How the Average Millennial Can Save $1.5 Million for Retirement (There’s Still Time)

Americans believe their ideal retirement savings is $1.46 million, according to a new survey from Northwestern Mutual. The average “magic number” at which Americans think they should retire has increased 15% since 2023 due to high inflation.

If you’re worried you won’t be able to retire, there’s good news. There’s still a lot of time, especially if you’re young. By saving regularly and investing in a diverse portfolio of stock ETFs, you can build up your savings enough to enjoy a comfortable retirement. Millennials (born 1981-1996) still have decades of growth potential in their careers and as investors.

Let’s take a look at the realities of retirement savings for a typical millennial and what it would take for your generation to save $1.5 million for retirement.

Average retirement savings for millennials: $62,600 saved, 32 years left.

Millennials have an average of $62,600 in retirement savings, according to Northwestern Mutual’s 2024 Planning and Progress study. However, millennials are generally optimistic about their retirement prospects. Of these, 56% told Northwestern Mutual that they will be financially prepared for retirement when the time comes.

Even if you’ve saved $62,600 (or less) for retirement, if you’re in your early 40s or younger, there’s plenty of reason to be hopeful about your long-term retirement goals. Let’s crunch the numbers to see why. But first, let’s make some assumptions.

• Millennials’ birth years range from 1981 to 1996, so let’s assume the typical millennial was born right in the middle, in 1989. So our typical millennial retirement investor will turn 35 in 2024.
• And let’s say this 35-year-old has $62,600 in retirement savings, which the average millennial found in a Northwestern Mutual study.
• If you turn 35 in 2024, your full Social Security retirement age will be 67. So you have 32 more years to save and invest for retirement. There’s plenty of time! A lifetime, really.

How to Invest for Retirement

For the record, 32 years is a huge time span to grow your retirement savings. Let’s say you’re just getting started, even if you have much less than $62,600 saved at age 35.

Let’s take a look at how a typical millennial can retire based on how much they save per month.

If you save $500 a month, how much will you have to live on in retirement?

Let’s say you start with $62,600 saved for retirement and can save a total of $500 per month ($6,000 per year) for retirement. Depending on your salary and whether your employer matches it, you may be able to fully achieve this savings goal within your 401(k) at work. Or, you can use another retirement account, such as a Roth IRA or traditional IRA.

Investing $6,000 a year in mostly stock ETFs will probably maximize the potential for long-term investment growth. Let’s assume that even if there are twists and turns in the short term, you can get an average annual return of 8%.

In 32 years, at age 67, you will have $1,540,022 saved for retirement. Assuming you take 4% annual withdrawals, that nest egg would provide about $61,600 in annual retirement income. By saving just $500 a month, you, now 35, can easily reach your retirement goal of $1.5 million, which most Americans believe is the “magic number” for retirement.

But what if you’re not a typical millennial? What happens if you have no money saved for retirement and are just starting out? Let’s look at another example.

Starting at $0 at age 35: How much will saving $1,000 a month give you in retirement?

Let’s say you’re 35 years old and have nothing saved for retirement. What if you could save $1,000 per month ($12,000 per year) for the next 32 years? Assuming you earn the same average annual return of 8% from a diverse portfolio of stock and bond ETFs: After 32 years, you will have saved $1,610,562 for retirement. With a 4% annual withdrawal, that nest egg would generate income of approximately $64,422 per year.

But what happens if you’re already over 40, have nothing saved for retirement, and can’t afford to save $1,000 a month?

Starting at $0 at age 43: How much will saving $500 a month give you to live off in retirement?

Let’s say you are a “millennial” born in 1981. So in 2024 you will be 43 years old. You have 24 years left to save for retirement before you reach Social Security retirement age of 67. I haven’t yet been able to save anything for retirement, but I just got a big promotion in my career, have a generous 401(k) match, and am ready to invest!

If you can save $500 per month ($6,000 per year), you can boost your retirement savings contributions by 2% per year and earn an average of 8% per year on your stock and bond portfolio.After 24 years, you will have saved $511,136 for retirement. That’s enough for an annual income of $20,445, including Social Security. (As of January 2024, the average Social Security retirement benefit is $1,907 per month.)

conclusion

Millennials have plenty of time to save for retirement, even if they have zero savings to date. Save every paycheck, invest aggressively (primarily in stocks), and grow your investments over the long term.

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