A majority of employed millennials doubt they will amass the $1 million many experts think they will need to see them through a multi-decade retirement, Wells Fargo reported Wednesday.
Wells Fargo said they were too pessimistic, that if they start saving in their mid-20s and remain invested during their working years, they likely can accumulate a $1 million nest egg by the time they retire.
GfK conducted an online survey in mid-April of 1,005 “general population” millennials ages 22 to 35. Participants needed to be employed, though not in the financial services/banking industry, and a U.S. resident for at least three years.
According to the survey, 64% of working millennials said they would never accumulate $1 million in savings over their lifetime. Fifty-nine percent said they had started saving for retirement, while 41% had not, explaining that they were not earning enough to do so.
Wells Fargo did some math, and found that a millennial who earns a starting salary of $32,000 at age 25, saves 5% in the first year and then increases the savings rate by 2% each year (up to 13%) could accumulate $1 million by age 65.
This outcome assumed that the worker would receive an annual 2% salary increase, be invested in the market and realize a 7% return on the invested assets.
“Making the math work to accumulate savings means that millennials must start saving early in their working lives,” Joe Ready, director of institutional retirement and trust for Wells Fargo, said in a statement.
“Millennials have the power of time on their side and need to embrace it. They can get started by reducing discretionary spending by $26 each week and directing that savings to their 401(k) plan, starting at age 25 — it’s feasible.”
The poll found that nearly two-thirds of millennials who doubted they would be able to accumulate $1 million reported a median personal income of $27,900, and half of those had started saving for retirement.
Thirty-seven percent said they were putting away more than 5% of their income, and 7% were putting away more than 10%.
The 32% who said they did expect to save $1 million reported a median annual personal income of $53,000. Seventy-seven percent had started saving for retirement, with two-thirds deferring more than 5% of their income, and 28% putting away more than 10%.
Thirty-four percent of millennials in the survey reported student loan debt, with a median debt load of $19,978. Three-quarters of those who had debt said it was “unmanageable.”
Yet, 70% of this group were still saving for retirement, at an average savings rate of 5.5%.
The survey revealed stark differences in the earnings and financial outlook of millennial men and millennial women:
- Median personal income — $39,100 vs. $28,800
- Report living paycheck to paycheck — $43% vs. 54%
- Finances stretched too thin to save for retirement — 50% vs. 61%
- Don’t believe they can accumulate $1 million in savings — 56% vs. 73%
- Have already started saving for retirement — 61% vs. 56%
- Average percentage of income saved — 7.3% vs. 5.7%
“The wage gap between male and female millennials clearly exists, and it’s a real issue,” Ready said. “It’s important that younger women focus on saving and investing now, as this strategy will help put them in good standing for their retirement years.”
Financial Health and Retirement