What Retirement Planning Isn’t

Americans believe they need nearly $1.5 million to retire comfortably, a number that has soared by more than 50% since 2020, according to Northwestern Mutual’s 2024 Planning & Progress Study. Yet the Employee Benefit Research Institute reports that only about half of workers have actually calculated their retirement needs. Employees can easily latch onto media-hyped, generalized one-size-fits-all numbers without a clear understanding of whether those figures align with their personal financial circumstances.

The conversation around prudent retirement planning should begin with defining what it isn’t.

A Magic Number

Gauging retirement readiness requires knowing more than just someone’s 401(k) balance. It demands a comprehensive and integrative approach that accounts for factors like health care, inflation, taxes and lifestyle choices. Shortcuts and rules of thumb like the 15% of income “rule” or the 25x annual retirement expenses “rule” overlook individual needs and differences. For example, higher-than-average health care costs alone can derail even the most disciplined savers, especially with long-term care costs outpacing inflation.

Determined by Generic Advice

Relying on generic advice can lead participants down a perilous path. Without a personalized approach to retirement planning, workers making decisions based on incomplete or outdated information might result in saving too little or overestimating how long savings will last. The consequences of underpreparing could be devastating, forcing retirees to either return to work or drastically lower their quality of life. On the other hand, overpreparing can also come at an emotional cost if it’s driven by unnecessary anxiety and fear about the future.

A One and Done Decision

Retirement readiness can be — and often is — a moving target. Whatever amount an employee at age 30 projects they’ll require is likely to change by their 40s or 50s. Alterations in family composition or needs, unexpected debt or an inheritance, market fluctuations or medical issues can all impact retirement planning. That’s why any snapshot assessment of retirement readiness shouldn’t be relied on for extended periods of time.

What Retirement Planning Is

Prudent retirement planning involves a holistic approach and ongoing adjustments. Regular monitoring and check-ins with a knowledgeable advisor help ensure an individual’s strategy is on track to meet established objectives. It’s making periodic adjustments based on changing personal and economic circumstances — as well as the shifting goals of the future retiree.

The good news is that plan sponsors are uniquely positioned to provide employees with the tools and resources they need for better outcomes. Facilitating one-on-one meetings with an experienced financial advisor can shift the focus from broad-stroke figures to actionable strategies based on calculations that take into account specific circumstances, timely information and any changing wants or needs. Ensure your employees aren’t just guessing about retirement readiness by encouraging them to use real data alongside professional guidance so they can have greater clarity — and confidence — in the process.