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How Much Do Millennials Need to Save for Retirement?

The Answer Depends on a Number of Interlocking Factors
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Everyone, including millennials, wants to know exactly how much to save for a comfortable retirement. But saving for retirement is not a one-size-fits-all approach, especially for this generation.

Based on birth date, millennials in 2024 range in age from 28 to 43. That’s quite a range, and ultimately, the amount you need to save for retirement will depend on how much you’ve already saved, your lifestyle aspirations, and other factors—including how you are invested, inflation, future employment, and Social Security benefits.

Key Takeaways

  • When you are years away from retirement, there are a few ways to set a benchmark savings goal, including using a multiple of your current salary.
  • The mix of assets in your portfolio and how much you are invested in each directly impacts retirement savings potential, so millennials should make stocks a large portion of the mix to reap long-term compounding gains while risk can be tolerated.
  • Millennials face a shortage of jobs and unequal access to employer-sponsored retirement accounts, which can impact their ability to save more aggressively for the future.
  • More individuals are reaching retirement age than ever before, which has renewed worries that Social Security benefits will run out or be severely depleted before millennials are ready to retire.
  • To balance the current realities and retirement dreams, millennials should do what they can now to build a long-term savings plan to protect their financial future. Every bit counts.
If you’re a millennial with your eyes on retirement, the insights on this page and the articles linked from it have been expertly curated to help balance these factors and support your financial future.

What to Save Based on Age

How much you will need in retirement depends on two factors: when you retire and the lifestyle you want to support in retirement.

One retirement planning rule of thumb says that if you save the equivalent of 15% of your pretax income until you retire, you will reach that goal.

Another common recommendation is to aim for total savings and money from other sources that will generate at least 80% of your pre-retirement income each year to retire comfortably.

A data study conducted by Investopedia found that the average amount a U.S. consumer needs to save for a 12-year retirement is $715,968.

However, if you are still 20 or more years away from retirement, you don’t know for sure how much more your income could grow and therefore impact your lifestyle and the dollar amount of savings needed to support it.

To help simplify, start by setting a savings goal based on a multiple of your current salary, based on your age.

Estimated Retirement Savings Based on Age and Multiples of Salary
Age 30 35 40 45 50 55 60 67
Amount of salary saved 10×

Using the example of someone who wants to maintain about the same spending level in retirement that they had while working, your savings should total the amounts shown below by age, where 1× equals savings of one times your salary, 2× equals savings of two times your salary, and so forth.

If your plan is to live a more frugal lifestyle in retirement, then your final goal might be eight times your salary saved by the age of 67. Conversely, if you plan to spend your retirement years traveling and living a higher lifestyle than during your working years, then your savings goal by age 67 might bump up the factor to 12.

In practical terms, if you’re a 28-year-old millennial, you have roughly two years to have the equivalent of one year’s salary in your retirement account, which can include any employer contributions you get.

If, however, you are a 40-year-old millennial, then your retirement savings account should already contain the equivalent of three times your annual salary. If it doesn’t, you may have some catching up to do.

Make sure your retirement income numbers include anticipated Social Security or pension income if applicable (see more on the former below), as that can help supplement your savings plan.
Once you have a benchmark savings goal in mind, be mindful of how these four key factors can impact your retirement funds, and how to adjust your plan to support long-term wealth accordingly:

1. Access to Employer-Sponsored Retirement Plans

According to a 2023 Transamerica study, about 19% of full-time millennial workers and 43% of part-time millennial workers don’t have access to an employer-sponsored retirement plan. This can have a big impact on how much you can save in a tax-advantaged account. The less you invest in a company retirement account, such as a 401(k) plan, the more you will have to save overall.

With a 401(k), for example, individuals can contribute up to $23,000 for 2024 as a tax-deferred benefit, up from $22,500 in 2023. If you do not have access to a 401(k) plan and need to use an individual retirement account (IRA), you are capped at saving $7,000 a year in a tax-deferred account for 2024, up from $6,500 in 2023.

This means that more will have to go to a taxable savings account, thus decreasing the account’s compounding effect, as you have to pay taxes on any interest income or capital gains. In addition, you miss out on the assumed employer match in the above calculations, so you will have to save that percentage on your own as well.

In addition to saving for retirement, millennials should aim to build up an emergency fund of at least six months of living expenses, to tide them over when out of work or facing an unexpected crisis.

2. Asset Allocation

Having the right allocation in stocks and bonds can make a big difference in how much your portfolio will return over the years. If your asset allocation is too low on stocks, you may not reach your savings goal.

Some advisors suggest that millennials, especially those at the younger end of the spectrum, should allocate as much as 90% to 100% of their portfolio in stocks.

In reality, you cannot accumulate the money you need to retire without more exposure to equities. Inflation alone will destroy your dollars’ purchasing power if your investments lack appreciation potential.

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Alice Morgan / Investopedia

3. Job Uncertainty

While computers and the web have made things easy, they do come with some drawbacks. The chances of your job being replaced by automation or artificial intelligence (AI) during your lifetime have increased. In fact, 44% of companies surveyed by Resume Builder say that AI will lead to layoffs in 2024.

Additionally, because of widespread internet access, there is increased competition from foreign workers who can do your job remotely—and likely for much less than what you get paid, which lessens the need for full-time staff.

When you are unemployed, you lose the ability to save in an employer-sponsored retirement account and get an employer match. You also risk needing to withdraw funds from your retirement savings to keep yourself afloat if you have trouble finding work. That’s another reason why you need an emergency fund.

“The best we can do is our best. We cannot predict the future, so we will put together a plan, stick to it, and adjust accordingly.”

4. Peak 65 and Social Security

This year, there’s another wrinkle to consider: 2024 begins the “Peak 65 Zone,” a period in which the largest number of Americans will be turning 65, and start a surge of people entering retirement each year. In fact, it’s estimated that 4.1 million people will retire each year through 2027, which means more people are pulling from already dwindling Social Security benefits.

Millennials may be wondering, “Who’s going to pay for all these people turning 65? How is Social Security going to look if it’s being drained by the biggest abundance of the population turning 65?” says , founder and CEO of Marvelous Retirement Planners in Toledo, Ohio.

The latest report from the Old-Age and Survivors Insurance (OASI) Trust Fund, which partially funds Social Security, states that there is enough money as of now to cover all scheduled benefits through 2033. After that, retirees may only be left with the 77% portion funded by Social Security tax collection.

In other words, there is the possibility that anyone retiring after 2033 will lose 23% of their expected benefit amount—unless the government steps in with a solution before then. While Arvay doesn’t believe Social Security will be depleted, it’s a good reminder that younger generations should take their retirement fate into their own hands.

“Getting to full retirement age and maximizing Social Security is important since you can get more if you wait until age 70,” he says. “But either way, you shouldn’t count on your bills being paid by Social Security.”

In fact, the Social Security Administration says the benefit is only intended to replace, on average, about 40% of your annual pre-retirement earnings. It’s up to you to bridge that gap, and perhaps anticipate a slightly wider gap if Social Security funding dries up.

The Bottom Line

There are plenty of reasons why millennials may be stressed about saving for retirement—from worries over Social Security and the Peak 65 Zone to not yet having squirreled enough away on their own.

The best way to deal with these fears is to figure out what you need to save, and craft a plan. Ultimately, the goal is to save as much as you can during your income-earning years. A good goal is to save at least 15% of your gross income to ensure that you get to live the life you want after you bid the workplace at least partially adieu.

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Mira Norian / Investopedia
Article Sources
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