You might want to be a financially savvy millennial, but unsure if you’re on the right track. Whether you’ve saved a lot or a little, it can be helpful to have a ballpark number to target.
GOBankingRates spoke with several financial advisors to find out how much millennials should have in their accounts right now. Here’s what they had to say.
Start With Your Salary
Blake Jones, CFP® and founder of Pomegranate Financial, based in Springville, Utah, said millennials — currently between the ages of 27 and 42 — need to have at least $22,500 in their accounts this year.
Citing 2022 Census data, he noted that the median salary for a millennial household is approximately $88,000 per year.
“But if you break that up per millennial individual then the median salary is likely around $46k per year,” he said. “The bottom 25% of households earn less than [approximately] $30,000 [per year].”
He said the bottom 25% of millennial earners might be in this tier for a variety of reasons, including education, illnesses, age and other factors. Additionally, he noted that younger millennials likely earn less than their older counterparts.
“So, if you are part of the top 75% in income for millennials, then you are earning $30,000 or more,” he said. “You should have three months of savings equaling $7,500 — assuming that $30k per year covers expenses and a bit of retirement savings, there’s not much wiggle room.”
He said the rule of thumb for retirement savings is that your contributions should increase as you age.
“Since most millennials are between 27 and 42, then most should have between 0.5 to three times their salary,” he said. “If you are 30 and make $30,000 a year then you should have $15k in retirement savings.”
When added together, the $7,500 in emergency fund savings and $15,000 in retirement savings equals the magic number, $22,500.
“Based on the statement saying ‘all,’ — I think it should say ‘most’ — then I lean conservatively to say that the top 75% of millennials should have that amount, because the bottom 25% likely have differences that shouldn’t be used to compare against the top 75% of millennials,” he said.
He shared an equation to help you determine what your approximate retirement savings should be, based on your age.
“Multiply your income by 0.5 if you are 30 or younger, one if you are 35, and 2.5 if you are 42,” he said. “You’ll then get what your retirement savings should be.”
The equation for an emergency fund is a bit different. “Take your monthly expenses and multiply them by three if you have two stable sources of income — two spouses — or six if you have one source of income,” he said.
A Different Take on Millennial Savings
Zach Green, CFP®, CIMA® and regional vice president of new client development at Wealth Enhancement Group, based in Plymouth, Minnesota said millennials need at least $218,000 in their accounts in 2023 which is notably more than Jones’s estimate.
“When setting a target for how much money a millennial should have saved by now, it’s important to frame that question with the end goal in mind,” he said. “First, we should establish after-tax income needs in today’s dollars.”
For example, he said if you’re 30 years old, earning $8,000 per month — roughly $100,000 per year — and want to retire at age 65, your salary would equate to around $281,386 in 35 years, due to inflation.
“If your lifestyle remains constant, the goal is to generate an after-tax income stream of $281,386 in retirement,” he said. “Let’s say Social Security will contribute $50,000 per year, then, you’re looking to find around $230,000 from your investments,” he said.
Clearly, you’ll be relying heavily on your investments.
“The general rule of thumb is that you can withdraw roughly 4.5% of your account value per year in retirement, and that account should last 30-plus years, assuming ongoing attention and a thoughtful and diversified investment mix,” he said.
At this rate, he said you’ll need approximately $5.1 million saved by age 65 — which is 35 years from now, if you’re 30 years old. Given these numbers, you would need to have $1.8 million in savings today.
“If $1.8 [million] sounds like a high number, don’t be alarmed,” he said. “The math so far assumes that you don’t make any additional contributions to your account over the next 35 years, until your target retirement date.”
He said if you continue to invest an additional $20,000 per year and earn an average rate of 7%, that number is reduced to a target account value of around $218,000 in today’s dollars. However, he noted that many other variables can reduce this number.
For example, he said you might take on a part-time job in retirement or have other sources of income that reduce your dependency on your investment accounts — i.e., rental properties or royalties. He said you might also be in a position to save and invest more aggressively as you advance in your career.
General Advice To Boost Your Savings
“Pinpointing the exact number of dollars millennials should have in their savings and retirement accounts is a tough task,” said Matt Calme, CFP® and a wealth advisor with HCM Wealth Advisors, based in Cincinnati. “Lifestyle needs have major impacts on the savings numbers.”
He said a few simple guidelines can help you get into the best position for financial success.
“Establishing an emergency fund is always the first step that anyone should take,” he said. “Often three to six months of expenses in a reserve account is recommended.”
However, he recognized that this can be a challenge for those just starting out.
“Rather than feeling overwhelmed by not having the full three to six months covered, millennials should focus on saving smaller increments over time, until the full reserve is met,” he said. “Set a goal to save $500 and then move on to $1,000.”
If you stick to this habit, he said you’ll build up a full reserve before long.
When it comes to retirement savings, he said it’s generally recommended to have one time your salary by 30, three times your salary by 40 and 10 times your salary by retirement.
“For example, if a millennial makes $50,000 per year, they should target to have $50,000 in their retirement accounts by age 30, $150,000 by age 40 and $500,000 by their retirement age,” he said. “These numbers can seem outlandish, but the power of compound interest through investing can easily make these numbers achievable over the working years.”
He recommended automating your savings to achieve both goals.
“Millennials should target saving no less than 15%-20% of their income to savings and retirement,” he said. “Older generations have found themselves severely behind the curve for retirement savings and often do not even come close to having 10 times their salaries before retiring.”
Ultimately, he said choosing not to save for retirement now can severely impact your lifestyle in your golden years, so don’t wait.
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