How an Average Millennial Can Save $1.5 Million for Retirement (You Still Have Time)

According to a new survey from Northwestern Mutual, Americans believe that the ideal retirement nest egg is $1.46 million. This average "magic number" for what Americans think they need to retire has grown by 15% since 2023 due to higher inflation.

If you're worried that you won't be able to retire, here's some good news: You still have lots of time, especially if you're younger. By saving on a regular basis and investing in a diversified portfolio of stock ETFs, you can grow your money enough to have a comfortable retirement. The millennial generation (born in 1981–1996) still has decades of growth potential ahead -- in their careers and as investors.

Let's look at the reality of retirement savings for the typical millennial and see what it takes for your generation to save $1.5 million for retirement.

Average millennial retirement savings: $62,600 saved, 32 years left

Northwestern Mutual's 2024 Planning and Progress Study found that millennials have an average of $62,600 of retirement savings. But millennials are generally optimistic about their retirement prospects: 56% of them told Northwestern Mutual that they believe they will be financially prepared for retirement when the time comes.

Even if you have $62,600 (or less) saved for retirement, if you are in your early 40s or younger, you have good reason to be hopeful about your long-range retirement goals. Let's crunch the numbers and see why -- but first, a few assumptions.

• Since the millennial generation has birth years between 1981 and 1996, let's say that a typical millennial was born right in the middle of that timeframe, in 1989. That makes our typical millennial retirement investor 35 years old in 2024.
• And let's say that this 35 year old has the millennial average amount of retirement savings identified by the Northwestern Mutual survey: $62,600.
• If you're 35 years old in 2024, your full Social Security retirement age is 67. So you have 32 more years to save and invest for retirement. That's plenty of time! A lifetime, really.

How to invest for retirement

For the record, 32 years is a huge time horizon to let your retirement savings grow. Even if you have a lot less than $62,600 saved at age 35, let's say you're just getting started.

Let's see how our typical millennial can retire, based on how much they save per month.

How much you'll have for retirement if you save $500 per month

Let's say that you're starting with $62,600 saved for retirement, and you can save a total of $500 per month ($6,000 per year) for retirement. Depending on your salary and employer match, you could accomplish this savings goal completely within your 401(k) at work. Or you can use other retirement accounts like a Roth IRA or traditional IRA.

If you invest that $6,000 per year in mostly stock ETFs, you will perhaps maximize your chances of long-term investment growth. Even if there are ups and downs in the short term, let's assume you can earn an average of 8% return per year.

After 32 years, at age 67, you would have $1,540,022 saved for retirement. Assuming you make 4% withdrawals per year, that nest egg would give you about $61,600 per year of retirement income. Just by saving $500 per month, right now as a 35-year-old, you can easily reach the $1.5 million retirement goal that most Americans believe is their "magic number" to retire.

But what if you're not a typical millennial? What if you have zero money saved for retirement, and you're just starting out? Let's look at another example.

Starting with $0 at age 35: How much you'll have for retirement if you save $1,000 per month

Let's say you are 35 years old with nothing saved for retirement. What if you can save $1,000 per month ($12,000 per year) for the next 32 years? Assuming you get that same average annual return of 8% with a diversified portfolio of stock and bond ETFs, after 32 years, you'd have $1,610,562 saved for retirement. With 4% withdrawals per year, that nest egg would generate about $64,422 of income per year.

But what if you're already over 40 with nothing saved for retirement, and you can't afford to save $1,000 per month?

Starting with $0 at age 43: How much you'll have for retirement if you save $500 per month

Let's say you're an "elder millennial," born in 1981 -- so you're 43 in 2024. You have 24 years left to save for retirement before reaching your full Social Security retirement age of 67. Let's say you haven't been able to save anything for retirement yet -- but you just got a big promotion in your career, you have a generous 401(k) match, and you're ready to invest!

If you can start saving $500 per month ($6,000 per year), increase your retirement savings contributions by 2% per year, and earn 8% average annual returns on your stock and bond portfolio...after 24 years, you'd have $511,136 saved for retirement. That's enough for an annual income of $20,445 -- in addition to Social Security. (The average Social Security retirement benefit as of January 2024 is $1,907 per month.)

Bottom line

Millennials have plenty of time to save for retirement, even if you have $0 saved so far. Save with every paycheck, invest aggressively in (mostly) stocks, and let your investments grow for the long run.