Global Investor Study
Are millennials on target to retire at age 58?
Young investors are saving 11.2% of their salary for retirement, only slightly less than the average for all generations, find the Schroders Global Investor Study
30 November 2017
Millennials (18-35 year olds) are investing 11.2% of their salary for retirement and are relying less on state contributions than older generations (over 35 years olds), a major study has found.
The report, which covers 30 countries, also found millennials were hoping to retire with an average age of 58.2 years old.
Schroders Global Investor Study (GIS) 2017, which surveyed more than 22,000 people who invest, also pointed out a shift in approach to retirement among the younger generation.
Millennials will still rely on the state pension, company pensions and other savings to contribute most to their retirement but to a much lesser extent than older generations.
Millennials said that they expected the state pension to provide 14% of the retirement income, compared with 21% for older generations.
Millennials are also hoping to work part-time before they retire, with 71% declaring this as an aim compared to 57% among older generations.
They are also more inclined to turn a hobby into income once they retire, with 35% making this a goal compared to 25% across older generations.
Expected/actual sources of income in retirement
Lesley-Ann Morgan, Head of Retirement at Schroders, said:
“The financial situation of millennials is daunting. We hear about it all too often. It’s therefore heartening to see young investors, in many respects, demonstrating a mind-set to retirement that’s very different from their parents.
“The young investors in our study are saving more than 11% of their income, which is only slightly lower than the average across the generations. It is a notable achievement when this generation face so many pressures on their finances.
“There also seems to be a growing understanding that the face of retirement is changing. They show a greater inclination to turn a hobby into an income, for instance, once they have retired. They are also more willing to accept that the state will only provide a sliver of their retirement income.
“Overall, it seems many millennials are taking personal responsibility seriously when it comes to retirement saving.”
Are millennials saving enough for retirement?
Millennials are saving, on average, 11.2% of their income for retirement, according to Schroders Global Investor Study. Older generations are putting away slightly more, at 11.6%.
Millennials might be saving less now but they have more time on their side.
Schroders’ Lesley-Ann Morgan said: “The most powerful tool available to savers is time. Start saving at an early age and it makes an incredible difference to the eventual size of your retirement savings. The miracle of compounding, where you earn returns on your returns, adds up over 30 or 40 years of saving.”
The level of retirement income savers can expect depends on:
- The amount contributed (and when).
- The returns achieved.
- How the money is invested after retirement.
- The length of time over which money will be withdrawn.
The chart below, from Schroders calculations, shows the returns needed to achieve certain outcomes.
The analysis assumes a starting age of 20 with a £25,000 salary that rises in line with inflation. It shows the real annual returns – the growth above inflation - that would be needed to achieve two levels of income: 50% or 66% of your salary when you retire. These are typical bands that people aim for. It also assumes they will retire at 60 and draw on the money for around 21 years, on average.
Our analysis shows that someone who started saving for retirement at age 20 would need to save between 12% and 15% a year if they wanted to retire on 50% of their salary.
Source: Schroders Retirement. For illustrative purposes only. Starting age 20 years, retiring at 60. Starting salary of £25,000 assumed to grow at the rate of inflation. Replacement rate based on current annuity rates generating an income of 66% and 50% of final salary respectively.
If a saver’s portfolio delivered a long-term average of 3.9% above inflation – a plausible, but stretching target for investments, then a contribution rate of 15% of salary could be enough provide a 66% replacement of salary.
Of course, the numbers are different for those who start saving at later ages.
When will I retire?
Globally, millennials, on average, said they wanted to retire at 58.2 years old, which is earlier than non-retired older investors who said they would like to retire at 61.8 years old. However, millennials said the age they actually expected to retire at was 61.5 years old.
More results on retirement expectations are published in the full report. The links below take you to other elements of the Schroders Global Investor Study 2017.
- Investors expect returns of 10.2% with millennials hoping for more
- US outranks Europe in Schroders sustainability league table
- Profit vs impact: investors choose sustainability for better returns
- How people are prioritising investing over property and savings
Take the investIQ test
Do you make decisions based on logic and reason? The truth is our mind plays tricks on us more often than we realise. It makes us believe we’re thinking analytically, when we may be acting instinctively. So what feels like an informed decision, is actually clouded by behavioural biases.
The same thing happens when we’re making important choices – like how to invest our money.
At the heart of investIQ is a short test developed by behavioural scientists that helps you understand your investment personality. In less than 8 minutes, you’ll get a detailed report outlining which behavioural traits influence you the most, and how best to deal with them.
Take the investIQ test in less than eight minutes. Go to Schroders.com/investIQ
Important information: Schroders commissioned Research Plus Ltd to conduct, between 1 and 30 June 2017, an independent online study of 22,100 people in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, UAE, the UK and the US. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.