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EYE ON THE MARKETS P E C I A L E D I T I O N
The MillennialsNow streaming: the millennial journey from saving to retirement
Executive summary
THE MILLENNIAL GENERATION ( INDIVIDUALS BORN BETWEEN 1982 AND 2000) IS THE SUBJECT OF INTENSE SCRUTINY: their likes and dislikes, social media inclinations and digital footprints, fashion sense, dining habits, reproductive trends, political and religious views, workplace objectives, etc. This year, millennials will overtake the baby boomers as the largest living generation in the United States, so there are plenty of reasons to study them.
How will millennials manage their finances and maintain financial independence throughout their working years and through retire-ment? We take a look in this proposal for a web-based show (The Millennials) available for live streaming. Millennials that binge-watch the series in its entirety, as well as their advisors, employers and parents, will gain a greater understanding of financial security in a rapidly changing world, one that millennials will now inherit.
— Michael Cembalest J.P. Morgan Asset Management
The MillennialsNow streaming: the millennial journey from saving to retirement
E X EC U T I V E S U M M A RY
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 32 T H E M I L L E N N I A L S
S U M M A R Y O F F I N D I N G S
• Today’s millennials are highly educated, but face
headwinds in terms of student debt, global competition for
the best jobs, below-trend wage growth and rising
pressure on the federal government to curtail the
entitlements they currently and will eventually receive
• At the same time, millennials are often inclined to hold
more cash than prior generations, are less likely to marry
or own a home, and will increasingly finance their own
retirements due to declining availability of defined benefit
pension plans. Given rising life expectancies, their
retirements may be longer than their working years
• To add to these challenges, more than three-quarters of
adults in their 50s experience job layoffs, widowhood,
divorce, new health problems or the onset of frailty among
parents or in-laws, all of which disrupt their ability to save
• The good news: the financial tools needed to deal with
these challenges are within reach, provided that
millennials use them early enough
• How can median-income millennials do it? It starts with a
plan to put 4%-9% of pre-tax income into retirement
accounts each year, starting at age 25. For affluent
millennials, the range would be 9%-14%; and for high net
worth millennials, 14%-18%
• The rest of the plan is based on additional savings from
after-tax income, employer matching contributions and
consistent investment discipline
• One possible consequence of inadequate saving in advance
of adverse events: sharp declines in “income replacement
ratios”, which measure the amount of money millennials
will be able to spend in retirement
• It may be hard for millennials to “invest their way out” of
adverse events. Example: single individuals retiring three
years earlier than planned may accumulate lower savings
before retirement, draw on savings sooner, and accelerate
Social Security at a discount. To fill the gap, they would
need to earn real equity returns over their lifetimes that
are close to the highest levels seen since 1935
0%
4%
8%
12%
16%
20%
Median-incomehouseholds
Affluenthouseholds
High net worthhouseholds
Recommended annual pre-tax contribution to savings by each working spouse to offset impact of adverse eventsPercent of pre-tax income
In addition to contributions shown, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. Savings begin at age 25. Source: JPMAM. 2015.
60%
65%
70%
75%
80%
85%
90%
95%
100%
Median-incomehouseholds
Affluenthouseholds
High net worthhouseholds
Income replacement ratios if no savings adjustments take place to offset adverse eventsRetiree spending as a percent of pre-retirement disposable income
See Section 1 of the Production Notes in the full white paper for an explanation of income replacement ratios and the subsequent trajectory of retirement spending adjusted for inflation. Source: JPMAM. 2015.
Original target
After impact of negative events
5%
6%
7%
8%
9%
10%
11%
Median-income
individual
Affluentindividual
High networth
individual
Medianreal S&Preturn
Peak real S&P
return
75th perc.real S&Preturn
Required annual real return on equity to offset the impact of a single individual retiring 3 years earlyReal return on equity, annualized
Original planned retirement age for median is 67; for affluent and high net worth, 65. Median, peak and 75th percentile returns based on 35-year rolling periods from 1935 to 2015. Source: Robert Shiller, JPMAM. 2015.
Calculated real return on equity
Historical S&P 500 real return
J .P. MORGAN PRIVATE BANK 3
EYE ON THE MARKETS P E C I A L E D I T I O N
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 32 T H E M I L L E N N I A L S
T H E M I L L E N N I A L S : B A C K S T O R Y A N D C H A R A C T E R D E V E L O P M E N T
Backstory
“The Millennials” are a group of 8 college graduates from the
University of Colorado. Passionate, idealistic and full of
ambition, they enter the workforce at age 25 and make their
mark on the world. The series follows each of them
throughout their working lives and through their retirement
years, tracking their career successes and failures and
monitoring their financial wealth.
Character development
Here’s what viewers will learn about Evan, Meri, Jane, Chad,
Ken, Ima, Anita and Chip.
