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Millennials may need to double their retirement savings

Wall Street analysts have low expectations for how

Wall Street analysts have low expectations for how the stock market will perform this year. Credit: AP / Mark Lennihan

The projections are in and Wall Street analysts have pretty low expectations for how the stock market will perform this year.

A roundup of the figures shows that strategists project the Standard & Poor’s 500-stock index will gain 4 percent on average in 2017 — the lowest expected annual gain for the stock market since 2005, according to an analysis by Bespoke Investment Group.

While it’s impossible to predict exactly what the stock market will do, investing pros over the past several months have been reducing their expectations for what they think the stock market will return, not only in the next year, but potentially over the next couple of decades.

If those gloomier outlooks hold true, workers saving for retirement today may not get as much from their portfolios in the long term as previous generations did. Advisers say that millennials, who are decades away from retirement, will need to save more — in some cases twice as much as they were saving before — to make up the difference.

“Realistically, most people who are reading this article probably should expect to work a little bit longer than their parents did,” said Tim Koller, a partner with the consulting firm McKinsey.

Even a small drop in market performance can make a huge difference.

If average annual stock market returns fall by two percentage points over the next couple of decades, a 25-year-old saving for retirement would need to more than double how much she is saving to make up the shortfall, according to an analysis by the Employee Benefit Research Institute.

The pessimistic predictions come at a time when younger workers are already struggling to save for retirement while they pay off student loans, face high child-care costs or deal with rising rent.

But firms such as McKinsey predict that U.S. stock markets may not deliver as much as they have in years past, putting more pressure on millennials to save as much as they can. U.S. stock markets gained 7.9 percent a year on average between 1985 and 2014, a track record that Koller and other economists say is unlikely to be repeated.

The reason for the dismal view is that stock market gains were so robust over the past 30 years that it will be pretty tough for the stock market to match those returns going forward, some economists say. Stocks have grown pricier as the market has climbed higher, giving them less room to grow.

Millennial retirement plan

The personal finance website NerdWallet recently estimated that millennials need to save 22 percent of their paychecks to have enough cash in retirement if stock market gains are weaker going forward. The study assumed that workers would not receive any income from Social Security, in response to a survey from the Pew Research Center finding that 51 percent of millennials assume the entitlement program won’t be there for them when they retire.


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