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Millennials: You're still not saving enough

The magic savings number is now 22%

If you're young and saving for retirement, you should plan to sock away nearly a quarter of your pay in your 401(k).

A recent survey from personal finance website NerdWallet found that a 25-year-old who is earning $40,000 a year will need to have saved 22 percent of pay in a retirement account over the course of his or her career in order to replace 80 percent of annual income by age 67.

These findings assume that the saver will have a salary increase of 2 percent each year.

The 22 percent figure is a departure from some experts' suggested contribution rate of 10 percent of salary. Asset manager T. Rowe Price has promoted a target savings rate of 15 percent for workers who want better odds.

Tamer market returns

NerdWallet has ratcheted up millennials' savings targets in light of lower-than-expected investment returns.

Assuming 7 percent average annual stock market returns, a 25-year-old earning $40,000 who contributes 13 percent of salary to a 401(k) will accumulate $353,000 and earn $1.33 million from investments. The total amount saved in the plan by age 67 will be $1.68 million.

If you were to dial back those expected returns to 5 percent, however, this same individual would need to contribute 22 percent of salary in order to reach $1.68 million. Of that total, $584,000 will come from contributions and $1.10 million from investment returns.

The 5 percent average stock market returns reflect two dynamics at work, said Arielle O'Shea, an investing and retirement specialist at NerdWallet.

"Economists have said that returns could be lower over millennials' investing career," she said. "Also, many millennials are holding money in cash, which will hurt them. They need to invest their money."

Don't be intimidated

Not everyone is on board with the 22 percent number.

"That's really high," said David Blanchett, head of retirement research at Morningstar Investment Management.

"Nobody who is 25 can do that," he said. "If you want to get people saving for retirement, you don't want them to say, 'I can't save that much, so why try?'"

Blanchett said he is working on a research paper that pegs the ideal contribution rate for a 25-year-old currently earning $50,000 at a less-scary 14.2 percent. That's assuming a low-return environment and includes employer matches. It's still a step up from that demographic group's median savings rate of 3 percent, he said.

Reaching these higher savings goals will be a challenge for many, but it doesn't have to be impossible. Employer matches will get you part of the way there.

"If your employer matches 100 percent of your 4 percent contribution, you're already at an 8 percent contribution rate," said O'Shea. Raise your deferral rate each time you get a raise, to ensure that a few more dollars go into savings.

The higher contribution rate should also encourage you to take a closer look at the funds in your retirement plan.

Are your fees too high? If so, they are eating away your returns. Pay close attention to participant fee disclosures from your employer, as the U.S. Department of Labor requires companies to send this notification to 401(k) savers on a quarterly basis. Certain services, such as FeeX, spell out the details of your retirement plan fees, breaking them down into record-keeping costs and fund expenses.

"If your 401(k) charges high fees, get your match and look to investing in an IRA," said O'Shea.

Finally, take a second look at your liabilities, and see if you can pay them down faster to free up more cash for investing.

"Are you paying for expenses now that may go away, so that you can use that money for something else in the future?" asked Blanchett. "That can make more sense for people who have student loans and other debts at higher interest rates."