Millennials are highly educated, but indebted; some are at a global skills disadvantage
In 2013, 47% of 25-34 year-olds had a postsecondary
degree, and another 18% had completed some
postsecondary education – together, more educated than
any other generation of young adults in U.S. history1
60% of students with bachelor’s degrees in 2012-2013graduated with an average debt balance of $27,3002. The
average student loan balance as a % of median income
has risen from 20% in the late 1990s to 50% in 20143
While American millennials are well educated, they may be
less prepared for today's job market than international
peers. U.S. millennials ranked 21st out of 22 Organisation
for Economic Co-operation and Development (OECD)
countries in numeracy; in literacy, half scored below the
minimum proficiency level; and on problem-solving, 56%
met minimum standards, ranking behind every other
OECD nation they were compared with4
1 “15 Economic Facts about Millennials”, The Council of Economic Advisers, October 2014
2 “Trends in Student Aid 2014”, College Board, 2014 3 Bridgewater Daily Observations, June 19, 2015; for those aged 30-39 4 “America’s Skills Challenge: Millennials and the Future”, Educational
Testing Service, January 2015
Millennials are more likely to study social science or fields
such as communications, criminal justice and library
science, and less likely than previous generations to major
in fields like business, health, and STEM subjects (science,
technology, engineering and mathematics). Despite their
love for social media, the share of millennial computer
and information science majors has actually fallen over
time, particularly among female millennials5
Millennials are less likely to own a home
Our millennials will face labor market pressures, slower real
income growth, delayed household formation, the burden of
student loan repayment and aftershocks from the financial
crisis. As a result, in aggregate they are less likely to own a
home. Over the long run, home ownership has been positive
for most households given price appreciation and the ability
for families to leverage their purchase by 80% or more.
Renters do not build equity to draw upon in the future.
5 “15 Economic Facts about Millennials”
12%
13%
14%
15%
16%
17%
18%
19%
1980 1985 1990 1995 2000 2005 2010
Source: Bureau of Labor Statistics, Council of Economic Advisers. 2014.
Probability of homeownership: 18 to 34 year olds
ActualLong-run trend
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 54 T H E M I L L E N N I A L S
Millennials are less likely to marry
According to Pew Research, fewer millennials will be married
by age 34 compared to prior generations, and a larger
percentage of them will remain that way. The primary
financial consequence: without a working spouse, a single
individual forgoes the compounding effect of additional
household savings, dual Social Security benefits and the
ability to pool and share expenditures.
They are less likely to invest with retirement goals in mind
Some millennials invest in target date funds via auto-
enrollment plans whose equity allocations begin at 70%-
80%, and decline to 40% by retirement. However, others
are more skeptical about financial markets. This may be a
by-product of living through two 40%+ equity market
declines in the same decade, something that has not
happened since the Great Depression. Some millennials
prefer to save in cash: according to a Brookings Institution
study, 52% of those aged 21-36 said their savings were in
cash vs. 23% for savers of other ages6.
While this gap reflects intentions of young people to save for
homes and repay student loans, it also reflects skepticism of
the financial services industry according to Wells Fargo and
Goldman Sachs surveys. In one survey, only 20% of
millennials described the stock market as the best way to
save for the future. The challenge: above-average cash and
6 “Think you know the Next Gen investor? Think again”, UBS Investor Watch, 2014
fixed income allocations, particularly at a time of financial
repression by the Federal Reserve, may not be conducive to
growing savings and meeting long-term retirement goals.
Some millennials do not have access to company-sponsored retirement plans, and most have to finance their retirement
According to the Employee Benefit Research Institute, only
51% of workers have employers that sponsor retirement
plans. Furthermore, as shown below for private sector
workers, these plans are overwhelmingly made up of defined
contribution plans, rather than defined benefit. Around 85%
of private sector workers, and a growing number of public
sector workers (see Munnell et al in sources), will have to
finance their own retirements via tax-advantaged retirement
and traditional money management accounts.
0%
10%
20%
30%
40%
50%
1960 1970 1980 1990 2000 2010 2020 2030
Perc
ent n
ever
mar
ried
Source: Pew Research Center. 2014. Dotted lines are projections.
One in four of today's young adults may never marryUnmarried people by generation
45-54
35-44
25-34
100
1,000
10,000
1975 1985 1995 2005 2015
S&P
500
tota
l ret
urn,
Inde
x
(Dec
. 197
4 =
100)
, log
sca
leSource: Robert Shiller. March 2015.
The S&P 500 and millennial memory
Millennials join labor force
0%
5%
10%
15%
20%
25%
30%
35%
1979 1983 1987 1991 1995 1999 2003 2007 2011
Perc
ent p
artic
ipat
ing
Source: Employee Benefit Research Institute. 2012.
Private-sector workers participating in an employer-sponsored retirement plan, by plan type
Defined contribution plan only
Defined benefit plan only
Both types
J .P. MORGAN PRIVATE BANK 5
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 54 T H E M I L L E N N I A L S
Millennials will likely face more job and wage uncertainty
Labor market conditions are more challenging for millennials
than for prior generations, as shown by weak real household
income growth and hours worked. While the business cycle
plays an obvious role here, there are longer-term secular
forces at work as well.
While employment and wage prospects for those with
bachelor’s degrees are higher than for high school
graduates7, millennials with college degrees face the risk
7 According to a Bureau of Labor Statistics Economic News Release, college graduates are unemployed at half the rate of high school graduates (2.7% vs. 5.4%). Additionally, the college wage premium remains near an all-time high, at about 75% for those with bachelor’s degrees over those with a high school diploma, according to a November 2014 study by the New York Fed.
that their jobs will be computerized. Professors at Oxford
looked at different job segments and assigned “probabilities
of computerization” to each. Their findings: around half of
all U.S. jobs in both services and manufacturing are at “high”
risk of computerization over the next decade or two. Even if
their estimates are too high, the point is clear: some of our
millennials will face periods of un- or under-employment
during their lifetimes, which will interrupt their long-term
savings goals.
