We all know the importance of saving for retirement, but millennials are lagging behind.
According to a recent University of Missouri (MU) study of U.S. Census data, millennials account for 25 percent of the population, but barely 37 percent of them even have retirement accounts. Among self-employed individuals, only 17.6 percent have a retirement account of any kind.
There is also a difference along racial lines. Comparing respondents with the same income, retirement account balances are nearly 53 percent lower for black millennials than white millennials.
As Rui Yao, MU’s associate professor of personal financial planning, put it: “The results suggest that financial education about saving for retirement is absolutely necessary. With the decline of defined benefit plans, millennials need to know much more about investing for retirement than their parents or grandparents did.”
One place to start is addressing millennial misconceptions about retirement. More than one-third of millennials believe they only need $200,000 in retirement savings to retire comfortably, even though research suggests a retiree needs to save more than $1.1 million to live off of $40,000 a year over a 30-year retirement. Yet only 25 percent of millennials know they need $1 million or more to retire comfortably.
Millennials, remember: The more you earn, the more you should save—because of higher taxes on high-earners. Remember these benchmarks:
-Millennials earning a median income will need to save four percent to nine percent pre-tax.
-Those earning an income in the affluent category will need to save between nine percent and 14 percent pre-tax.
-Those who are considered high net worth will need to save between 14 percent and 18 percent pre-tax.
You’re never too young to start saving. Start now!