Investing

Millennials Missing Out on Growing Retirement Savings

Forty-one percent of Millennials are avoiding the stock market and using savings accounts to save for retirement, which LendEDU estimates will cause Millennials to miss out on more than $3.46 million by retirement age.

By Rebecca Moore editors@strategic-i.com | September 12, 2017
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Many Millennials may be missing out on stock market gains when saving for retirement, according to research from LendEDU.

The research found 41% of Millennials are avoiding the stock market and are instead using savings accounts to save for retirement. LendEDU estimates that avoiding the stock market will cause Millennials to miss out on more than $3.46 million by retirement at age 65.

The company did an analysis comparing the expected performance of fully investing in a stock portfolio, fully investing in a traditional savings account and fully investing in cash.

The analysis showed financial markets can be volatile during the short term. However, over a long 38-year time period (the time to retirement for our average respondent) the stock market is confidently the best path of saving for retirement. The analysis found that the 502 survey respondents should expect to accumulate an account valued at $4.95 million at retirement, after fees.

On the other hand, over a long 38-year time period, LendEDU found that respondents who use a savings account to save for retirement will fall short, accumulating an account valued at $1.49 million at retirement. LendEDU notes that savings account interest rate data was unavailable for the full period studied and therefore nominal 3-Month Treasury Bill returns were used as a substitute.

The same analysis assuming that respondents kept their retirement savings in cash, or a non-interest bearing account, showed that after 38-years, individuals should expect to accumulate an account valued at $0.68 million, about $4.27 million short of the individual who invested in the stock market during the same time.

NEXT: Why Millennials Fear the Stock Market