Saving for retirement? You need at least $3 million, says study

It’s one of the thorniest financial questions: how much is enough to be comfortable when you retire?

The answer is somewhere between $3 million and $5 million, according to the 553 investors worldwide who shared their views in the latest MLIV Pulse survey. About a third of investors pegged it at $3 million, and roughly another third at $5 million. 

Most respondents are optimistic they’ll move closer to their retirement goal by ending 2023 with a balance of retirement savings higher than it was at the end of 2022.  

Last year, inflation and rising borrowing costs hammered stocks, and since bond prices also plunged, the average US 401(k) retirement account was down 20 per cent at plans where Vanguard Group is a recordkeeper.

This year, both professional and retail investors expect stocks and bonds to resume their traditional relationship by moving in opposite directions, with fixed-income serving as a cushion for any potential losses from riskier assets.

Respondents were not as sure about whether they’d ultimately have enough saved to maintain their lifestyle in retirement.  Less than half of investors placed the odds of that at 100 per cent.

 “While inflation appears to be cooling off, it increases the amount of funds that a person needs to have in retirement,” said Christine Benz, Morningstar’s director of personal finance and retirement planning.

That uncertainty likely also reflects the economic outlook, with corporate profits shrinking and recession a possibility later this year. Whether the expected gain in 401(k) balances will come from investments or from contributions is unclear. 

A lot of retirement savings are invested in index funds that track the S&P 500 and, particularly for older savers, in actively managed equity funds heavily weighted in the benchmark index’s top stocks.

During the bull run, mega-cap tech stocks like Apple, Microsoft, Amazon.com, Alphabet, and Meta Platforms came to dominate the index, leading to very concentrated investment portfolios for many savers. These stocks kicked off the year with a nice rally after a horrible 2022. 

Nevertheless, more than half of investors in the latest MLIV Pulse survey expect new market leaders to supplant the big tech companies as the drivers of US stock market performance over the next three years. 

“When five names in the S&P 500 make up more than 20 per cent of the index, those names tend to lag the index over the next three to five years,” said Bob Shea, chief investment strategist at Dynasty Financial Partners. 

Asia was chosen by the highest percentage of MLIV survey respondents as the region outside the US most likely to have the best dollar-denominated returns in 2023. 

Most investors aren’t adjusting their retirement plans despite the uncertain economic outlook and recent losses in their accounts.

Some 56 per cent of survey respondents said they were sticking with their retirement plans. About 8 per cent said they are thinking about never retiring.