’re still winning.

As central banks continue unprecedented money creation, protecting your purchasing power becomes critical for retirement security. Physical gold IRAs offer a tax-advantaged solution, allowing you to hold tangible precious metals with intrinsic value independent of currency fluctuations. To learn more about how physical gold could help protect your retirement portfolio, click here to get your FREE info kit on Gold IRAs from Birch Gold Group.