For those who are graduating college and beginning careers, it is not too early to start thinking about retirement. As contributions to 401k begin, you might want to plan on contributing more than expected. According to a new survey by the Insured Retirement Institute and the Center for Generational Kinetics, seventy percent of millennials said they think they will spend less than $36,000 per year in retirement, compared to which the Bureau of Labor Statistics found that the average is actually $46,000 for people ages 65 to 74. Since most millennials believe that Social Security will not provide them with much, if not any, in retirement, it is very important to start saving for retirement as early, and as much as possible.
Developing savings habits right away is the best way to secure a financial future. A new report from J.P. Morgan Asset Management on millennials and money, calculated what millennials need to be saving for retirement and calculated savings rates at different points of income, and found that if median income millennials put away between 4 and 9 percent of their pretax income every year, they should be able to have just as much retirement income as their working income. Those with higher salaries should be saving between 9 and 14 percent of their pretax income, and those striving for high net worth would need to save 14 to 18 percent of their pretax income in order to have income equal to 85 percent of their working income in retirement. These calculations are assuming that millennials would also be putting 2 percent of their after-tax income into savings, and receiving an employer match of pretax savings, capped at 3 percent. The calculations also assume that people save consistently, starting no later than age 25. Granted these are pretty intense goals, so starting any later than the age of 25 would need to increase contributions.
A great way to get millennials involved in their financial future would be to participate in the stock market, as a recent study from BankRate.com shows that only 26% of those under the age of 30 own stocks. This could mostly be in part of seeing the stock market crash around them and any financial burden on their family during the Great Recession when current millennials were entering their teenage years. In any event, contributing to retirement as early and as much as possible is the best way to maximize income during retirement years.