How Much Do Millennials Need to Save for a Comfortable Retirement?

The answer depends on a number of interlocking factors

Everyone, including millennials, wants to know exactly how much to save for a comfortable retirement, so they can just set it and forget it. JPMorgan Chase (JPM) has tried to figure that out for the generation born between 1982 and 2004.

Its 2015 study "The Millennials: Now Streaming: the Millennial Journey From Saving to Retirement" looks to answer the question, taking into account how life, the market, and the government may impact retirement planning. Here is a rundown of the numbers J.P. Morgan came up with and a look at three of the most common retirement problems millennials are likely to encounter.

Key Takeaways

  • Nearly half of all millennials lack access to an employer-sponsored retirement account.
  • Millennials won’t be able to save what they need if they don't invest in equities.
  • Millennials face a shortage of jobs due to the effects of automation and the Internet.

What Millennials Need for a Comfortable Retirement

For this study, J.P. Morgan found that if a millennial started saving at the age of 25, they will need to save the following to be able to retire at age 67 and meet retirement income targets:

  • Those earning a median income will need to save 4% to 9% pretax.
  • Those earning an income in the affluent category will need to save between 9% and 14% pretax.
  • Those who are considered high net worth will need to save between 14% and 18% pretax.

Mark T. Hebner, founder and president of Index Fund Advisors Inc. of Irvine, CA, and author of Index Funds: The 12-Step Recovery Program for Active Investors, explains:

"Affluent and high-net-worth millennials will need to save much more than median income earners due to higher taxes and the fact that they put less of their total income into Social Security every year. These combined effects mean that they must rely more on their own savings to be able to fund their standard of living in retirement."

In addition to the pretax savings listed above, the study suggests that millennials will need to sock away 2% of their income after tax and, if they have an employer-sponsored retirement plan, have a 50% employer match of up to 3% of their wages—information that further complicates arriving at a straightforward answer.

Many things may affect how much millennials can put away and what they end up with during retirement. The following three factors could likely necessitate saving even more than the above estimates.

Access to Retirement Plans

According to a 2019 survey by, more than 25% of millennials have no access to an employer-sponsored retirement plan, while another 30% have jobs at which they haven't met the eligibility requirements to take advantage of one (they may, for example, only be working part-time). That means that less than 45% even have access to these retirement plans. This can have a big impact on how much you can save in a tax-advantaged account. The less you invest in a company retirement account, such as a 401(k) plan, the more you will have to save overall.

With a 401(k), for example, individuals can contribute up to $19,500 for 2021 as a tax-deferred benefit (increasing up to $20,500 in 2022). If they do not have access to a 401(k) plan and need to use an individual retirement account (IRA), they are capped at saving $6,000 a year in a tax-deferred account for 2021. This contribution limit remains the same in 2022.

This means that more will have to go to a taxable savings account, thus decreasing the account's compounding effect, as you have to pay taxes on any interest income or capital gains. Plus, you miss out on the assumed employer match in the above calculations, so you will have to save that percentage on your own also.

In addition to saving for retirement, millennials must make sure to have an emergency fund to tide them over when out of work or facing an unexpected crisis.

Asset Allocation

Having the right allocation in stocks and bonds can make a big difference in how much your portfolio will return over the years. If that allocation is too low on stocks, you will not reach your goals.

You simply cannot accumulate the money you need to retire without more exposure to equities. Inflation alone will destroy your dollars' purchasing power if your investments lack appreciation potential. So if moving to add more stocks to your portfolio is just too stressful, you will have to find a way to drastically increase your savings.

Job Uncertainty

While computers and the web have made things in general really easy, they do come with some drawbacks. During your lifetime, the chances of your job being replaced by automation have increased. Additionally, because of widespread Internet access, there is increased competition from foreign workers who can do your job remotely—and likely for a lot less than what you get paid, which lessens the need for full-time staff.

With these two factors in place, the chances of being out of work increase as corporations look to cut costs. When you are unemployed, you lose time and funds to save in a retirement account and get an employer match. You also risk needing to withdraw retirement savings to keep yourself afloat. That's another reason why you need an emergency fund.

The Bottom Line

There are plenty of reasons why millennials are stressing about saving for retirement. The best way to deal with all of them is to save as much as you can. A good goal is to save at least 15% to 20% of your gross income to ensure that you get to live the life you want after you bid the workplace adieu.

Article Sources

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  1. JP Morgan Asset Management. "J.P. Morgan Explores Financial Future of Millennials from Saving to Retirement." Accessed Dec. 8, 2021.

  2. Milliman. "Millennials and Retirement: What Do Employers Need to Know?" Accessed Nov. 10, 2020.

  3. Internal Revenue Service. "2021 Limitations Adjusted as Provided in Section 415(d), etc." Accessed Nov. 10, 2020.

  4. Office for National Statistics. "Which occupations are at highest risk of being automated?" Accessed Nov. 10, 2020.

  5. MarketScale, citing Remote. "71% of Tech Workers Would Move Overseas and Work Remotely if They Could." Accessed Nov. 10, 2020.