On average, Americans in their 20s think they’ll need about $1.2 million to retire to retire comfortably, according to Northwestern Mutual’s “2023 Planning and Progress Study.”
So far, they’ve saved about $35,800 for retirement on average, according to the study.
That may seem a long way away from $1.2 million, but younger investors have time on their side when it comes to saving for retirement thanks to the power of compounding interest, investing experts say.
Gen Z workers, those aged 20 to 26, expect to retire by the age of 60 — the soonest of the generational cohorts, Northwestern Mutual’s study reveals.
While that’s a little earlier than the average retirement age of 62, it’s still feasible.
CNBC calculated how much someone in their 20s would need to put away each month to retire with $1.2 million at the age of 60, as well as the income level they’d need to reach in order to accomplish at a savings rate of 10% or 15%.
Financial advisors typically recommend saving at least 15% of your gross annual income for retirement, inclusive of employers’ matching contribution if available.
These calculations also assume a starting balance of $0 and don’t factor in unpredictable events such as periods of unemployment, promotions or market volatility.
If you start at 21
Earning a 3% annual rate of return: $1,350 per month
- Annual salary needed if you save 10% of your income: $161,955
- Annual salary needed if you save 15% of your income: $107,976
Earning a 5% annual rate of return: $833.30 per month
- Annual salary needed if you save 10% of your income: $99,996
- Annual salary needed if you save 15% of your income: $66,667
Earning a 7% annual rate of return: $493 per month
- Annual salary needed if you save 10% of your income: $59,106
- Annual salary needed if you save 15% of your income: $39,405
If you start at 25
Earning a 3% annual rate of return: $1,618 per month
- Annual salary needed if you save 10% of your income: $194,184
- Annual salary needed if you save 15% of your income: $129,463
Earning a 5% annual rate of return: $1,056 per month
- Annual salary needed if you save 10% of your income: $126,750
- Annual salary needed if you save 15% of your income: $84,504
Earning a 7% annual rate of return: $666 per month
- Annual salary needed if you save 10% of your income: $79,953
- Annual salary needed if you save 15% of your income: $53,305
If you start at 28
Earning a 3% annual rate of return: $1,865 per month
- Annual salary needed if you save 10% of your income: $223,801
- Annual salary needed if you save 15% of your income: $149,208
Earning a 5% annual rate of return: $1,270 per month
- Annual salary needed if you save 10% of your income: $152,416
- Annual salary needed if you save 15% of your income: $101,616
Earning a 7% annual rate of return: $840 per month
- Annual salary needed if you save 10% of your income: $100,811
- Annual salary needed if you save 15% of your income: $67,211
Around 65% of Gen Zers and 54% of millennials feel they’ll be financially prepared for retirement when the time comes, according to Northwestern Mutual’s study.
And they’re already making progress toward achieving their retirement goals — especially Gen Z workers. They saw their 401(k) balance increase by 34% compared with the first quarter of 2022 — the highest rise out of any generational cohort, per Fidelity’s findings.
Additionally, the amount of IRA accounts opened by Gen Z increased by 25% in the first quarter of 2023 compared with a year ago, according to Fidelity.
“It’s encouraging that today’s younger generations have more financial awareness than any generation before them,” Joanna Rotenberg, president of Personal Investing, says in a recent Fidelity report. “This financial savvy can pay off in the long run, as making steady retirement contributions can help weather the inevitable financial downturns that will take place over time.”
