Will you retire a millionaire? Here’s what the numbers say for millennials

How much would the average millennial have saved by 2055?

We’ll make two calculations based on the two age ranges above (25-34 and 35-44) for the average millennial.

We’ll choose an age roughly in the middle of each of these groups: 30 (roughly the middle of the 25-34 age range) and 40 (roughly the middle of the 35-44 age range).

This is the amount the average 30-year-old Millennial would have saved today at age 65, considering the following numbers:

• Beginning balance (average defined contribution plan account balance for those ages 25-34): $16,255
• Average annual salary: $57,356
• Annual employee contribution: 8.7%
• Annual employer contribution: 4.6%
• Total annual contribution: 13.3% of salary ($7,628)
• Average assumed annual return on investments: 7%
• Investment period: 35 years (up to age 65)

Based on the future value formula, here’s how much $16,255 a 30-year-old could be worth by age 65 if he doesn’t add any more contributions to his account:

Future value equation: FV = PV × (1+r)ⁿ

FV = 16,255 × (1+0.07)³⁵ = about $173,548

Now, we can use the future value of the annuity formula, which represents the ongoing annual contributions:

Future Value Annuity Formula: FV = P × (1+r)ⁿ − 1​ / p

FV= $7,628 × (1+0.07)^35 − 1 / 0.07 ​= about $1,054,471

So, if you add up $173,548 plus $1,054,471, the average 30-year-old Millennial can have about $1.23 million saved by the time they reach age 65.So they will be millionaires in 2055.

Doing the same calculation with an average annual salary of $64,844, a savings rate of 13.3%, and 25 years until retirement, we find that the average 40-year-old Millennial can have about $762,329 saved by the time they reach age 65.So they won’t be millionaires in 2055.

What should Millennials do now to ensure millionaire status in retirement?

Contributions increase steadily

Although contributing 13.3% of your income (including employer income) is a solid start, gradual increases over time may help ensure millionaire status later.

As a rule of thumb, consider increasing your contributions by 1% to 2% per year, or whenever you receive a raise.

Small, consistent increases can add up greatly over time, especially when investing in diversified, low-cost index funds that broadly track market performance.

Avoid early withdrawal and high-interest debt

Early withdrawals from 401(k) or IRAs not only reduce compounding growth, but also result in taxes and penalties.

Withdrawals from retirement accounts before age 59 ½ may be subject to a 10% early distribution tax, with some exceptions, such as death, disability, or the birth or adoption of a child.

If you treat your retirement accounts as untouchable, you’re more likely to stay on track to fit into your seven-figure retirement account balance.

Diversify beyond your workplace plan

Relying solely on a workplace 401(k) may limit flexibility. Additionally, opening an IRA, Roth IRA, or taxable brokerage account can expand investment options and provide access to funds before retirement if necessary.

For example, Roth IRAs allow tax-free withdrawals once you reach age 59½, and contributions (but not earnings) can be withdrawn without penalty early if necessary. Millennials who diversify across account types may be able to gain more control over their future tax liabilities and withdrawal strategy.

Bottom line

When looking at retirement, the average 30 year old will be better off than the average 40 year old – by a lot. Why does this happen, considering that the average 30-year-old has been saving less than the average 40-year-old, according to data from Vanguard?

That’s because younger millennials have more time. More time means more compound growth. So try to start early and maintain discipline, because time is the real engine of long-term wealth.