Why Millennials Will Need to Save More Than Their Parents Did

You know it’s important to save money for your future, but if you’re a millennial, we’ve got a bit of bad news: you’re probably going to need to save even more than you originally thought.

How much more? According to Dan Kadlec from Time.com, up to twice as much as the baby boomer generation.

Why is this? Ever since the internet bubble popped at the turn of the century, we have been living in a low-return economic environment. People planning for retirement can no longer depend on the market to do the heavy lifting for them.

Since 1978, the average annual return on a portfolio consisting of 60% stocks and 40% bonds has been 6.3% – a very robust number. Going forward, it is estimated that this return will be closer to 2.9%. It may not sound like much of a difference, but over a 40-year time period, it translates to a 60% smaller retirement fund.

The old rule of thumb was to set aside 10% to 15% of every paycheck. Unfortunately, that will no longer allow you to live comfortably. If you want the same result as baby boomers, you will need to save about 25% of your paycheck for 40 years.

That’s a lot, especially for millennials. Between outsized housing costs and student loan debt, Time estimates that young workers are only saving about 6% of their current pay – about 76% less than recommended.

If you are saving closer to the 6% mark, don’t panic. The 25% number is not set in stone, and is an overly-aggressive estimate based on the assumption that Social Security will no longer be available (which may not be the case). Still, the point remains. Young adults will need to save significantly more money to produce the same results as past generations.

Are you worried about saving for retirement? Having a professional advisor by your side can help ease your stress. The financial consultants at American Investment Planners, LLC have decades of experience helping people just like you plan for retirement.

To schedule an appointment with one of our advisors, please call (516) 932-5130 or email info@americaninvestmentplanners.com.