Advice for Millennials on Saving for Retirement

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It’s not easy being a millennial these days. 

Sure, they may have piled up the trophies in their childhood, but millennials are now old enough to be attending college or embarking on careers. And they are doing so as they contend with a number of special challenges, from staggering levels of student debt to global job competition to anemic wage growth.

The problem is, those challenges make it all too easy for millennials to put off developing savings habits that could ensure a secure future. So says a new report from J.P. Morgan Asset Management on millennials and money, which has also calculated what millennials need to be saving for later life.

“Many will have to finance retirements that are longer than the number of years they work,” the report noted.

Morgan calculated desirable savings rates for millennials at different points on the income scale, and found that if median income millennials put away between 4 and 9% of their pretax income every year, they should be able to have just as much retirement income as working income.

More affluent millennials should be saving between 9 and 14% of their pretax income, Morgan found, and high net worth millennials would need to save 14 to 18% of their pretax income in order to have income equal to 85% of their working income in retirement.

In all those cases, Morgan assumed that millennials would also be putting 2% of their after-tax income into savings, and receiving a 50% employer match of their pretax savings, capped at 3%. The calculations also assume that people save consistently, starting no later than age 25.

Those are lofty goals, especially compared to the 3% average default contribution rate for millennials that T. Rowe Price found in a recent study.

“The 3% default rate that a lot of employers use is simply inadequate,” said Katherine Roy, chief retirement strategist for J.P. Morgan Asset Management and an author of the report. “People should be saving at a much higher rate.”

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Source: USA Today | Kelley Holland, CNBC