Te Millennials - J.P. Morgan...the financial services industry according to Wells Fargo and Goldman...

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 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

THE MILLENNIALS


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

THE MILLENNIALS


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

le

Source: 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

THE MILLENNIALS


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

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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

THE MILLENNIALS


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

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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. Ineach 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 theirfinancial assets through the end of retirement. The followingplot 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 ProductionNotes 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 arefictitious. Any resemblance to real persons,

living or dead, is purely coincidental.

No animals were harmed in thefilming of this show.

THE MILLENNIALS


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.

THE MILLENNIALS


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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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

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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):

THE MILLENNIALS


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:

THE MILLENNIALS


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.

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pol

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6%

7%

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10%

11%

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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

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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


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):


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.



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


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






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 pageshows required pre-tax contributions to savingsassuming that savings begin at age 25. Thetable above shows required pre-tax contributionsto savings assuming that savings begin at age25, and also at age 35. Source: JPMAM. 2015.

Required pre-tax contribution byeach spouse if saving s beg in at:

THE MILLENNIALS



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.



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


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






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 MILLENNIALS


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

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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


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):


When the high net worth millennials didn’t save enough by


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.






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 pageshows required pre-tax contributions to savingsassuming that savings begin at age 25. Thetable above shows required pre-tax contributionsto savings assuming that savings begin at age25, and also at age 35. Source: JPMAM. 2015.

Required pre-tax contribution byeach spouse if saving s beg in at:

THE MILLENNIALS



When the high net worth millennials didn’t save enough by


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.






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 MILLENNIALS


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 about our research please contact your J.P. Morgan representative. Visit www.jpmorgan.com/millennials 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;

• Production notes on the path of retirement spending, lifetimeincome vectors, home prices, financial market returns and policychanges used in the analysis; and

• Full list of sources and acronyms.

www.jpmorgan.com/millennials

THE MILLENNIALS


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.

The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Michael Cembalest and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The prices/quotes/statistics referenced herein have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness; any yield referenced is indicative and subject to change. The views and strategies described herein may not be suitable for all investors. Certain opinions, estimates, investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice. The information contained herein should not be relied upon in isolation for the purpose of making an investment decision. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. References to the performance or characteristics of our portfolios generally refer to the discretionary Balanced Model Portfolios constructed by J.P. Morgan. It is a proxy for client performance and may not represent actual transactions or investments in client accounts. To the extent referenced herein, real estate, hedge funds, and other private investments may present significant risks, may be sold or redeemed at more or less than the original amount invested; there are no assurances that the stated investment objectives of any investment product will be met. JPMorgan Chase & Co. and its subsidiaries do not render accounting, legal or tax advice and is not a licensed insurance provider. You should consult with your independent advisors concerning such matters.

In the United Kingdom, this material is approved by J.P. Morgan International Bank Limited (JPMIB) with the registered office located at 25 Bank Street, Canary Wharf, London E14 5JP, registered in England No. 03838766 and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. In addition, this material may be distributed by: JPMorgan Chase Bank, N.A. Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers; J.P. Morgan (Suisse) SA, regulated by the Swiss Financial Market Supervisory Authority; JPMCB Dubai branch, regulated by the Dubai Financial Services Authority; JPMCB Bahrain branch, licensed as a conventional wholesale bank by the Central Bank of Bahrain (for professional clients only). In Hong Kong, this material is distributed by JPMorgan Chase Bank, N.A. (JPMCB) Hong Kong branch except to recipients having an account at JPMCB Singapore branch and where this material relates to a Collective Investment Scheme (other than private funds such as private equity and hedge funds) in which case it is distributed by J.P. Morgan Securities (Asia Pacific) Limited (JPMSAPL). Both JPMCB Hong Kong branch and JPMSAPL are regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Singapore, this material is distributed by JPMCB Singapore branch except to recipients having an account at JPMCB Singapore branch and where this material relates to a Collective Investment Scheme (other than private funds such as a private equity and hedge funds) in which case it is distributed by J.P. Morgan (S.E.A.) Limited (JPMSEAL). Both JPMCB Singapore branch and JPMSEAL are regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided by JPMCB Hong Kong/ Singapore branch (as notified). Banking and custody services are provided to you by JPMIB. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. Receipt of this material does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation.

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