0.0
1.0
2.0
3.0
4.0
5.0
0.0 0.2 0.4 0.6 0.8 1.0
U.S
. em
ploy
men
t, m
illio
ns
Probability
Transportation and Material MovingProductionInstallation, Maintenance, and RepairConstruction and ExtractionFarming, Fishing, and ForestryOffice and Administrative SupportSales and RelatedServiceHealthcare Practitioners and TechnicalEducation, Legal, Community Service, Arts, and MediaComputer, Engineering, and ScienceManagement, Business, and Financial
Source: "The Future of Employment: How Susceptible Are Jobs to Computerisation?", Frey and Osborne, September 2013.
Probability of computerization by occupation
Low32% Employment 17% Employment 51% Employment
Medium High
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1975 1980 1985 1990 1995 2000 2005 2010
Annu
al p
erce
nt c
hang
e, 6
-yea
r av
erag
e
Source: U.S. Census Bureau. 2013.
Real median household income growth
50
75
100
125
150
175
200
225
1975 1980 1985 1990 1995 2000 2005 2010 2015
Inde
x, 3
/31/
1980
= 1
00
Source: Bureau of Labor Statistics, Federal Reserve Board. Q1 2015.
Manufacturing output vs. hours worked
Real output
Hours worked
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 76 T H E M I L L E N N I A L S
Millennials are expected to live longer and longer and longer…
Millennials are living longer, and many will have to finance
retirements that are longer than the number of years they
work. In 2014, the Society of Actuaries finally reflected this
emerging reality in their estimates, increasing their life span
projections by 2 – 2.5 years. Longer retirements need more
savings, particularly when saving for lifespans longer than the
simple medians shown in the next chart.
Millennials will likely face rising pressure on entitlements
Millennials may experience a curtailment of entitlements such
as Medicare and Social Security. While the U.S. federal debt is
expected to stabilize through 2025, it is projected to rise
thereafter. Even more to the point, the 2nd chart shows that
since the creation of the entitlement system in the late 1960s,
it has been rising inexorably at the expense of non-defense
discretionary spending items, categories which are critical
drivers of long-term growth and productivity. As per
Congressional Budget Office projections, consequences of the
Budget Control Act passed in 2011 will drive the entitlement-to-
discretionary ratio from 1:1 in the early 1970s to 4:1 by 2020.
Our millennials will probably be the generation that sees this
divergence come to an end, at their expense.
80
82
84
86
88
Men Women
Life
exp
ecta
ncy
at a
ge 6
5 by
bir
th y
ear Born in 1940 Born in 1950
Born in 1960 Born in 1970Born in 1980 Born in 1990Born in 2000
Source: U.S. Census Bureau. 2015.
Increasing median life expectancy for retirees
0%
20%
40%
60%
80%
100%
75 80 85 90 95 100Live to age
Source: Social Security Administration, JPMAM. 2014. Probability that one spouse will live to the listed age or beyond assuming both live to age 65.
Probability at least one millennial spouse lives to various ages
0%
20%
40%
60%
80%
100%
120%
1970 1980 1990 2000 2010 2020 2030
Perc
ent o
f GD
P
Source: Congressional Budget Office. July 2014.
Federal debt held by the public
Extended baseline projection
Actual
2%
4%
6%
8%
10%
12%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Perc
ent o
f GD
P
Source: Congressional Budget Office. March 2015.
Entitlement and non-defense discretionary spending
CBO projection
Entitlement spending
Non-defense discretionary
S E A S O N S U M M A R I E S
What follows are season summaries of Seasons 1, 2 and 3. In each episode of The Millennials, their choices and the world around them change. We summarize each episode by describing the savings they would need to make throughout their lives, starting at age 25, in order to help sustain their financial assets through the end of retirement. The following plot devices appear in each season. For a detailed explanation of how they work, please refer to Key to Plot Devices Used in “The Millennials” and Additional Production Notes in the full white paper.
• Pre-tax contributions to savings • Additional savings from after-tax income • Employer match of pre-tax savings • Asset allocation between stocks and bonds • Financial market returns • Retirement spending goal as a percentage of pre-
retirement disposable income • Changes in retirement spending as a function of age • Income level and income growth rate • Periods of unemployment • Unplanned family emergencies • Long-term care expenses • Home downpayment ratios • Student debt levels • College tuitions for children • Inflation and interest rates • Ordinary income and capital gains tax rates • Government policy on entitlements and qualified
retirement plans
All characters appearing in this work are fictitious. Any resemblance to real persons,
living or dead, is purely coincidental.
No animals were harmed in the filming of this show.
J .P. MORGAN PRIVATE BANK 7
EYE ON THE MARKETS P E C I A L E D I T I O N
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 76 T H E M I L L E N N I A L S
S E A S O N S U M M A R I E S
What follows are season summaries of Seasons 1, 2 and 3. In each episode of The Millennials, their choices and the world around them change. We summarize each episode by describing the savings they would need to make throughout their lives, starting at age 25, in order to help sustain their financial assets through the end of retirement. The following plot devices appear in each season. For a detailed explanation of how they work, please refer to Key to Plot Devices Used in “The Millennials” and Additional Production Notes in the full white paper.
• Pre-tax contributions to savings• Additional savings from after-tax income• Employer match of pre-tax savings• Asset allocation between stocks and bonds• Financial market returns• Retirement spending goal as a percentage of pre-
retirement disposable income• Changes in retirement spending as a function of age• Income level and income growth rate• Periods of unemployment• Unplanned family emergencies• Long-term care expenses• Home downpayment ratios• Student debt levels• College tuitions for children• Inflation and interest rates• Ordinary income and capital gains tax rates• Government policy on entitlements and qualified
retirement plans
All characters appearing in this work are fictitious. Any resemblance to real persons,
living or dead, is purely coincidental.
