Millennial retirement savings: How does your contribution rate compare with the average?
Editorial staff, J.P. Morgan Wealth Management
- Millennials contribute an average of 5.2% of their salary to workplace retirement plans, which falls short of the 10% to 15% that many retirement experts often recommend.
- Contribution rates can vary based on income, with some millennials with lower incomes contributing an average of 4.6% and higher earners contributing 6.1%.
- Increasing your retirement contribution rate by 1 percentage point could add tens of thousands of dollars to your retirement savings and help you reach your goals.
On average, millennials contribute 5.2% of their salary to workplace retirement plans, according to J.P. Morgan Asset Management’s Retirement by the Numbers report. Even among the highest-earning millennials, the average contribution rate is just 6.1%, which is well below the 10% to 15% savings rate often recommended by retirement experts.
Fortunately, you don’t need to make any major changes to your retirement savings to improve your retirement outlook. Even small increases to your contribution rate may add up over time.
How much is the average millennial contributing to their retirement accounts?
The average millennial contributes 5.2% of their salary to a workplace retirement plan, though contribution rates vary by income. The lowest third of income earners contribute 4.6%, compared with 5.0% for middle-income earners and 6.1% for the highest earners.
Millennials fall somewhere in the middle compared with other generations. Gen Z workers contribute an average of 4.1% of their salary, Gen X contributes 6.1% and Baby Boomers contribute 7.4% on average, according to the report.
While the report shows that retirement contributions can increase with age, they still fall short of the often-recommended 10% to 15% saving rate. The highest-earning Baby Boomers contribute 8.6% of their income, on average, which is where retirement savings peak, according to the report.
The report also shows that 85% of retirement plan participants may never reach a contribution amount of 10% or higher.
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Strategies for increasing retirement savings
If your retirement contributions are not high enough for you to feel like you’re making meaningful progress toward your goals, consider a few strategies that may help you get there.
Gradually increase your contribution rate
One way you can save more for retirement is by gradually increasing how much you contribute. Increasing your retirement savings rate by just 1 percentage point at age 25 could add an average of $84,000 to your retirement savings over a 40-year career. That may be enough to cover approximately nine years of Medicare-related expenses in retirement.
Even if you’re already in your 30s, increasing your contribution rate still makes a difference because you have years of compounding growth left to take advantage of. Many employer-sponsored plans offer automatic contribution increases on a scheduled date each year. This is an easy way to increase the amount of money you save and invest for retirement without even thinking about it, and you may have the freedom to opt out at any time.
Consider other tax-advantaged retirement accounts
If your employer offers a 401(k) and matching contributions, consider contributing at least enough to receive the full employer match. After that, consider increasing your 401(k) contributions over time and contributing to an individual retirement account (IRA) if you’re eligible. Traditional and Roth IRAs provide additional tax benefits and may complement your workplace retirement plan so you can save and invest more.
Open a brokerage account
A taxable brokerage account may give you more flexibility than your retirement savings when it comes to investments and withdrawals. Unlike a 401(k) or IRA, brokerage accounts don’t have annual contribution limits or age-based withdrawal rules. That means you can invest as much as you’d like, and you can sell your assets and withdraw the funds at any time if your financial situation changes before retirement. These accounts don’t offer the same tax advantages as retirement accounts, but they may help you diversify your investments.
Review your retirement strategy regularly
It’s important to revisit your retirement strategy regularly throughout your career, especially when you change jobs or experience a major life event. Reviewing your retirement goals at least once a year helps ensure your strategy is still aligned with your income and long-term plans.
How much money does a millennial need to retire comfortably?
The amount you need to retire comfortably depends on factors like your income, expected lifestyle, retirement age and other sources of income.
J.P. Morgan Asset Management estimates that someone whose salary peaks at $80,000 may need $660,000 in savings at age 65 to maintain a comparable lifestyle in retirement. That means you may need enough income from your savings, Social Security and other sources to replace about 81% of what you earned before retiring.
While that can provide a helpful benchmark, your retirement savings goal may look very different. Here are a few ways to estimate how much you’ll need:
- Estimate your retirement needs: Start by thinking about how much income you’ll need each year in retirement. Your housing costs, healthcare expenses and expected lifestyle all determine how much you’ll need to save.
- Factor in other sources of income: Social Security, pensions and other sources of guaranteed income may reduce the amount you’ll need to withdraw from your retirement savings each year.
- Review your plan regularly: Your income, expenses and retirement goals will likely continue to change over time, so review your plan at least once a year.
The bottom line
Millennial workers contribute an average of roughly 5% of their salary to workplace retirement plans, which is below the 10% to 15% retirement experts often recommend. The good news is that small increases to your contribution rate can make a big difference over time, especially if you start early in your career. Focusing on saving as much as you can and having a mix of retirement plans can help you prepare for retirement.
Frequently asked questions about saving for retirement
Your retirement age depends on your financial situation, health, retirement savings and career plans. While some people retire in their 60s, others continue working until their 70s or later. The more you save throughout your career, the more options you’ll have come retirement age.
There’s no single savings number for millennials to reach by age 40. Instead, try to focus on contributing consistently, increasing your savings rate whenever possible and reviewing your retirement plan regularly to ensure you’re on track to hit your goals.
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