Why Savers Need Help Estimating the True Cost of Retirement

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Despite studies suggesting that Americans need $1 million (or more) to retire successfully, the actual retirement “number” for each household is going to vary materially.

Using data from the Employee Benefit Research Institute and Greenwald Research’s 2024 Retirement Confidence Survey, we can explore how estimates of required retirement savings differ. There are notable differences in the two values, especially income level, where households who make less than $100,000 appear to consistently overestimate required savings and those who earn more than $100,000 appear to consistently underestimate required savings.

Providing tools to help households estimate required savings not only can help people make more informed decisions, but it also appears to positively influence savings decisions. For example, among workers who tried to figure out the amount needed for retirement, 52% started saving more for retirement.

While general savings targets, such as the “4% Rule” or similar derivatives, can be useful, they are not going to capture important differences that exist across households. Therefore, employers (and plan sponsors) should do what they can to make it easy for their employees (and participants) to get a reasonable estimate of required retirement savings.

What’s Your 'Number'?

There seems to be an increasing number of surveys that provide information about how much the “average” American expects to need to have saved for retirement. These surveys often result in eye-popping estimates of required savings, with averages approaching $2 million.

These surveys, and this information, have the potential to harm more than help. Many people don’t know how much they need to have saved to retire successfully, and the estimates can vary significantly by income level. Some people are going to need a lot more than others.

In its 34th year, the Employee Benefit Research Institute and Greenwald Research’s 2024 Retirement Confidence Survey is the longest-running survey of its kind, measuring worker and retiree confidence about retirement. The 2024 survey was conducted online from Jan. 2-31 among respondents ages 25 and older. The survey included 2,521 respondents; however, we focus primarily on workers between the ages 45 to 65 with total household income levels between $15,000 and $500,000 who provide some kind of retirement income goal estimate.

This limits our test sample to 511 households. Household income levels and goal amounts in the survey are in ranges, and we use the approximate midpoint of the minimum and maximums.

The following exhibit provides context on how the retirement goal estimates vary by household income level among those respondents who attempted to calculate how much they need rather than those who were guessing.

Source: EBRI 2024 RCS, author’s calculations.

There is a persistent difference where households who are guessing tend to overestimate required savings at lower income levels and underestimate required savings at higher income levels. The difference could be due to a variety of factors, but one potential culprit is the progressive nature of Social Security retirement benefits, which replace a higher portion of wages at lower income levels.

This effect becomes clearer in the following chart, which compares the ratio of the median divided by the income level, for different income levels.

Source: EBRI 2024 RCS, author’s calculations

The estimated and guessing trendlines cross at about the $100,000 total household income level. This suggests that lower-income households who are guessing about required retirement savings could be oversaving and those with higher incomes could be undersaving.

The following chart looks at the behaviors taken among workers who attempted to estimate required savings.

Source: EBRI 2024 RCS, author’s calculations.

Trying to figure out required savings had a number of notable positive benefits, in particular saving more for retirement, which 52% of respondents noted doing. Additionally, 29% of respondents noted researching other ways to save, 24% of respondents noted paying down debt, and 22% of respondents noted enrolling in their defined contribution plan.

This suggests that helping participants determine retirement savings can not only provide the household with better information about how much it needs to save, but that it could lead to other behaviors that could positively affect retirement outcomes.

David Blanchett is head of retirement research and portfolio manager for PGIM DC Solutions, which helps American workers save and spend in retirement.