Millennials Need Nearly $2 Million To Retire

Thursday, March 31, 2016 Written by 
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Millennials get a bad rap, being viewed as entitled, lazy, and flat out spoiled. Aside from that, Millennials (born between 1980-2000) are also both highly unemployed and highly impoverished. In a recent report from the Federal Reserve Bank of New York, 44% of college grads in their 20s are stuck in low-wage, dead-end jobs, the highest rate in decades, and the number of young people making less than $25,000 has also spiked to the highest level since the 1990s. So, if you thought that was bad, add about 2 million more to the list of woes burdening America’s Zuckerberg generation, because that’s how much many might need to save to retire.


Older Millennials — those born in the early 1980s — will need about $1.8 million stashed away to maintain their standard of living in retirement while younger Millennials — those born in the late 1990s — will need somewhere around $2.5 million, according to various studies, estimates and experts.


To be fair, that equation makes two big assumptions. One, it assumes they’d need to generate $30,000 to $40,000 in annual income from their nest eggs in today’s dollars. And two, it assumes a 2% inflation rate, which is currently the Federal Reserve’s target rate.


Should we be sounding the financial alarms here? 


We just learned that 44% of Millennials are underemployed, stuck in low-wage, dead end jobs, and if that consists of Ramen noodles and living paycheck to paycheck, at what point does a $1,000 per month savings plan kick in? Don’t even mention the $2,000 per month it’s going to take for the early Millennials. 


That’s just the Millennials who’ve found employment. The unemployment rates for recent college graduates range from 6-12%.  As graphs show, unemployment curbs as graduates invest time in the search for employment and eventually land jobs. Nonetheless, those formative years right out of college are years spent without any future investments being made as well. 


So why do Millennials, aka Gen Y, need so much set aside? First, there’s the issue of inflation. Assuming a 2% inflation rate, a $1 million nest egg today would be worth about $530,000 in 32 years, which is when Millennials now in their mid-30s are expected to retire, and roughly $386,000 in 48 years, when the youngest Millennials are expected to call it quits.


What does this mean? Millennials who got off to a late start, will have to start saving aggressively now if they aspire to have the same standard of living in retirement as they did when working. And for the Boomlets (born after 2001) one can only imagine that with our shrinking Social Security programs, and 2% inflation, they may need $3 to $4 million tucked away.  It might be a great time in underserved communities to begin implementing financial literacy programs in our curriculums. 


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