No animals were harmed in the filming of this show.
jpmorganfunds.com
RI-ES-MILLENNIALS
J.P. MORGAN ASSET MANAGEMENT
270 Park Avenue I New York, NY 10017
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 98 T H E M I L L E N N I A L S
T H E M I L L E N N I A L S , S E A S O N 1 S U M M A R Y: M E D I A N - I N C O M E H O U S E H O L D S
The goal for median-income families in Season 1: spend the
same amount in retirement as they did in their final
working years, and have their financial assets last through
to the end of their lives with a small cushion to spare. Social Security plays a very important role in Season 1, and
finances the majority of retirement spending. When
everything goes according to plan (our millennials maintain
their health throughout their working lives, work to age 67
and live to old age with above-average health outcomes),
the 3% auto-enrollment rate common at many companies8
can be sufficient as a supplement to Social Security.
However, in the rest of Season 1, the millennials experience
a variety of real-life events that are out of their control.
Some impede their ability to save (unemployment, family
emergencies, early death of a spouse, forced early
retirement, repayment of student debt), while others slow
8 According to Vanguard, half of all plans they oversee have a 3% auto-enrollment rate. Twelve percent of plans are at a 2% rate, and another twelve percent are at a 4% rate. Around twenty percent have auto-enrollment rates of 5%-6% or more.
accumulation of their financial assets (lower market
returns, policy changes affecting Social Security, the lack of
an employer 401(k) match). In some episodes, their own
lifestyle decisions have an impact as well (conservative
investing, career detours). And in one episode, a perfect
storm hits in which a series of unfortunate events all occur
at the same time.
In Season 1, median-income millennials realize that a
financial plan designed to weather a variety of storms
starts with annual allocations of 4%-9% of pre-tax income
into retirement accounts (assuming they also benefit from
an employer match), on top of 2% saved each year out of
after-tax income. Such a plan wouldn’t address all potential outcomes, but would maintain financial
independence in a lot of them, and prevent them from
becoming wards of the state, or of their children.
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0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
Ep. 1 Ep. 2 Ep. 5 Ep. 6 Ep. 7 Ep. 10 Ep. 8 Ep. 13 Ep. 12 Ep. 15 Ep. 9 Ep. 18 Ep. 16 Ep. 11 Ep. 17 Ep. 14 Ep. 20 Ep. 21 Ep. 24 Ep. 23
Pre-
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Source: JPMAM. 2015.The Millennials: Summary of Season 1Annual pre-tax contribution to savings required by each median earner for financial wealth to last through end of retirement
Couple; single-income lifestyle Couple; dual-income lifestyle Single
All savings begin at age 25 and continue to retirement. In addition to retirement account contributions shown in the bars, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. For couples, pre-tax contribution rates apply to both spouses.
4% 12% 13% 11% 12% 14% 12% 11% 14% 13% 13% 15% 16% 24% 26% 28% 13% 14% 15% 17%Corresponding household lifetime total savings rate (active + passive):
J .P. MORGAN PRIVATE BANK 9
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 98 T H E M I L L E N N I A L S
What happens if they don’t save enough by retirement?
When median-income millennials didn’t save enough by
the time they retired, and when adverse events took
place, the millennials had to slash their retirement
spending by 25%-40% in real terms compared with pre-
retirement levels. In practical terms, such spending levels
brought them close to subsistence living.
Can working longer offset inadequate saving? Other
options for the millennials: work for 3 to 4 more years,
until age 70 or 71, in order to accumulate more savings,
defer drawdown of retirement assets and boost Social
Security payments. However, not all of them will be
physically able to do it, and/or be able to find the
necessary employment opportunities.
Could the millennials invest their way out of savings rates
that are too low? In one episode, Ken retires early and
tries to invest his way out to offset the reduction in
accumulated savings and the earlier withdrawals. The
challenge: he would have to generate 10.5% real annual
rates of return on equity every year throughout his entire
working and retirement life, which is way above any
recorded long-term post-war equity market index return.
What if the millennials start their savings journeys later?
The table shows the required pre-tax contributions to
savings by episode assuming savings begin at age 25,
along with the same figure for those who don’t start
saving until age 35.
Episode Ag e 25 Ag e 35Ep. 1 1.0% 1.7%Ep. 2 3.5% 5.9%Ep. 5 4.2% 7.0%
Ep. 6 3.0% 4.5%Ep. 7 3.6% 5.1%Ep. 10 3.7% 5.4%Ep. 8 4.0% 5.6%Ep. 13 4.3% 6.2%Ep. 12 4.5% 5.5%Ep. 15 4.6% 6.4%Ep. 9 4.7% 6.2%Ep. 18 5.5% 8.0%Ep. 16 5.8% 8.1%Ep. 11 8.8% 13.3%Ep. 17 9.6% 14.5%Ep. 14 15.4% 19.1%
Ep. 20 3.3% 4.8%Ep. 21 5.1% 7.2%Ep. 24 5.8% 8.3%Ep. 23 6.2% 8.8%
Median-income households
The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.
