Compared to other generations, the retirement outlook is optimistic for early millennials (born 1981-1985).
According to simulations reported by Richard W. Johnson and Karen E. Smith, these millennials will have an inflation-adjusted median annual income of $44,700 at age 70, which is more than any previous generation the researchers at the Urban Institute looked at. It’s about 22% more than pre-boomers (born 1941-1945).
The study assessed retirement prospects for future generations, with a special focus on millennials, to ask whether at age 70, this cohort will have a 75% replacement rate compared to their pre-retirement incomes. The authors of the study project that, over the next 30 years, “median age-70 income will be higher for millennials than previous generations, but they face a higher risk of seeing their living standards fall when they retire.”
Uncertainties for millennials’ retirement preparedness include the outlook of the stock market, interest rates, housing prices, inflation, wage growth, health care costs and how all of these factors might affect people’s ability to extend their careers.
But the more specific hurdle that retirees will face is Social Security. As the full retirement age has risen to 67, early retirees face a reduction in benefits. Meanwhile, private-sector firms have shifted away from defined benefit plans to defined contribution plans over the last 40 years, which combines, has placed much of the responsibility for retirement savings on the worker’s shoulders.
We have a library of retirement-related content if you’d like to continue educating yourself on retirement preparedness, go to bautisfinancial.com/retirement to read more.
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