| What Millennials Save in Defined Contribution Retirement Accounts | ||
|---|---|---|
| Average | Median | |
| 25-34 | $42,640 | $16,255 |
| 35-44 | $103,552 | $39,958 |
Median Amount Millennials Can Save by 2055
In our analysis, we looked at two generation age groups: ages 25-34 and 35-44.
If we take a midpoint for each group, that gives us approximately 30 years old and 40 years old.
Considering the following numbers, by age 65, the median savings for a current 30-year-old Millennial could look something like this:
- Starting balance (median for ages 25-34): $16,255
- Median annual salary: $57,356
- Employee annual contribution: 8.7%
- Employer annual contribution: 4.6%
- Total annual contribution: 13.3% of salary ($7,628)
- Estimated average annual return: 7%
- Investment period: 35 years (until age 65)
If we apply a future value calculation, here’s what the current balance of $16,255 would become by age 65, assuming no additional contributions are made.
Future value formula: FV = PV × (1+r)n
Calculating that gives: FV = 16,255 × (1+0.07)35 ≈ $173,548
Now, adding in ongoing contributions gives us a new formula to consider.
Future value of annuity formula: FV = P × (1+r)n −1/r
So the outcome would be: FV = $7,628 × (1+0.07)35 − 1 / 0.07 ≈ $1,054,471
In total, combining these amounts, a median 30-year-old Millennial could save approximately $1.23 million by age 65. Just to clarify, that suggests they’d be billionaires by 2055.
Conversely, if we do the calculations for a median 40-year-old Millennial, salary set at $64,844 and with 25 years until retirement, they might end up with about $762,329 at 65. So, perhaps not billionaires in 2055.
What Millennials Should Do Now to Secure Millionaire Status in Retirement
Steady Increase in Contributions
Starting at 13.3% of income is a solid foundation. But gradually upping that percentage could be the key to achieving millionaire status later.
A good practice would be to consider boosting contributions by 1% to 2% yearly or whenever you receive a pay raise.
Consistent, small increases have a way of adding up, particularly if you’re investing in diversified, low-cost index funds.
Avoid Early Withdrawals and High-Interest Debt
Taking money early from retirement accounts not only hampers your compounding but can lead to taxes and penalties.
If you withdraw before age 59 1/2, there might be a 10% early distribution tax, except in some situations like disability or childbirth.
Keeping your retirement accounts off-limits helps in maintaining a robust retirement balance.
Diversification Plans Beyond the Workplace
Relying only on an employer’s 401(k) could limit your options. Exploring an IRA, Roth IRA, or other investment accounts gives you more flexibility, and you could access those funds if needed before retirement.
A Roth IRA, for example, allows tax-free withdrawals after age 59 1/2, and you can pull out your contributions early without penalties. Having varied account types can provide you greater control over future taxes and withdrawals.
Conclusion
When examining retirement, a median age of 30 looks far better than 40. You might wonder why—especially since the average 30-year-old saves less than their older counterparts. The answer? Time. Younger millennials benefit from more time for compound growth. That’s what really drives long-term wealth, so starting early and being disciplined is essential.