Required pre-tax contribution by each spouse if saving s beg in at:
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THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1110 T H E M I L L E N N I A L S
T H E M I L L E N N I A L S , S E A S O N 2 S U M M A R Y: A F F L U E N T H O U S E H O L D S
The goal for affluent9 millennials in Season 2: retire in their
mid 60s, spend 15% less in retirement compared to what
they spent in their final working years, have their financial
assets last to the end of their lives with a modest cushion to
spare, and not have to sell the family home under duress.
In Episodes 1 and 15 of Season 2 (the best of circumstances,
when everything goes according to plan), a 7.5%-8.0%
contribution to retirement accounts out of pre-tax income
every year is sufficient for our millennials, alongside their
Social Security payments (Social Security plays a smaller
role in Season 2 than in Season 1, since it only finances
about half of their retirement spending).
However, in the rest of Season 2, the affluent millennials
experience a variety of real-life events that are mostly out
of their control. Some impede their ability to save
(repayment of student debt, unemployment, family
emergencies, forced early retirement, long-term care
9 In The Millennials, affluent families are those with household incomes in
the top 5 percent, according to 2015 U.S. Census Bureau data
expenses, college tuitions), while others slow accumulation
of their financial assets (lower market returns, policy
changes affecting Social Security, no access to a 401(k)
plan). In some episodes, their own lifestyle decisions have
an impact as well (conservative investing). And in one very
dramatic episode, a perfect storm hits in which a series of
unfortunate events all occur at the same time.
In Season 2, the affluent millennials realize that a plan
designed to weather a variety of storms starts with annual
allocations of 9%-14% of pre-tax income into diversified
retirement accounts (assuming they benefit from an
employer match, capped at 3%), on top of 2% saved each
year out of after-tax income. Such a financial plan wouldn’t
address all outcomes, but would maintain their financial
independence in a lot of them, and prevents them from
becoming wards of their children, or having to make deep,
unexpected reductions in retirement spending.
Ever
ythi
ng g
oes
acco
rdin
g to
pla
n
Soci
al S
ecur
ity, t
ax a
nd 4
01(k
) pol
icy
chan
ges
Age
58
inco
me
shift
to m
edia
n du
e to
red
unda
ncy
Pare
nt e
lder
-car
e co
sts
Low
er m
arke
t ret
urns
Fam
ily e
mer
genc
ies
and
low
er m
arke
t ret
urns
Pare
nt e
lder
-car
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sts
and
polic
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ange
s
Polic
y ch
ange
s an
d lo
wer
mar
ket r
etur
ns
Retir
e at
62
Ultr
a co
nser
vativ
e in
vest
or
Polic
y ch
ange
s an
d ea
rly
retir
emen
t
The
perf
ect s
torm
(eve
ryth
ing
hits
at o
nce)
Ever
ythi
ng g
oes
acco
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g to
pla
n
Priv
ate
colle
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ition
s
Cost
of l
ong-
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Long
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are
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t
No
acce
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401
(k)
Redu
ndan
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mar
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s an
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mar
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Polic
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s an
d ea
rly
retir
emen
t (ag
e 60
)
Long
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are,
pol
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low
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Cons
erva
tive
inve
stin
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d fa
mily
em
erge
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s
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
Ep. 1 Ep. 6 Ep. 7 Ep. 4 Ep. 5 Ep. 12 Ep. 9 Ep. 14 Ep. 2 Ep. 8 Ep. 13 Ep. 10 Ep. 15 Ep. 17 Ep. 19 Ep. 18 Ep. 16 Ep. 22 Ep. 20 Ep. 21 Ep. 24 Ep. 23
Pre-
tax
cont
ribu
tion
as a
% o
f inc
ome
The Millennials: Summary of Season 2Annual pre-tax contribution to savings required by each affluent earner for financial wealth to last through end of retirement
Single Couple; dual-income lifestyle
All savings begin at age 25 and continue to retirement. In addition to retirement account contributions shown in the bars, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. For couples, pre-tax contribution rates apply to both spouses.
Source: JPMAM. 2015.
21% 23% 25% 21% 23% 23% 23% 25% 27% 24% 28% 28% 23% 23% 25% 27% 18% 26% 26% 28% 29% 25%Corresponding household lifetime total savings rate (active + passive):
What happens if they don’t save enough by retirement?
When affluent millennials didn’t save enough by the time
they retired, and when adverse events took place, they
had to slash their retirement spending by 35%-45% in
real terms compared to pre-retirement levels. In practical
terms, such spending levels brought them close to
median-income living.
Can working longer offset inadequate saving? Other
options for the millennials: work for 3 to 4 more years,
until age 70 or 71, in order to accumulate more savings
and defer drawdown of retirement assets. However, not
all of them will be physically able to do it, and/or find the
necessary employment opportunities.
Could affluent millennials invest their way out of savings
rates that are too low? In one episode, Ima tries to do just
that. The challenge: she would have to generate a real
9% annual compound rate of return on her equity
portfolio every year throughout her entire life, which is
above any recorded long-term post-war equity market
index return.
What about inheritances10? For affluent millennials, they
can be very powerful as a counterweight to adverse
events. In one episode, the millennials experience
adverse policy changes, lower market returns and life
events. However, the receipt of $400,000 at age 35
provides enough investible wealth so that their
retirements are the same as in Episode 1, when everything
goes according to plan, without an increase in their
savings rate.
10 Boston College projects $59 trillion of generational wealth transfer over the
next decade. See: “A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy Technical Report”, Center on Wealth and Philanthropy, Boston College, May 2014
What if the millennials start their savings journeys later?
