Photograph by Jeff Harris for MONEY; Getty Images (1)
By Dan Kadlec
August 4, 2016

Despite an impressive head start, millennials overwhelmingly say they will not be able to put away as much as $1 million in their lifetime, new research shows. Yet with three or four decades to save, that mark should actually be fairly easy to hit.

Six in 10 working millennials (those ages 22 to 35) have begun saving for retirement, according to a report from Wells Fargo. That’s an impressive rate given other research that shows Gen X started saving at a median age of 27 and boomers, 35. By comparison, millennials began saving at age 22. So they are ahead of the game.

Millennials aren’t doing everything right: They often leave too much money in cash. But target-date funds and other managed accounts that are default investments in company 401(k) plans are changing that and steering their investments in a good direction. Some 85% of millennials use managed accounts, compared to 73% of boomers, Wells Fargo found.

With an early start and proper diversification, and a boost from 401(k) features like auto enrollment and auto escalation of contributions, the $1 million mark should be a slam-dunk for many. “They are engaged,” says Joe Ready, director of Wells Fargo Institutional Retirement and Trust. “They get it.” They know they have to start saving young. He calls the $1 million mark—and even retirement by age 60—“very doable.” (A bigger question is whether $1 million is enough. More on that later.)

Yet 64% of millennials say $1 million is out of reach, Wells Fargo found. As you might expect, there is far more optimism among millennials with high paying jobs: Those who say they will not hit the $1 million mark have median annual income of $27,900. Those who say they will hit the $1 million mark have median annual income of $53,000. Half of those who do not expect to hit the mark have begun saving, while three-quarters of those who expect to hit the mark have begun saving.

Another issue is that with lower median pay than men, almost half of millennial women aren’t saving for retirement.

Getting to $1 million for a young person isn’t the chore you might imagine. Consider a simple scenario: These hypothetical millennials start their career at $32,000 a year and receive 2% pay raises every year. They start by saving 5% of pay but increase savings by two percentage points each year until they are saving 13% of pay. They earn a 7% annual average return. At age 65, such savers would have $1.2 million.

Read more: Almost Half of Millennial Women Aren’t Saving for Retirement

The problem is that $1 million 40 years from now will hardly qualify as rich. If inflation averages 3% a year, that $1 million will have the same spending power as $306,000 today. Even if we get 40 years of 2% inflation—unlikely, but closer to what we’ve seen lately—that nest egg will be worth just $453,000 in today’s dollars. Not terrible. But not wealthy. At today’s annuity rates, that sum would buy less than $2,500 of monthly income for life.

“Is it enough,” asks Ready. “I don’t know. But it’s a flying start towards something.”

And that is the main point. Start with a simple plan to secure a baseline of future financial security—then find ways to add to it along the way. Max out your 401(k). Open a Roth IRA. Dedicate more of your pay raise to savings. After retiring a debt, don’t spend the monthly savings—save it.

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Read more: 6 Bad Money Habits That You Need to Quit Right Now

Millennials will collect Social Security benefits of $2,000 to $3,000 a month in their late 60s. They need to save enough to generate $3,000 to $4,000 of additional income, says John Papadopulos, head of Walls Fargo’s retirement business. The later you start, the more difficult that becomes. Beginning to save at age 32 would generate just half the nest egg as starting at age 23, Wells Fargo estimates.

Getting to $1 million isn’t all that tough if you start early. But getting beyond that is probably a smarter goal.

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