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.
Millennials tend to value jobs they “love” more than ones with high income or strong benefits. The study found that fewer than half of millennials are fully employed in their preferred career. Six in ten (63 percent) of millennials say that having a job they love is more important than a high income and many benefits.
More than 4 in 10 (44 percent) of millennials describe themselves as “fully employed in their preferred career.” A little more than half (54 percent) of 30- to 35-year-olds are fully employed in their preferred career, as compared to 36 percent of those in their twenties. Thirty-two percent are fully employed but not in their preferred career.
Millennials have worked, on average, for 4.8 employers, but 40 percent say they would like to work for one employer their whole career.
Millennial women face financial struggle
According to the study, there are significant differences in the earnings and financial outlook of millennial men and women.
“The wage gap between male and female millennials clearly exists, and it’s a real issue,” says Ready. “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.”
Hispanic millennials focused on finances
About a quarter of the nation’s Hispanic population are millennials, and there are key differences between the way Hispanic millennials and general-population millennials perceive and make decisions about their finances.
One of the more profound differences between these two groups is the extent to which Hispanic millennials provide financial support for extended family. Nearly a third (30 percent) of Hispanic millennials say they are currently providing financial support to two or more generations of their family, versus 14 percent of general-population millennials. Despite this difference, Hispanic millennials are more optimistic about surpassing the lifestyle of their parents, with 63 percent saying they will “do better than their parents,” in comparison to 49 percent of general-population millennials.