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Most Millennials Don't Expect to Become Millionaires

Emily Brandon


Each of us is now responsible for saving for our own retirement, but many young people aren't feeling particularly optimistic about their ability to do so. Most millennials (64 percent) say they don't expect to be able to accumulate $1 million for retirement over their lifetime, according to a Wells Fargo and GfK survey of 1,005 millennials ages 22 to 35 who are employed U.S. residents, but not working in the financial services or banking industry.

[See: 10 Retirement Planning Moves to Make in Your 20s.]

Most of the millennials in the survey (59 percent) say they have started saving something for retirement. But 41 percent of the millennials surveyed report they aren't saving, typically because they are not earning enough money to save for retirement. The millennials who don't think they will ever save $1 million report a median personal income of $27,900. However, a few of them are saving at least 5 percent (37 percent) or even 10 percent (7 percent) of their small salaries.

The millennials who expect to become millionaires generally enjoy much higher salaries. The third of millennials who think they have the ability to become millionaires report a median annual personal income of $53,000. Three-quarters of these higher income millennials are saving for retirement, and over a quarter are tucking away more than 10 percent of their income.

Many of the millennials in the survey (34 percent) are hindered by student loan debt, and these millennials owe a median of $19,978. The majority of those with student loan debt say they find it to be "unmanageable," but many are also simultaneously managing to save a small amount for retirement.

Many millennials are still searching for a job in their desired career field. While just over half (54 percent) of millennials between ages 30 and 35 have landed jobs in their preferred career, only about a third (36 percent) of 20-somethings have found a full-time job in their intended field.

Millennial women seem to be having a particularly difficult time landing a job that pays enough to begin building a nest egg for retirement. The women in the survey report a median salary of $28,800, compared to $39,100 for men. Perhaps consequently, the young women are more likely than men the same age to report that their finances are stretched too thin to save for retirement and that they don't believe they can accumulate $1 million in savings for retirement. The men surveyed are more likely to report having started saving for retirement and are saving a slightly bigger proportion of their income.

[Read: How to Save for Retirement on Less Than $40,000 Per Year.]

Most millennials say they know they should be saving for retirement, but many have concerns about investing. Over half of millennials say they feel uncomfortable with investing (59 percent) and worried about losing their savings in the stock market (52 percent).

It's much easier to become a millionaire by retirement if you start saving in your 20s. Even a worker earning a small salary can save $1 million if he or she begins building a nest egg at a young age. For example, a worker earning a starting salary of $32,000 at age 25 who saves 5 percent for retirement and increases her savings rate by 2 percent each year until hitting a 13 percent savings rate could become a millionaire by age 65, assuming a 2 percent annual salary increase and a 7 percent annual return, according to Wells Fargo calculations.

Millennials who do manage to save something for retirement might qualify for a variety of tax breaks. A worker in the 15 percent tax bracket who tucks $1,000 in an IRA will reduce his current tax bill by $150. Income tax won't be due on this money until it is withdrawn from the account. In addition to that tax deduction, those with an adjusted gross income below $30,750 for individuals and $61,500 for couples in 2016 may be able to claim the saver's credit, which is worth between 10 and 50 percent of 401(k) and IRA contributions up to $2,000 for individuals and $4,000 for couples.

Another option is to tuck your money into a Roth 401(k) or Roth IRA. While you won't get an immediate tax break for a Roth account contribution, you won't owe income tax on the withdrawals in retirement. Roth accounts can be an especially good deal for young people who are in a low tax bracket now, but expect to pay a higher tax rate in retirement. Contributing to a Roth account will also qualify you for the saver's credit.

[Read: How to Become a Millionaire by Retirement.]

However, saving $1 million for retirement isn't the only hurdle millennials face. A $1 million nest egg drawn down gradually over several decades of retirement is likely to produce about $40,000 per year of retirement income. While that might be a comfortable income in some parts of the country when combined with Social Security, it isn't likely to provide for a lavish retirement.

Emily Brandon is the author of "Pensionless: The 10-Step Solution for a Stress-Free Retirement."