Americans in Their 20s Require $1.2 Million to Retire Comfortably at 60; Here's How To Save
Millennials and Gen Z have gone through a lot of economic ups and down in the past few years. They witnessed the great recession followed by a decade-long bull market and then a pandemic followed by war, which spelled grim news for the economy. No wonder these generations are realizing that compounding and saving is the way to go.
According to Northwestern Mutual's 2023 Planning and Progress Study, Americans who are in their 20s think that they'll need around $1.2 million to retire. The report also found that 64% of them are actively cutting costs and trying to build their savings and 41% are pushing back huge expenses, as per CNBC.
How much should I save in my 20s to have $1.2 million at 60?
Experts believe that people in their 20s should be saving somewhere between 10% and 25% of their annual income to reach the $1.2m-at-60 target. Maintaining a spreadsheet that monitors expenses can help youngsters work towards their saving goals better. The simple math is that a 25-year-old would need to save a little more than $2800 per month to be able to save $1.2 million when they are 60.
How much are we saving vs. how much should we save?
A data report shows that Americans under the age of 35 are saving only $3,240 while that becomes $6400 for those aged 55-64. Given how uncertain the economy is right now, it comes as no surprise that people are saving more than usual. Another contributing factor to the rise in savings is also the high-interest raise that has been introduced to combat the high inflation rates in the country.
Having said that, Americans still face enough issues when it comes to putting away money. Personal savings right now accounts for only 4.1% of the citizen's disposable income, which is a huge drop from the pandemic period which was around 33.8% in April 2020, as per Forbes.
Financial experts say that keeping aside three to six months of essential expenses in the form of an emergency fund is the number one thumb rule when it comes to saving money. However, there's no reason to be alarmed if you don't have one, all you need to do is, start.
Things to keep in mind while saving
1. Emergency fund: As already mentioned, emergency funds should be your number one priority when you start saving. A big goal like saving for six months can seem intimidating, so the goal is to start small but keep building. Consider saving only $500 at first and then take it from there.
2. A monthly budget: Once you get the hang of your expenses, it's important to establish a monthly budget so that you can keep a better check on your expenses. Noting down your monthly expenses is an excellent way of getting an idea of where your money is going and you can start this by saving receipts.
3. Consider retirement savings as early as possible: If you feel that your 20s is too early to start saving for retirement, then you're highly mistaken. In this extremely volatile market, it's important to save with a purpose in mind. Learn and know more about retirement savings today.
4. Save the tax returns/other windfalls: Sudden inflow of money can create an urge of splurging. It's important to resist the desire and simply save any kind of tax returns or other money like a work bonus that you might be getting.
5. Contemplation is the key: Set a gap between adding items to the cart and pressing the checkout button. This will help you eliminate the items that you added on impulse and help you buy the things that you actually need.
More from MARKETREALIST