The table shows the required pre-tax contributions to
savings by episode assuming savings begin at age 25,
along with the same figure for those who don’t start
saving until age 35.
Episode Ag e 25 Ag e 35Ep. 1 7.5% 8.2%Ep. 6 8.9% 9.6%Ep. 7 9.1% 9.9%Ep. 4 9.5% 10.3%Ep. 5 9.7% 10.3%Ep. 12 10.6% 11.1%Ep. 9 11.2% 12.0%Ep. 14 11.4% 12.0%Ep. 2 12.2% 13.2%Ep. 8 12.3% 12.8%Ep. 13 12.9% 13.9%Ep. 10 14.0% 15.0%
Ep. 15 8.3% 9.9%Ep. 17 9.7% 11.7%Ep. 19 9.8% 11.8%Ep. 18 10.4% 12.4%Ep. 16 10.7% 13.0%Ep. 22 11.1% 13.0%Ep. 20 11.6% 13.2%Ep. 21 13.0% 15.2%Ep. 24 13.8% 15.8%Ep. 23 14.6% 16.4%
Affluent households
The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.
Required pre-tax contribution by each spouse if saving s beg in at:
J .P. MORGAN PRIVATE BANK 11
EYE ON THE MARKETS P E C I A L E D I T I O N
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1110 T H E M I L L E N N I A L S
What happens if they don’t save enough by retirement?
When affluent millennials didn’t save enough by the time
they retired, and when adverse events took place, they
had to slash their retirement spending by 35%-45% in
real terms compared to pre-retirement levels. In practical
terms, such spending levels brought them close to
median-income living.
Can working longer offset inadequate saving? Other
options for the millennials: work for 3 to 4 more years,
until age 70 or 71, in order to accumulate more savings
and defer drawdown of retirement assets. However, not
all of them will be physically able to do it, and/or find the
necessary employment opportunities.
Could affluent millennials invest their way out of savings
rates that are too low? In one episode, Ima tries to do just
that. The challenge: she would have to generate a real
9% annual compound rate of return on her equity
portfolio every year throughout her entire life, which is
above any recorded long-term post-war equity market
index return.
What about inheritances10? For affluent millennials, they
can be very powerful as a counterweight to adverse
events. In one episode, the millennials experience
adverse policy changes, lower market returns and life
events. However, the receipt of $400,000 at age 35
provides enough investible wealth so that their
retirements are the same as in Episode 1, when everything
goes according to plan, without an increase in their
savings rate.
10 Boston College projects $59 trillion of generational wealth transfer over the next decade. See: “A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy Technical Report”, Center on Wealth and Philanthropy, Boston College, May 2014
What if the millennials start their savings journeys later?
The table shows the required pre-tax contributions to
savings by episode assuming savings begin at age 25,
along with the same figure for those who don’t start
saving until age 35.
Episode Ag e 25 Ag e 35Ep. 1 7.5% 8.2%Ep. 6 8.9% 9.6%Ep. 7 9.1% 9.9%Ep. 4 9.5% 10.3%Ep. 5 9.7% 10.3%Ep. 12 10.6% 11.1%Ep. 9 11.2% 12.0%Ep. 14 11.4% 12.0%Ep. 2 12.2% 13.2%Ep. 8 12.3% 12.8%Ep. 13 12.9% 13.9%Ep. 10 14.0% 15.0%
Ep. 15 8.3% 9.9%Ep. 17 9.7% 11.7%Ep. 19 9.8% 11.8%Ep. 18 10.4% 12.4%Ep. 16 10.7% 13.0%Ep. 22 11.1% 13.0%Ep. 20 11.6% 13.2%Ep. 21 13.0% 15.2%Ep. 24 13.8% 15.8%Ep. 23 14.6% 16.4%
Affluent households
The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.
Required pre-tax contribution by each spouse if saving s beg in at:
EYE ON THE MARKETS P E C I A L E D I T I O N
12
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1312 T H E M I L L E N N I A L S
T H E M I L L E N N I A L S , S E A S O N 3 S U M M A R Y: H I G H N E T W O R T H H O U S E H O L D S
The goal for high net worth11 millennial families in Season
3: retire in their early to mid-60s, spend 15% less in
retirement compared to what they spent in their final
working years, have their financial assets last through to
the end of their lives with a modest cushion to spare, and
not have to sell the family home.
In Episodes 1 and 13 of Season 3 (the best of circumstances,
when everything goes according to plan), a 12%
contribution to retirement accounts out of pre-tax income
every year is sufficient for our millennials. Note: Social
Security plays a much smaller role in Season 3, since it only
finances 25% of high net worth family retirement spending.
However, in the rest of Season 3, the high net worth
millennials experience a variety of real-life events that are
mostly out of their control. Some impede their ability to
save (family emergencies, forced early retirement, long-
term care events, private college tuitions), while others
11 In The Millennials, high net worth families are those with household
incomes in the top 1%, according to 2015 U.S. Census Bureau data.
slow accumulation of their financial assets (lower market
returns, policy changes affecting Social Security and no
access to a 401(k) plan). In some episodes, their lifestyle
decisions have an impact as well (conservative investing).
And in one episode, a perfect storm hits in which a series of
unfortunate events occur at the same time.
