you may want to be Financially Savvy Millennials, but I’m not sure if I’m on the right path. Whether you save a lot or a little, it helps to have a rough number to aim for.
GOBankingRates spoke to several financial advisors to find out how much money millennials should leave in their accounts today. Here’s what they had to say:
Let’s start with salary
Blake Jones, CFP® and Founder pomegranate financeThe Springville, Utah-based company said millennials (currently ages 27 to 42) should have at least $22,500 in their accounts this year.
Citing 2022 Census data, he noted that the median salary for millennial households is about $88,000 a year.
“But if you break this down per Millennial, the median salary is probably around $46,000 a year,” he says. “The income of the bottom 25% of households is as follows. [approximately] $30,000 [per year]”
He said the bottom 25% of millennials may be in this bracket for a variety of reasons, including education, illness, age and other factors. Furthermore, younger millennials are likely to earn less than older generations, he noted.
“That means if you’re in the top 75 percent of millennial earners, you’re making more than $30,000,” he said. “Three months worth of savings equates to $7,500 for him. Assuming $30,000 a year covers his expenses and retirement savings, he doesn’t have a lot of wiggle room.”
He said a good rule of thumb for retirement savings is that your contributions should increase as you get older.
“Most millennials are between 27 and 42 years old, so most people’s salaries should be between 0.5 and 3 times their salary,” he says. “If you say he’s 30 years old and making $30,000 a year, he should have $15,000 in retirement savings.”
$7,500 in emergency fund savings and $15,000 in retirement savings equal the magic number of $22,500.
“Based on the statement ‘all’ – I should say ‘most’ – I would conservatively say that the top 75% of Millennials should receive that amount, because… “The bottom 25% are likely to have differences that shouldn’t be used to compare them to the top 75% of Millennials,” he said.
He shared a formula to help you determine how much you should save for retirement based on your age.
“If you’re under 30, multiply your income by 0.5, if you’re 35, multiply it by 1, and if you’re 42, multiply it by 2.5,” he said. “That way, you can have the amount you need for retirement savings.”
The equation for an emergency fund is a little different. “Calculate your monthly expenses, and if he has two stable sources of income (two spouses), multiply by 3; if he has one source, multiply by 6,” he says. Told.
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Millennials look at savings differently
Zach Green, CFP®, CIMA®, and Regional Vice President of New Account Development wealthy groupThe Plymouth, Minn.-based firm said millennials will need at least $218,000 in their accounts in 2023, significantly more than Jones estimates.
“When setting goals for how much money millennials should have saved by now, it’s important to frame the question with the end goal in mind,” he says. “First, you need to establish your after-tax income needs in today’s dollars.”
For example, if you’re a 30-year-old making $8,000 a month (about $100,000 a year) and want to retire at 65, your salary would equate to about $281,386 over 35 years due to inflation, he said. Ta.
“If your lifestyle doesn’t change, the goal is to generate an after-tax income stream of $281,386 in retirement,” he said. “Assuming Social Security contributes $50,000 a year, you’ll find about $230,000 in investments,” he says.
Obviously, a lot will depend on your investment.
“As a general rule of thumb, you can withdraw about 4.5% of the account value in retirement, and given continued attention and a thoughtfully diversified investment mix, the account should last 30 years or more. ” he said.
At this rate, he says, he will need to have about $5.1 million saved by age 65. If you are 30 years old, this will be 35 years from now. With these numbers in mind, you now have $1.8 million in savings.
“If it’s $1.8 [million] “It sounds like a high number, but don’t worry,” he said. “The calculations so far assume that you will not make any additional contributions to the account for the next 35 years until your target retirement date.”
He said if he continued to invest an additional $20,000 a year and earn an average return of 7%, that number would drop to a target account value of about $218,000 in today’s dollars. However, he noted that many other variables can reduce this number.
For example, he said, people in retirement may work part-time or have other sources of income that reduce their reliance on investment accounts, such as rental properties or royalties. He also said he may be in a position to save and invest more aggressively as his career progresses.
General advice to increase your savings
“It can be difficult to pinpoint the exact amount of money Millennials should leave in their savings and retirement accounts,” says Matt Kalm, CFP® and wealth advisor. Ho Chi Minh City Wealth Advisor, Based in Cincinnati. “Lifestyle needs have a big impact on how much you save.”
He said a few simple guidelines can help put you in the best position for financial success.
“Establishing an emergency fund is always the first step everyone should take,” he said. “It’s often recommended to keep three to six months’ worth of expenses in a reserve account.”
However, he recognized that this could be a challenge for those just starting out.
“Rather than feeling overwhelmed by not being guaranteed three to six months of full savings, Millennials should focus on saving in small increments over time until they reach the full amount,” he said. Stated. “Set a goal to save $500 and then move to $1,000.”
He said that if he continued with this habit, he would soon have a full reserve.
When it comes to saving for retirement, he said it is generally recommended to have 1x your salary by age 30, 3x your salary by age 40, and 10x your salary by retirement.
“For example, if a millennial earns $50,000 a year, they should aim to have $50,000 in retirement accounts by age 30, $150,000 by age 40, and $500,000 by retirement age.” said. “These numbers may seem far-fetched, but with the power of compound interest from investing, these numbers are easily achievable over many years.”
He recommended automating your savings to achieve both goals.
“Millennials should allocate at least 15 to 20 percent of their income to savings and retirement savings,” he said. “Older generations find themselves significantly behind in saving for retirement, often falling short of 10 times their pre-retirement salary.”
Ultimately, he said, choosing not to save for retirement now could seriously impact your lifestyle in your golden years, so don’t wait.
This article was first published GOBankingRates.com: I’m a Financial Advisor: Why every Millennial will need at least $22,500 in their account in 2023