Many retirement experts believe that in order to fund a multi-decade retirement, today’s young people will need to save up a nest egg of at least $1 million.
That’s a huge number, and nearly two-thirds of Millennials think that’s an impossible milestone, according to a new report from Wells Fargo. But they may be too pessimistic.
A Wells Fargo analysis finds that if a 25-year-old with a salary of $32,000 saves 5 percent in his first year and increases that savings rate by 2 percent per year up to 13 percent, could have a $1 million stashed away within 40 years. The analysis assumes annual raises of 2 percent per year and a 7 percent return on invested assets.
“Making the math work to accumulate savings means that millennials must start saving early in their working lives,” Joe Ready, director of Institutional Retirement and Trust for Wells Fargo, said in a statement. “Millennials have the power of time on their side and need to embrace it.”
The study found that more than 40 percent of millennials aren’t saving for retirement, with nearly two-thirds of those saying that they’re not making enough to save.
Even though they’re not all saving, the majority of millennials (85 percent) say that saving for retirement is an important part of becoming a “financial adult,” and nearly three-quarters don’t think that Social Security will be there for them in retirement.