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Millennials are facing a savings crisis! Are you putting enough away for your retirement?

How much do you need to retire on? It’s a question that’s akin to asking someone how long that metaphorical piece of string is.

Some of us have visions of buying a boat, moving abroad or embarking on other expensive pursuits. Others have more modest plans that require much less capital. But as a broad rule it’s estimated that a personal pension pot of at least £200,000 is needed for the average person to live in comfort post-retirement on top of their State Pension.

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Mashed millennials

Data shows that individuals are getting more and more savvy when it comes to saving for retirement. For example, a Bank of America study recently showed that 73% of millennials in the US are currently saving. This is up 10 percentage points from just two years ago. And three-quarters of these are saving with retirement specifically in mind.

A recent report from Statista, though, suggests that Britons aren’t as dedicated to protecting ourselves in old age. Latest data shows that as of 2017, a whopping 6.5m people had no cash savings at all. Meanwhile, 32% of the population had paltry savings of between zero and just £2,000.

And Statista says that Britons aged between 18 and 24 years had “the lowest mean amount in cash savings of any age group.” Compare that to the impressive savings stats of young people in the US shown in that Bank of America report.

Strike with stocks

If you find yourself in the low-savings group you shouldn’t necessarily be dismayed, though. There’s still plenty of time to make up this shortfall. But it’s critical that you use any money that you set aside wisely.

One such way to make big returns by retirement is by investing in stock markets. Long-term investors here make mighty average returns of between 8% and 10% a year.

So say you are 25 and intend to retire by 65. How much will you need to save each month to get to the magic £200k marker mentioned earlier? Well someone investing just £65 per month over 40 years can expect to make £209,370 based on that lower rate of 8%. If they hit the top range of that average and enjoy returns of 10%, that pension pot will balloon to a mighty £360,773.  

Easy peasy

These figures dwarf the returns that someone can expect to make from a low-paying cash savings account. Say that you invest in the best-paying Cash ISA with interest rates of around 1.3%. Over 40 years, that £80 per month would make you a sorry-looking £40,825.

It’s clear, then, that with the right strategy, investment in stocks is a better way to insulate yourself from financial harm in retirement. And you don’t have to necessarily spend a lot of time picking stocks and shaping your investment portfolio either. Just dripping your money into a tracker fund can make you big money. And it is also a relatively cheap way to invest, compared to buying up a raft of individual stocks.

The FTSE 100 has leapt 568% in value over the past 30 years. So someone who could have bought a tracker at the start of the period would now be sitting on some huge gains. And particularly when you add the dividends you’d have received into the equation. So don’t just get saving, I say. Take these tips and really watch your retirement fund swell!

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.