If you’re a millennial wondering how much money you’ll need to retire comfortably, now might be a good time to practice some calming techniques. You’ll probably need anywhere from $3 million to $4 million saved up, according to a pair of recent studies.
One analysis, conducted by Seeking Alpha, found that younger millennials — those around age 30 — would likely need at least $3.6 million saved up to enjoy a comfortable retirement. To be on the safe side, it might be wise to round that up to an even $4 million. This assumes that you want to retire no later than age 62 and have not yet saved anything except emergency cash.
Older millennials who are nearing 40 might get by on a mere $2.8 million in savings to retire comfortably, accounting for factors such as inflation.
A separate analysis from Wealthcare Financial had a slightly lower bar, Motley Fool reported. It found that millennials and Gen Zers will need up to $3 million in retirement savings to properly enjoy their golden years. That figure is in the upper end of the target range and assumes that you will spend about $150,000 a year over a 20-year retirement.
Those are daunting numbers, considering that the average retirement savings in 2022 is about $168,000, according to a survey of 1,000 Americans conducted earlier this year by ConsumerAffairs. That’s actually an improvement over data cited in a 2017 report from the Government Accountability Office, which found that the median retirement savings was just more than $107,000 for Americans between the ages of 55 and 64.
There are a few reasons millennials will need way more than that when they retire – and most have to do with rising costs of living and uncertainty about Social Security. Under the present system, the Social Security Administration’s Old Age, Survivors, and Disability Insurance trust fund will become insolvent in 2035. When that happens, Social Security taxes paid by employers and employees are expected to cover only about 78% of the benefits in ensuing years.
Because of these and other factors, the Wealthcare Financial report recommends that millennials and Gen Z aim for these financial targets:
- $500,000 in retirement savings by age 25.
- $1 million by age 40.
- $2 million by age 50.
- $3 million by age 60.
If you don’t have that much saved up, you’re not alone. As Motley Fool reported, a Vanguard report found that adults between the ages of 25 and 34 had a median 401(k) balance of $14,100 in 2021.
Saving and Investing For Your Retirement
The key is to start saving now. If you haven’t done so already, set up a 401(k) account through your employer and try to contribute at least enough to meet the employer match. If you are self-employed or your employer doesn’t offer a 401(k), then you should establish an IRA account. Seeking Alpha recommends setting up auto-deduct or auto-transfer accounts that can go toward retirement savings.
But that’s only part of a retirement strategy that can get you to $4 million in savings. The other part is to invest your money so that its growth rate outpaces inflation and compounds over time.
One strategy recommended by Seeking Alpha is to put part of your 401(k) into funds that can quickly grow your wealth, such as the S&P 500 fund, the Total Stock Market fund, high-growth technology funds and emerging markets funds. Other investments should go into less volatile, slower-growth assets that have a history of producing steady returns and can hedge against short-term losses.
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