Nearly two-thirds of working millennials say they will never accumulate $1 million in savings over their lifetime, according to a report.
Wells Fargounveils this finding in its 2016 “Wells Fargo Millennial Study.” Conducted by GfK, the survey polled more than 1,000 U.S. adults between the ages of 22 and 35, with an additional oversample of 500 Hispanic millennials for comparison purposes.
The report reveals that 6 in 10 millennials (59 percent) have started saving for retirement, whereas 41 percent have not. Of the millennials who are not saving for retirement, 64 percent say they are “not making enough money to save for retirement.”
“Saving $1 million is often noted as a nest-egg target to help fund a multi-decade retirement, so we wanted to find out if today’s millennials think they can get there,” says Joe Ready, director of Institutional Retirement and Trust for Wells Fargo. “A majority don’t think so.
“Millennials may not realize that if they start saving consistently by their mid-twenties — and stay invested for the duration of their working years — they will likely accumulate $1 million by the time they retire,” Ready adds.
The Savings math
Millennials who earns a starting salary of $32,000 at age 25, saves 5 percent the first year and then increases their savings rate by 2 percent each year (up to 13 percent) could accumulate $1 million by age 65. This assumes the earner receives a 2 percent salary increase annually, is invested in the market and realizes a 7 percent return on their invested assets.
“Making the math work to accumulate savings means that millennials must start saving early in their working lives,” says Ready. “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.”
According to the study, the nearly two-thirds of millennials who say they will not be able to accumulate $1 million report a median personal income of $27,900. Fifty percent of those have started saving for retirement.
Of the millennials who say they won’t be able to save $1 million but have started saving for retirement, nearly four in ten (37 percent) are saving more than 5 percent of their income, and 7 percent are putting away more than 10 percent.
“Almost half of the group who don’t think they can reach $1 million have already started saving; this group is on the right track in terms of already developing strong savings habits. The path to creating a sizeable nest egg is more achievable than many millennials might realize,” says Ready.
Of the 32 percent who do expect to save $1 million, the median annual personal income reported by this group is $53,000. Seventy-seven percent have started saving for retirement. Two-thirds of those are deferring more than 5 percent of their income, and 28 percent are putting away more than 10 percent.
Student loan debt, career preferences
According to the study, 34 percent of millennials have student loan debt, with a median debt load of $19,978. For those who have debt, 75 percent say their student loan debt is “unmanageable.” Yet, of this group, 70 percent are still saving for retirement, at an average savings rate of 5.5 percent.