Saving for retirement is a decades-long process that workers of all ages should prioritize. However, when 401(k)s began replacing employer pensions as the primary retirement plan in the 1980s, workers were tasked with the burden of managing their savings.
Many workers find 401(k)s and IRAs confusing and lack the resources to save enough to last them through their entire retirement.
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Retirement savings expectations have risen significantly over the past several years, as the cost of essentials has skyrocketed and the fate of Social Security is unclear.Â
Despite the fact that inflation has moderated, many Americans find it challenging to balance expenses and contribute enough to their 401(k)s and IRAs.
Though most workers are enrolled in some type of retirement savings plan, many face inadequate savings and feel unprepared for their golden years. The amount most workers believe they’ll need in retirement is dropping, but the fear of outliving savings is still top of mind.
Despite most workers contributing to a 401(k), 403(b), or IRA, many Americans feel ill-equipped for retirement.
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Retirement saving expectations are dropping, but cost-of-living fears persist
When inflation surged in 2022, the cost of goods and services rose accordingly. Notably, consumer essentials like housing, groceries, and healthcare were impacted the most, and price levels have yet to come down.
The rapid price hikes have made it more difficult for workers to make ends meet while saving for retirement, and for retired seniors to meet their needs while living off a fixed income.
Northwestern Mutual recently released its 2025 Planning and Progress Survey, and surprisingly, the results show that the amount most Americans think they’ll need in retirement has fallen. Most workers now anticipate needing $1.26 million to retire, down from $1.46 million in 2024.
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However, a quarter of those with retirement reveal they only have one year’s salary or less saved, sparking concerns of longevity risk, or outliving retirement savings. Though older generations have more saved than their younger peers, 10% of Baby Boomers and 14% of Gen X have less than a year’s salary saved.
This gap between retirement income expectations and the reality of most Americans’ savings could create an alarming disconnect as workers enter retirement.
Workers aren’t reaching their 401(k) and IRA goals
Despite the fact that almost all workers (89%) are enrolled in their employer’s retirement plan, a third of all Americans feel behind on their financial goals. Experts recommend saving 15% of your annual salary, but most workers only contribute around 9% on average.
Related: New tax policy will soon impact 401(k) and IRA contributions
In order to reach the ideal $1.26 million retirement nest egg, a 30-year-old would need to save $685 per month. And according to Northwestern Mutual’s calculations, the average American starts saving for retirement at 31 and expects to retire at 65.
However, most Americans aren’t hitting that target, as more than half of Americans think it’s at least somewhat likely that they outlive their savings.
Many workers (40%) anticipate working during retirement to supplement 401(k), IRA, and Social Security income and bridge the retirement income gap. This approach may help address dwindling savings, but it could reshape what retirement looks like going forward.Â
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