When saving for retirement, we all have a goal in mind. A magic number that means we can spend our golden years in comfort. Today, we explain why that magic number keeps going up – and why your own savings goal is almost certainly wrong…
By Peter Reagan
Question for you: Are you prepared for retirement? Have you taken the time to go through retirement planning to know what you need to save to be able to retire in relative comfort, at least for the remainder of your time on earth?
If you have, good for you! You’re ahead of the curve.
Sure, many people have thought about retirement planning to some extent, but few have taken the time to actually think ahead about how much money that they’ll need in their retirement years and to plan for how to have those funds on hand when they’re needed.
Let’s look at that first question. In your planning, how much money did you decide that you will need to retire?
A survey of 4,588 Americans tells us how much that most Americans think they’ll need. Mike Winters with CNBC writes,
Many people consider roughly $1.5 million the “magic number” for retirement savings, according to a Northwestern Mutual survey of 4,588 Americans.
$1.5 million sounds like a lot of money to most people, and, certainly, it’s not chump change, but the better question is to ask if that is enough money for you, And the answer to that question really depends on several things.
One of the biggest things to consider is…
How much you need depends on where you live…
And how you want to live, of course.
If you want to live in opulence on an ocean beach (wouldn’t we all?), then, you’re going to need more money for retirement than the person who just wants to live a quiet retirement in a small town out in the middle of nowhere (which certainly has its appeal, too).
And as far as where you live, Winters continues:
But how long that much money lasts depends on where you live.
In addition to Social Security payments, $1.5 million would last a household just 17 years in Hawaii, likely falling short of a full retirement for someone leaving the workforce at 65, according to a new GOBankingRates analysis. In contrast, retirees in West Virginia could stretch the same amount for 54 years, the longest of any state.
So, the solution to how to make sure that your retirement savings lasts long enough is to…
…move to West Virginia! Problem solved!
(No offense to the fine folks of West Virginia. In fact, it’s quite a beautiful state.)
Except that where you live isn’t actually the most important factor in making sure that you have enough to retire on, which, I’m sure, has you asking…
If where I live isn’t the most important issue, what is?
Here’s where we get to what too many people don’t think about when it comes to their retirement planning: you need to factor for the devaluation of the currency to make sure that you have enough purchasing power throughout your retirement.
Consider this: according to the CPI Inflation Calculator, $100 U.S. dollars in 2000 would buy what it takes $184.48 today (2025) to buy.
That’s right, in just 25 years, the value of the dollar has been cut nearly in half. And that’s just the official numbers! The unofficial numbers look even worse.
And because the dollar’s value wanes as government debt rises, this devaluation will continue.
That means that the single most important thing that you can do to make sure that you have enough purchasing power for your retirement is to make sure that you have a plan for inflation.
But that, then, begs the question…
How can you plan for future inflation?
It’s a smart question to ask, and the answer is: you can’t.
At least, not if your plan is to make sure that your investments grow faster than inflation.
Why?
For one thing, you can’t plan for how much inflation is coming down the pike. You know that it’s coming. You just don’t have a way to be able to plan for how much it will be.
Could any of us really have predicted inflation in 2022 would surge to 9%, for example?
Sure, anyone who understands basic economics could see that higher prices were coming. There was a boatload of government spending during the pandemic panic.
But inflation so far above the Fed’s goal of 2% is a shock. (In fact, if we look back over official inflation numbers for the last 50 years, the average is nearly 4% – double the Fed’s goal! Don’t take my word for it – look at the numbers yourself.)
We can be confident that our purchasing power will continue to decline – how much, and how quickly? Impossible to predict.
That’s a challenge. But that’s only really a problem if your focus is solely on investments that aren’t inflation-resistant.
Diversify with inflation-resistant investments
Specifically what I mean by inflation-resistant investments is stores of wealth that have intrinsic value of their own. Their price is based on their utility more than on sentiment.
When prices go up due to inflation, the price of inflation-resistant investments rises at roughly the same rate. In other words, preserving your purchasing power.
An example for you: in ancient Greece, a one ounce gold coin would buy you a nice tailored toga, a nice belt, and a nice pair of sandals, all of which was fashionable in that day and age. What will one ounce of gold buy you in clothing these days? A nice tailored Italian suit, a nice belt, and a nice pair of dress shoes. Roughly equivalent in our current society to what that amount of gold would buy in ancient Greece.
In other words, the purchasing power of gold remains roughly the same over the centuries.
That’s why even Goldman Sachs noted:
Gold emerged as the best commodity to serve as a potential hedge against inflation and geo-political risks.
And if there is anything that we’re seeing in our current world and expect to continue to see for the foreseeable future, it’s a combination of inflation and geopolitical risks.
Now, to be clear, other precious metals other than gold are also inflation-resistant due to their industrial uses and investment demand. Even so, there’s no substitute for the “gold standard” of inflation-resistant assets.
If you want to make sure your magic number for retiring doesn’t grow faster than your savings, I strongly recommend diversifying with physical precious metals. You can start educating yourself by learning what makes precious metals valuable in the real world.
