While few dispute the stock market is due – overdue – for a significant pullback, most agree that a presence in equities, over the long term, is a smart idea for those seeking to generate a sizable retirement account by the time they stop working altogether.
Unfortunately, many young adults just don’t see it that way. A big reason for that has to do with the fact that many of their earliest adult memories of the markets are of great volatility and little in the way of positive performance…highlighted, of course, by the market meltdown of 2008.
Their response? To keep away from the stock market altogether and stick solely with savings accounts, and an article posted over at CNBC details just what a bad idea that is.
According to the piece, the folks over at the personal finance website NerdWallet have learned, via their 2016 survey on financial health, that over 60 percent of people between the ages of 18 and 34 were using savings accounts to sock away money for retirement. They also learned that the ultimate cost of saving that way can be enormous.
Relying on historical averages of market returns for their analysis, NerdWallet determined that a 25-year-old who earns the average annual income for that age (a little over $40,000), saves 15 percent of their salary, receives annual raises of 3.7 percent, works until age 65, and allocates all of the money into stocks…would have $4.57 million accumulated by retirement.
Traveling the savings account route to retirement? Not nearly as impressive.
According to NerdWallet, the individuals fitting their sample profile who rely exclusively on a savings account as the repository of their contributions will end up with about $3.3 million less when they retire.
“The opportunity cost of leaving a sum that large on the table could be a bigger risk to Millennials than stock market volatility,” say the authors of the NerdWallet study.
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