Equity, Diversity and Inclusion

To retire at 65, American millennials need to save almost half their paycheck

Elderly people sit in the Jardin des Tuileries in Paris, France, October 12, 2018.   REUTERS/Charles Platiau - RC1C88B45450

Millennials should save 40% of their income if they want to retire comfortably at 65, or they risk financial hardship. Image: REUTERS/Charles Platiau

Sean Fleming
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Education, Gender and Work

  • US millennials are now advised to save much more for retirement than previously suggested – 40% of income, compared to 15% in the past.
  • Many millennials are at risk of having insufficient savings to retire comfortably.
  • If you can't save more of your income now, make sure you're investing in your skills and your health so you can continue working and avoid financial hardship.

There's new advice for US millennials planning to retire at 65: squirrel away 40% of your income over the coming years, if you can.

According to Dr. Olivia S. Mitchell, Professor of Business Economics and Public Policy at the University of Pennsylvania, that’s what you'll need in savings to live off even just half of your final salary in retirement.

Have you read?

And that may come as a shock for the 67% of Americans who told the Employee Benefit Research Institute they were confident they’d be able to retire comfortably.

Past advice advised American workers to put aside around 15% of their annual income and encouraged them to start saving as early as possible.

A worsening outlook for stock markets is one reason why it's important to save more. While average returns from US stocks have been around 10%, several investment firms quoted by CNBC cautioned future returns may be far lower.

Can’t save? Keep working

Saving almost half your salary is unlikely to be feasible for all but the most well paid, making the dream of retiring at 65 just that – a dream. It may be necessary to rethink your plans and work well into your 60s and even your 70s.

Personal savings rates in the United States, 1960-2018 Image: Statista

This may be all the more urgent given that, as the above chart shows, the proportion of disposable income set aside by Americans (the personal savings rate) has been lower for most of the last 19 years than it was in previous decades.

The prospect of working past a typical retirement age might not fill many hearts with joy, and poor health or a lack of employment opportunities could lead to economic hardship.

Reskilling

In the future world of work, taking time to invest in your own skills, health and mental resilience will be important.

As the employment landscape is reshaped by automation, artificial intelligence, machine learning and other technology-led developments, demand for skills will shift, as outlined in the World Economic Forum’s Future of Jobs report.

Several waves of automation-driven change will make retraining commonplace. But that won’t necessarily make it unsettling. As well as staying physically fit and up-to-speed with in-demand skills, the workforce of the future will need to be emotionally and psychologically resilient, too.

So, if you can't invest 40% of your income in retirement savings, make sure you're at least investing in yourself.

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