How much money do you need to retire? Most Americans calculate $1.8 million, survey says.

Like everything else, the cost of retiring has also risen. 

Americans, on average, believe they will need to save an average of $1.8 million for retirement, compared with an average estimate of $1.7 million last year, according to an online Schwab survey of 1,000 U.S. 401(k) plan participants between April 19 and May 2. Only 37% of workers think it’s very likely they’ll achieve this target, down by 10% from last year, Schwab said.  

High inflation has been the biggest obstacle for savers, even though inflation eased in June to 3% from a 40-year peak of 9.1% a year ago. Sixty-two percent of workers see inflation as an obstacle to saving for a comfortable retirement, up from 45% last year, Schwab said.  

“The current economic climate, in particular inflation, is eroding the confidence that Americans had in their retirement preparations going into the pandemic,” Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute (EBRI), said in April. 

How realistic is the $1.8 million goal for retirement? 

A $1.8 million nest egg is likely “pretty hard for typical Americans to get to in today’s environment,” said Thomas Salvino, chief executive of Performance Wealth. "People will have to be more creative with budgeting, spend less and live more frugally.” 

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Don’t sweat it, though, if you don’t make it. “You can save less and be fine,” he said. “You might just travel and eat out less.”  The exact number each person needs depends on individual needs and lifestyle.  

Is there any hope of retiring comfortably? 

Yes, nearly half of respondents still feel somewhat likely to reach their goals, and only 14% feel they are not at all likely to reach their goals, Schwab said. 

"Retirement saving continues to be a priority for workers, who have maintained their 401(k) savings rates and largely stayed on top of their 401(k) investments over the past year,” said Brian Bender, head of Schwab workplace financial services. 

Vanguard said last month it saw record highs in 401(K) participation and deferral rates among its nearly 5 million participants in 2022, despite a volatile economy. 

“But we still have work to do,” said John James, managing director of Vanguard’s institutional investor group in the company’s annual “How America Saves” report. “We believe participants should be saving at least 12% to 15% of their pay to meet their retirement goals. We’re not there yet—but we’re close. Twenty percent of participants need a boost of just 1% to 3% to hit their target saving rate.” 

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Automatic enrollment’s working 

More companies are offering employees automatic 401(k) enrollment, which has boosted people’s 401(k) participation and savings. Last year, plans with automatic enrollment had a 93% participation rate, compared with a participation rate of 70% for plans with voluntary enrollment, Vanguard said. Auto-enrolled employees saved 40% more, it said. 

Even 81% of job switchers kept their assets intact for retirement by either keeping them in the company’s retirement plan or rolling them over into an IRA or the new employer’s plan, Vanguard said.  They also kept 97% of their retirement assets, taking only 3% in cash, it said. 

How do you calculate how much you need for retirement? 

To estimate what you need for retirement, assume you retire at 65 years old, and the average life expectancy is 83.3 years old. That means you could expect to spend at least 18.3 years in retirement.  Using that, decide how much you think you need each year to live and whether you want money left over after your death to calculate what your retirement fund should be. 

For example, if you plan to be retired for 18.3 years, have a current income of $100,000, and expect to need the same income in retirement, you will need at least $1.83 million in retirement. This assumes the money is growing at the rate of inflation, so remaining constant in purchasing-power terms. 

Once you have this rough estimate, you can work toward your plan to get there. The plan should include, according to Alex Michalka, senior director of investments at automated investment service firm Wealthfront: 

• Contributing at least enough to your 401(k) to get any match your employer offers, which is “basically free retirement savings.” 
• Building a 3–6-month emergency fund and paying down high-interest (7% or higher) debt BEFORE saving for retirement. “It’s crucial to get a secure financial footing now before focusing too much on retirement.” 
• Contributing to an Individual Retirement Account (IRA). “Just $100 each month can compound over the long term to make a big difference. And if you can max out your IRA, that’s even better.” If you save $540 per month for the next 30 years, assuming the average historical stock market return of 8% and compound interest, you could end up with about $810,000.  
• Investing more if you have more. “A good target is to invest at least 10% of your take-home pay into a diversified portfolio, and any more you can add will help you in the long run."

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her atmjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.