In Season 3, the high net worth millennials realize that a
financial plan designed to weather a variety of storms
starts with annual allocations of 14%-18% of pre-tax
income into diversified retirement accounts (assuming they
benefit from an employer match, capped at 3%), on top of
2% saved each year out of after-tax income. Such a plan
wouldn’t necessarily address all potential outcomes, but it
would maintain their financial independence in a lot of
them (and prevent them from having to make deep,
unexpected reductions in retirement spending).
Ever
ythi
ng g
oes
acco
rdin
g to
pla
n
Soci
al S
ecur
ity, t
ax a
nd 4
01(k
) pol
icy
chan
ges
Pare
nt e
lder
-car
e co
sts
Low
er m
arke
t ret
urns
Fam
ily e
mer
genc
ies
and
low
er m
arke
t ret
urns
Polic
y ch
ange
s an
d lo
wer
mar
ket r
etur
ns
Retir
e at
62
Polic
y ch
ange
s an
d ea
rly
retir
emen
t
The
perf
ect s
torm
(eve
ryth
ing
hits
at o
nce)
Ultr
a co
nser
vativ
e in
vest
or
Ever
ythi
ng g
oes
acco
rdin
g to
pla
n
Cost
of l
ong-
term
car
e in
sura
nce
Long
-ter
m c
are
even
t
Priv
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colle
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ition
s
Polic
y ch
ange
s an
d lo
wer
mar
ket r
etur
ns
Long
-ter
m c
are,
pol
icy
chan
ges,
low
er r
etur
ns
Polic
y ch
ange
s an
d ea
rly
retir
emen
t (ag
e 60
)
No
acce
ss to
401
(k)
Cons
erva
tive
inve
stin
g an
d fa
mily
em
erge
ncie
s
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Ep. 1 Ep. 6 Ep. 4 Ep. 5 Ep. 10 Ep. 12 Ep. 2 Ep. 11 Ep. 8 Ep. 7 Ep. 13 Ep. 17 Ep. 16 Ep. 15 Ep. 18 Ep. 21 Ep. 19 Ep. 14 Ep. 20
Pre-
tax
cont
ribu
tion
as a
% o
f inc
ome
The Millennials: Summary of Season 3Annual pre-tax contribution to savings required by each high net worth earner for financial wealth to last through end of retirement
Single Couple; dual-income lifestyle
All savings begin at age 25 and continue to retirement. In addition to retirement account contributions shown in the bars, households are assumed to save 2% of after-tax income, and benefit from a 50% employer match of pre-tax savings, capped at 3%. For couples, pre-tax contribution rates apply to both spouses.
Source: JPMAM. 2015.
28% 28% 27% 29% 29% 29% 31% 31% 31% 30% 28% 29% 29% 27% 28% 30% 31% 24% 29%Corresponding household lifetime total savings rate (active + passive):
What happens if they don’t save enough by retirement?
When the high net worth millennials didn’t save enough by
the time they retired, and when adverse events took
place, they had to slash their retirement spending by 35%-
45% in real terms compared to pre-retirement levels in
order to remain solvent.
Could high net worth millennials invest their way out of
savings rates that are too low? In one episode, they try to
do just that. The challenge: they would have to generate a
real 8% annual compound rate of return on their equity
portfolio every year throughout their entire lives, which
would be close to the peak long-term post-war equity
market index return on record.
One challenge for high net worth millennials with high
savings rates: exhaustion of tax-advantaged savings
allowances. In many episodes, their intended level of tax-
efficient savings is above the allowable caps on 401(k)
plans and IRA accounts, and exceeds what they are
comfortable allocating to non-qualified deferred
compensation plans, given concerns about exposure as a
general unsecured creditor. As a result, some of their
intended tax-efficient savings have to be made in tax-
inefficient savings accounts, increasing the amount they
have to save for each dollar of retirement spending.
What about inheritances? They can be very powerful as a
counterweight to adverse events. In one episode, the
millennials experience adverse policy changes, lower
market returns and life events. However, the receipt of
$700,000 at age 35 provides enough investible wealth so
that their retirements are the same as in Episode 1, when
everything goes according to plan, without having to
increase their savings rate.
What if the millennials start their savings journeys later?
The table shows the required pre-tax contributions to
savings by episode assuming savings begin at age 25,
along with the same figure for those who don’t start
saving until age 35.
Episode Ag e 25 Ag e 35Ep. 1 12.3% 13.8%Ep. 6 12.9% 14.6%Ep. 4 14.3% 16.8%Ep. 5 15.0% 16.9%Ep. 10 15.9% 18.1%Ep. 12 15.9% 17.9%Ep. 2 16.2% 18.7%Ep. 11 17.0% 19.5%Ep. 8 18.9% 21.3%Ep. 7 19.2% 21.8%
Ep. 13 11.9% 13.8%Ep. 17 12.5% 14.6%Ep. 16 12.9% 15.2%Ep. 15 13.4% 16.0%Ep. 18 15.1% 17.4%Ep. 21 16.4% 19.1%Ep. 19 16.9% 19.8%Ep. 14 17.1% 19.4%Ep. 20 19.5% 22.6%
High net worth households
The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.
Required pre-tax contribution by each spouse if saving s beg in at:
J .P. MORGAN PRIVATE BANK 13
EYE ON THE MARKETS P E C I A L E D I T I O N
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1312 T H E M I L L E N N I A L S
What happens if they don’t save enough by retirement?
When the high net worth millennials didn’t save enough by
the time they retired, and when adverse events took
place, they had to slash their retirement spending by 35%-
45% in real terms compared to pre-retirement levels in
order to remain solvent.
