Millennials and members of Gen Z are prioritizing retirement by starting the savings process early and saving more than previous generations.
Meanwhile, Gen X could be falling behind benchmarks with lower contributions and a lack of financial planning.
The Kids Are Alright
According to a 2021 survey from the TransAmerica Center, millennials contributed a median of 15% of their annual pay to 401(k) or other retirement accounts, and most of them began saving five years earlier than their Gen X counterparts by beginning at age 25. That’s enabled millennials to amass a median retirement savings of $50,000.
Gen Zers are even more zealous about saving for retirement by stashing a median of 20% of their annual pay into retirement accounts. They’ve even started saving at a shocking median age of 19, which has helped them accumulate a median of $33,000 in their retirement savings already.
Why are they saving so much? It’s likely because of a concern with a lack of a social safety net. A full 73% of millennials in the survey cited concern with relying on a weakened Social Security system that could dissolve before they reach retirement age.
How Much You Should Be Saving
Younger generations have the right idea by saving early and reserving a significant portion of their income. Experts suggest saving at least 15% of your income for retirement. Plus, estimations for how much you’d need to retire comfortably have reached the millions. A 2022 survey from Charles Schwab found workers estimated needing $1.7 million in retirement savings.
The amount you truly would need to have saved for retirement is based on factors including age, income, and marital status. Experts at T. Rowe Price suggested retirement savings benchmarks for the following ages:
|Retirement Savings Benchmark
|.5x of salary saved today.
|1x to 1.5x salary saved today.
|1.5x to 2.5x salary saved today.
|2x to 4x salary saved today.
|3x to 6x salary saved today.
|4.5x to 8x salary saved today.
|5.5x to 11x salary saved today.
|7x to 13.5x salary saved today.
For example, a 35-year-old making $125,000 annually should have 1 to 1.5 times their salary saved, which totals $125,000 to $187,500. For older workers, this figure increases substantially. A 55-year-old making $125,000 should have up to eight times their salary saved up — which amounts to $1 million. Referring back to the TransAmerica Center Study, Gen X’s retirement contributions might not match those benchmarks.
Gen Xers who are contributing to a retirement plan are only reserving a median of 10% of their annual income, resulting in an estimated median of $87,000 in retirement savings. It doesn’t help that only 27 percent of this age group have a written financial strategy for retirement. If you’re planning to retire without extending your working years, it’s essential to start increasing your retirement contributions sooner rather than later to improve your quality of life in your later years.
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