Retirement Savings Targets Debunked: Evidence Lacking for $1.46 Million Nest Egg

The commonly cited figure of $1.46 million in retirement savings needed for financial security is implausible and not supported by evidence, argues Andrew G. Biggs in a recent Wall Street Journal opinion piece. Biggs contends that data from the Federal Reserve's Survey of Household Economics and Decisionmaking shows most retirees aged 65-74 report being 'doing OK' or 'living comfortably' financially, despite having much lower levels of savings, often less than $100,000.

According to the survey, the average American has only saved $88,400 for retirement, far below the theoretical $1.46 million target. Biggs suggests that Social Security benefits, declining spending in retirement, and reduced expenses from no longer supporting children contribute to retirees needing less savings than commonly assumed.

The article dismisses other retirement savings rules of thumb, such as Fidelity's guideline that households should have savings equal to 10 times their final salary before retiring. Biggs argues these figures serve the interests of investment firms and the media, for whom 'bad news makes good headlines,' rather than reflecting the real-world financial situations of most retirees.

Why this matters: The debate over retirement savings targets has significant implications for individuals' financial planning and policy discussions around retirement security. Overstating the savings needed for a comfortable retirement could unnecessarily discourage or stress individuals, while understating the requirements could leave retirees unprepared.

Biggs concludes that scaring people with unrealistic retirement savings goals is not part of the solution to America's retirement challenges. The Federal Reserve survey data suggests that most retirees are able to live comfortably with savings levels far below the $1.46 million figure often promoted by financial firms and media outlets.

Key Takeaways

• $1.46M retirement savings target is implausible, not supported by evidence.
• Retirees aged 65-74 report being 'doing OK' or 'living comfortably' with <$100K savings.
• Average American has only $88,400 saved for retirement, far below $1.46M target.
• Retirement savings rules of thumb serve investment firms, media interests, not retirees.
• Overstating savings needed can discourage individuals, understating can leave retirees unprepared.