Could high net worth millennials invest their way out of
savings rates that are too low? In one episode, they try to
do just that. The challenge: they would have to generate a
real 8% annual compound rate of return on their equity
portfolio every year throughout their entire lives, which
would be close to the peak long-term post-war equity
market index return on record.
One challenge for high net worth millennials with high
savings rates: exhaustion of tax-advantaged savings
allowances. In many episodes, their intended level of tax-
efficient savings is above the allowable caps on 401(k)
plans and IRA accounts, and exceeds what they are
comfortable allocating to non-qualified deferred
compensation plans, given concerns about exposure as a
general unsecured creditor. As a result, some of their
intended tax-efficient savings have to be made in tax-
inefficient savings accounts, increasing the amount they
have to save for each dollar of retirement spending.
What about inheritances? They can be very powerful as a
counterweight to adverse events. In one episode, the
millennials experience adverse policy changes, lower
market returns and life events. However, the receipt of
$700,000 at age 35 provides enough investible wealth so
that their retirements are the same as in Episode 1, when
everything goes according to plan, without having to
increase their savings rate.
What if the millennials start their savings journeys later?
The table shows the required pre-tax contributions to
savings by episode assuming savings begin at age 25,
along with the same figure for those who don’t start
saving until age 35.
Episode Ag e 25 Ag e 35Ep. 1 12.3% 13.8%Ep. 6 12.9% 14.6%Ep. 4 14.3% 16.8%Ep. 5 15.0% 16.9%Ep. 10 15.9% 18.1%Ep. 12 15.9% 17.9%Ep. 2 16.2% 18.7%Ep. 11 17.0% 19.5%Ep. 8 18.9% 21.3%Ep. 7 19.2% 21.8%
Ep. 13 11.9% 13.8%Ep. 17 12.5% 14.6%Ep. 16 12.9% 15.2%Ep. 15 13.4% 16.0%Ep. 18 15.1% 17.4%Ep. 21 16.4% 19.1%Ep. 19 16.9% 19.8%Ep. 14 17.1% 19.4%Ep. 20 19.5% 22.6%
High net worth households
The season summary bar chart on the prior page shows required pre-tax contributions to savings assuming that savings begin at age 25. The table above shows required pre-tax contributions to savings assuming that savings begin at age 25, and also at age 35. Source: JPMAM. 2015.
Required pre-tax contribution by each spouse if saving s beg in at:
EYE ON THE MARKETS P E C I A L E D I T I O N
14
NEXT STEPS
For more information about our research, please contact your J.P. Morgan representative. Click here to view the full version of the white paper, which includes:
• One-page analyses for each episode with an episode narrative andaccompanying break-even tables, charts and assumptions;
• A section explaining key plot devices used in each episode; and
• Production notes on the path of retirement spending, lifetimeincome vectors, home prices, financial market returns and policychanges used in the analysis.
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1514 T H E M I L L E N N I A L S
T H E M I L L E N N I A L S B I O G R A P H I E SHere’s a brief description of the eight millennials that appear in the show:
• Meri and Evan Ablaste, architects and frequenters of theBurning Man festival whose health effects linger
• Chad and Jane Selphy, music teachers and founders of thedefunct band Pork Pie Hat
• Ken Ebbis, manager in the Colorado medical marijuanadistribution system; irregular job security patterns
• Ima Narcissus, health care consultant in San Francisco;skeptical of markets and financial advisors
• Anita Loya (former district attorney now in privatepractice) and Chip Oatley (sales rep for a largeagribusiness)
NEXT STEPS
For more information on our research or to request a copy of the full white paper, please contact your J.P. Morgan representative or visit us at www.jpmorgan.com/millennials. The full white paper includes:
• One-page analyses for each episode with an episode narrative andaccompanying break-even tables, charts and assumptions;
• A section explaining key plot devices used in each episode; and
• Production notes on the path of retirement spending, lifetimeincome vectors, home prices, financial market returns and policychanges used in the analysis.
• Full list of sources and acronyms.
EYE ON THE MARKETS P E C I A L E D I T I O N
15
THE MILLENNIALS
J .P. MORGAN ASSET MANAGEMENT 1514 T H E M I L L E N N I A L S
JPMorgan Chase & Co. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Each recipient of this material, and each agent thereof, may disclose to any person, without limitation, the US income and franchise tax treatment and tax structure of the transactions described herein and may disclose all materials of any kind (including opinions or other tax analyses) provided to each recipient insofar as the materials relate to a US income or franchise tax strategy provided to such recipient by JPMorgan Chase & Co. and its subsidiaries.
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Prospective investment strategies are carefully selected from both J.P. Morgan and third party asset managers across the industry and are subject to a rigorous and ongoing review process that is consistently applied by our manager research teams. Recommended strategies are then subject to investment committee review and approval.
From the approved pool of strategies, our portfolio construction teams select those strategies we believe best fit our asset allocation goals and forward looking views in order to meet the portfolio’s investment objective. As a general matter, J.P. Morgan provides restricted advice as we prefer J.P. Morgan managed strategies unless we think third party managers offer substantially differentiated portfolio construction benefits. Consequently, we expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations.
We prefer internally managed strategies because they generally align well with our forward looking views and our familiarity with the investment processes, as well as the risk and compliance philosophy that comes from being part of the same firm. It is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included.
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Past performance is not a guarantee of future results.
Investment products: Not FDIC insured · No bank guarantee · May lose value
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