In focus

Are millennials right to be confident about their retirement savings?

David Brett

David Brett

Investment Writer

See all articles

Millennials are more bullish than any other generation about their retirement savings, a major new study has found. But with time on their side should they be doing more?

Almost two fifths (38%) of millennial investors (aged between 18 and 37) globally are very confident they are saving enough now so they won’t run out of money in their retirement.

That is more than 29% for Generation X (aged between 38 and 50) and 21% for Baby Boomers (aged between 51 and 70). Perhaps there is a lesson to be learned from older generations?

The findings were part of Schroders Global Investor Study (GIS) 2019, which gathered the views of more than 25,000 investors in 32 locations around the world.

Millennials say they are saving on average 15.9% (including employer contributions) of their income (wages plus any other earnings) specifically for their retirement. That too is more than Gen Xers (14.7%) and Baby Boomers (13.7%).

It is also slightly more than the 15% recommended by the investment industry.

Millennials on track

Sangita Chawla, Head of Retirement Savings at Schroders, says that right now it looks like millennials are on track with their savings, but they should avoid complacency.

“The results of the study appear to buck a common myth that millennials aren’t doing enough to save for their retirement. On the contrary, millennials appear to be saving a reasonable amount for their retirement, which is encouraging.

“What they should be mindful of is that careers and earnings can fluctuate. There is also the added uncertainty over the future of state pensions.

“While they might be saving just enough now it might not be the same in the future.

“The most important thing for millennials is to contribute as much as possible as early as they possibly can.”

Luckily, millennials appear more receptive than any other generation to do more when it comes to saving for retirement.

Nearly all (97%) said that something would convince them to save more for their retirement, compared with 94% for Gen Xers and 82% for Baby Boomers.

Save more, start early

The one thing that millennials have on their side over older generations is time, with up to 40 years or more until they are due to retire.

Putting their money to work earlier allows more time for their savings to grow. It could also mean less of a scramble in the latter part of their careers if they have to make up shortfalls.

The chart below illustrates how, by starting to save earlier, a millennial could build retirement savings of $100,000 from as little as $109 a month. And the more they save the quicker and bigger their savings should grow.

The figures used to calculate the savings are generic, and they can work in any currency, but in this example we have used US dollars.

Schroders’ calculations show if people start saving at age 25 they would need to save $109 per month to reach savings of $100,000 by age 65. If they started saving at age 45 they would need to save more than twice as much ($225).

The total amount contributed is more too, the later people leave it.

People who start saving at age 45 could end up contributing a total $67,564 to reach savings of $100,000 by the time they are 65. That’s nearly 30% more than people who start saving at 25.

How to save for a $100,000 retirement


The miracle of compounding

By starting early, millennials benefit more from the miracle of compounding, or as Einstein called it “the eighth wonder of the world”.

Compounding involves earning a return not only on your original savings but also on the accumulated interest, or returns, earned on your past savings. That is why total contributions should be less the earlier you start saving, because you can earn returns on returns over a longer period.

There are of course other factors to consider. Returns are by no means guaranteed and careers can fluctuate too.

“Life rarely works out exactly as we plan. But by saving as much as you can as early as you can you can help smooth out your journey to retirement,” Chawla said.

“If investors feel uneasy, they should seek help from an independent financial adviser or planner. Decisions about retirement saving are difficult given the many factors at play. The support of an expert can help give people confidence that they have made the right decisions.”

Which locations save the most for retirement?

Still, millennials are doing more than most when it comes to saving for retirement.

GIS 2019 found millennials are saving more than the average non-retired investor aged 38 and above in most (20 out of 32) of the locations in which they live.

Belgium (+9.0%), Austria (+8.5%) and Portugal (+5.3%) were the three locations where the disparity was highest, between what millennials and non-millennials were saving, on average.

The locations where millennials were found to be saving over 1% less than non-millennials were Indonesia (-3.1%), Denmark (-2.9%), Singapore (-1.9%) and Taiwan (-1.9%).


Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it 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. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.