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San Francisco Chronicle​

This is the magic number for retirement in California — and how it differs from everywhere else

Since last year, most Americans have lowered their expectation for the retirement 'magic number' — the amount of money they'll need to live on after they stop working, according to the latest survey from financial services company Northwestern Mutual. But in California, it's a different story. Nationwide, the average respondent to the Northwestern Mutual 2025 Planning & Progress Study said they thought they'd need $1.26 million to retire comfortably at age 65. That's down $200,000 from what respondents predicted in 2024, when it was an all-time high of $1.46 million. What accounts for the diminished expectation? Inflation has cooled off after it spiked starting the year after onset of the COVID-19 pandemic, said Ashley Russo, a wealth management adviser for Northwestern Mutual. While still elevated — it was at 2.4% in March 2024, a bit higher than the Federal Reserve's 2% target — it's down from its peak of 9.1% in June 2022. An analysis from two Stanford economists found that while inflation unsurprisingly makes people feel negative about the economy, they do get used to those higher prices over time as inflation declines — typically around 18 to 24 months. We're right within that window now, since inflation entered the more palatable 3% range in June 2023. It's worth noting that the survey was conducted in January of this year just before President Donald Trump's inauguration — so this economic optimism predates the current ever-shifting tariff situation and resulting market turmoil. But retiring in California is different — and this year's survey found Golden State residents' retirement outlook had not gotten any rosier. In 2024, an analysis performed by Northwestern Mutual for the Chronicle found the average Californian who responded to the survey said they'd need $1.47 million to retire comfortably. That was only slightly more than the $1.46 million nationwide average. Northwestern Mutual performed the same analysis this year, calculating the California-specific number by analyzing respondents from state residents and weighting it with data from the Harris Poll to account for the proportion of the Golden State's population they represented. • Got money questions? Here's how to send them to our California budgeting advice columnist Respondents were told to factor in all sources including 401(k)s, IRAs, pensions and bank accounts — but assets like real estate were excluded. The 'magic number' Californians believe they'll need to retire as of 2025: $1.47 million. That's the same number as last year — but it's $210,000 more than this year's national figure, suggesting Californians may not be feeling as much relief from inflation as the average American and remain cognizant of the high cost of living here. 'Californians know they need to save more to maintain their lifestyle in a more expensive place,' Russo said. It's not news that California is an expensive place to live. And though many save for retirement in tax-deferred accounts like 401(k)s anticipating a lower income tax rate in their golden years, Russo said required minimum distributions and a high cost of living could push your income into a higher bracket than you might have anticipated. 'People assume they drop into super-low brackets, but that's not always the case,' she said. Other cost-of-living factors to account for include housing, homeowners insurance, gas, utilities and day-to-day staples like groceries. Russo said people should take a hard look at their working-age lifestyle and expenses and figure out what their budget is going to look like when they retire so they know what their personal 'magic number' will be. Northwestern Mutual, which offers financial planning and investment services as well as various types of insurance products, has a retirement calculator that can help you get started. Other interesting findings from the study: Half of Americans think they'll outlive their savings Though respondents guessed they'd need $1.26 million to retire comfortably, they didn't all believe they'd get there. Just over half — 51% — said it was likely they'd outlive their savings. Young people say they started saving earlier and plan to retire earlier Broken out by generation, Gen X and boomer respondents said they started saving for retirement at, respectively, 33 and 37, and planned to retire at 67 and 72. Millennials said they started to fund their retirements at 29 and planned to retire at 64. Gen Z started stashing money away at age 24 and plan to retire at an average age of 61. Of the generations polled, Gen Z was the most likely to say they'd be able to comfortably retire. Gen X was the only generation where the majority of respondents felt they wouldn't be financially ready for retirement when the time came. People are concerned about inflation and Social Security Though it seems consumer sentiment has broadly adjusted to the peaks of inflation in recent years, respondents indicated they were worried about how they'd be impacted by inflation once they were living off their retirement savings. One-third of respondents said one of their biggest concerns was whether Social Security would still exist by the time they qualified for it. Gen X was the most worried, with 47% considering it among their chief concerns. 'It's fair to be wary' about the future of Social Security, Russo said. 'It's a broken system.' When Northwestern Mutual advisers run calculations for younger people, she said, they don't take the current projected Social Security benefits into account. Instead, she said she cuts that number in half and grow it at a lower inflation rate over the course of the projection. A lot of people plan to work during retirement Less than a third of boomers (30%) said they were planning to continue working during their retirement years. But 48% of Gen X, 45% of Millennials and 38% of Gen Z respondents said they expected to be working during what are traditionally thought of as the 'not working' years. Of those who said they'd work in retirement, half said it was to continue feeling stimulated or useful, and 48% said it was to pay for living expenses in retirement.