Spanning 16 years between 1981 and 1997, Millennials account for a quarter of the nation’s population. As the oldest of their generation reach the age of 40 this year, many will begin to seriously think about their retirement prospects.
Because the gap between the oldest Millennial and its youngest is so large, so is the elusive retirement number. For the older future retirees, the target number is approximately $1.8 million. However, for the very youngest of the bunch, the number is significantly higher, approaching $2.5 million according to various experts.
There are two assumptions used in developing these estimates:
Income Needed – The estimated annual income needed in retirement in today’s dollars used in the calculations averaged $68,700 per year.
Inflation Rate – Inflation decreases the value of a dollar over time. To account for this, the inflation rate used assumed an annualized increase of 2%.
The numbers get even bigger if one wishes to have even more money during their retirement years. A rule of thumb is to aim for 75% of your pre-retirement earnings. Logically, during retirement, you should have fewer reoccurring expenses like a mortgage.
Luckily, even for the oldest Millennials, time is still on their side.
A 40-year-old still has 20 to 30 years to save for retirement. For many, it is a matter of taking the first step and signing up for their employer’s retirement plan or socking money into an individual IRA. As the magic of compounding interest takes hold, the thought of a comfortable retirement can become more reality than a dream.