Will Millennials Be the Generation Most Prepared for Retirement? | American Funds

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Investing Fundamentals

Will Millennials Be the Generation Most Prepared for Retirement?

Young investors are already starting to save for their golden years. Heres a look at how saving even small amounts at an earlier age can really pay off.

Millennials are getting serious about planning for retirement. Whether they’re hearing the message from their parents, employers or the media, they are saving for retirement at a much younger age than the generations before them. According to our recent survey, Wisdom of Experience: Lessons Learned From Millennial, Generation X and Baby Boomer Investors, 59% of millennials began saving for retirement before the age of 25, compared with 42% of Gen Xers and just 28% of Boomers.

The youngest generation may be dealing with greater financial challenges, including high student-loan debt and stagnant salaries, but when it comes to investing, their youth is a tremendous advantage. Every year counts, and the earlier investors start, the better. In fact, investors who start earlier can put less aside and end up with a much bigger nest egg than those who wait until they’re older and wealthier.

The chart below shows how regular monthly investments can grow exponentially over time. An investor who starts at age 20, investing $100 a month in an account that earns an average annual return of 8%, would amass $530,970 by the age of 65. An investor who starts just 10 years later, investing the same amount and earning the same annual rate of return, would accumulate less than half that amount: $230,918. The scenario worsens the longer this hypothetical investor procrastinates.

What a Difference a Decade Makes

Chart shows the large difference in ending account values, depending on what age an investor started.

For illustrative purposes only. Not intended to portray an actual investment. Results shown reflect an average annual return of 8% with dividends reinvested. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely.

Make Money on Your Money

The difference is due to compounding. Any gains you earn are reinvested into the account. When earnings are reinvested, they generate their own earnings. The longer the time frame, the more time your assets have to “work for you.”

For example, if an investor puts a lump sum of $10,000 into an investment that generates an 8% annual return and didn’t add any additional money, the value would grow to $46,610 in 20 years. Without any additional investment, that account value would increase to $100,627 after 30 years, and $217,245 after 40 years ― all solely due to the power of compounding.

Being decades away from retirement, investors in their 20s also have the advantage of time to ride out market declines. Their older counterparts need to be more cautious about protecting their assets in their later years.

Those additional decades also provide time to study the markets and develop an investing strategy. Having learned their own lessons, millennials are ready to teach others. While the majority of them already started investing before age 25, they’d advise the next generation to start even earlier. Sixty percent believe that children born today should begin investing before their 21st birthday.*


*Based on an online survey of 1,203 investors of various income levels conducted by APCO Insight, a global opinion research firm, in July 2016

Thinking Ahead and Saving Now

It’s not easy for young people just embarking on a career to imagine themselves at the end of it, and many feel they don’t have the extra cash to put aside for the future. Try to get by on less now in order to have more later. Here are some tips to help make saving possible:

  • Remember that saving money can mean earning money. Developing disciplined spending habits and cutting expenses can pay off in the long run.
  • Start small and increase gradually. Even a 1% increase in your contribution will make a difference.
  • Give yourself a raise. If your salary increases, deduct a percentage of that from your paycheck to go straight to your retirement account. You may not notice the difference in the amount you take home, but it can affect the value of your account.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.