How Gen Z Can Prioritize Planning and Saving for Retirement
These days, the concept of retirement is less about reaching a specific moment in time and more about viewing retirement as a mindset. While some Gen Zers may think the time to start saving for retirement is tomorrow, time is on your side when you’re in your twenties.
Those who start saving, investing or paying down debt now will be able to put themselves on the track to financial freedom earlier than most. Here are a few tips that can help put Gen Zers in the retirement mindset starting today.
Begin a Systematic Savings and Investment Plan
Every Gen Zer will have a retirement lifestyle that is entirely up to them. However, federal assistance like Social Security and Medicaid are positioned as a bonus to help with retirement essentials and are not designed to cover all expenses. It’s up to each Gen Zer to proactively find solutions for the retirement lifestyle they want.
Michael Liersch, Ph.D. in behavioral science and head of advice and planning for Wells Fargo Wealth and Investment Management, recommends Gen Zers start a systematic savings, and when possible, investment plan.
Saving and investing are very different, which Liersch said is something Gen Z should embrace. Saving helps with the day-day-day expenses including big and unexpected purchases. Investing is paying yourself forward so that your future self can live the life they’d like to lead.
How much should you start saving? Liersch said the old default was to save 3% of your paycheck, but now that’s not enough. Liersch’s recommendation is to start saving 10%, if possible. Then, add a percentage or two. Ideally, you want to get to the point where you are saving 20% of your paycheck for retirement savings and investments.
“Saving and investing is not a moment in time so you should perpetually contribute — and most importantly, while you might access your savings, avoid accessing your retirement accounts if at all possible,” said Liersch.
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Focus on Behaviors Rather Than Results
Saving and investing, as mentioned above, are two different financial concepts. Saving means setting money aside while investing is risking money with the intention of it appreciating over time. The latter is usually harder to do because it requires patience.
It may frustrate younger investors to see their investments not immediately performing as they might like, but the results are ultimately less important in the long run. For Gen Zers, it is the behavior of getting into the act of saving and investing that matters.
Andrew Gold, financial advisor and educator at Prestige Wealth Management, said focusing on the behaviors rather than the results will more often lead to saving and investing success. It also gives you a head start on your financial future.
“From my experience, learning to pay yourself like you would a bill is an important mindset shift to make as early as you can,” said Gold. “We all first must learn to pay others; utilities, rent, mortgage, car payment etc. Why not your future self?”
Find Your Sensitivity Point
If the idea of 10% to 20% of your paycheck going toward savings and investing is making you feel nervous, especially if you’re not accustomed to putting aside this much money, Gold said to find your sensitivity point.
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Your sensitivity point will be a number that isn’t stressful to tuck into a savings or investment account. For some people, this might be $50, $100 or even $500. Gold said pick that transaction size out and automate saving that amount from your paycheck. If you are able to conquer the first few months of saving and investing and don’t notice the money isn’t there, you’ll have an easier time transitioning into becoming a savvy saver and investor.
Embrace Paying Yourself First
Earlier, we mentioned that paying yourself first is one of the most important mindset shifts Gen Zers can make to plan and save for retirement. But what does it mean to embrace this concept?
Maya Nijihawan, co-founder and COO of Finch, said paying yourself first means you automatically set aside money to save for your long-term needs and well-being ahead of any other spending. By paying yourself first, you, not lifestyle creep or any other shiny object that could distract you from saving or investing, come first.
“When you prioritize your immediate wants, it can be easy to live beyond your means and deprioritize your saving or investing goals,” said Nijihawan. “Paying yourself first helps you become intentional about building wealth and is one of the best things you can do for future you.”
Remember: Time Is On Your Side
The greatest asset a Gen Zer has is time and it’s currently on their side. Start using it to your advantage through careful saving and investing.
Investing, Nijihawan said, is the key to unlocking powerful effects of compound interest. This can help your money grow faster. The sooner you start, the more time you give your investments to grow and recover from market ups and downs along the way.
If your employer offers a 401(k) match, Nijihawan recommends taking full advantage of that opportunity. You can also open a Roth IRA and invest your contributions into that account to let invested dollars grow tax-free. Each step gets you closer to financial freedom and independence. This is the ultimate source of empowerment, and investing young can accelerate your journey toward it.
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