“Young People” Need to Save 40% to Retire at 65?!?

by SquegeeDuck

CNBC article

From the article:

“Millennials should aim to set aside nearly half of their income for the future, according to Olivia S. Mitchell, professor of insurance/risk management and business economics & public policy, and executive director of Wharton’s Pension Research Council at the University of Pennsylvania. If you want to live off even half of your final salary in retirement, you need to save 40% of your income over the next 30 years, she says.”

“The second major assumption is that investment returns over the next few decades aren’t going to match the roughly 10% historical returns Americans have enjoyed previously. “Most people are not told by financial advisors that their future returns will likely be much lower than in the past, and their future taxes will likely be much higher,” Mitchell tells CNBC Make It.”

“Other experts agree. The economists at investing giant Vanguard predict that, over the next 10 years, annual U.S. stock market returns will likely average 3% to 5%. When you factor in inflation — which, luckily, Vanguard predicts will be below 2% — the real rate of return is expected to be under 3%. Morningstar Investment Management predicts an even more meager return: 1.8% over the next 10 years for U.S. stocks, before adjusting for inflation. Meanwhile, perhaps the most pessimistic outlook comes from Boston-based asset management firm GMO, which expects real returns of -3.6% for U.S. large cap stocks and -1% for small cap.”

What are your thoughts on this? I’m 23 and currently saving about 40% of my pre-tax income.

It seems weird she is pitching deferred annuities as a solution…