Many Gen Zers Have $0 Saved for Retirement: What This Means for Long-Term Wealth
Written by
Cody Bay
Edited by
Amber Barkley
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A recent GOBankingRates survey of adults in America revealed that more than 25% of Gen Z haven’t started saving for retirement. Of course, the generation between 18 and 27 years is relatively new to the workforce, so it may not be surprising that their retirement isn’t top of mind (especially with student loans weighing on them more heavily).
That said, having access to an employer-sponsored 401(k) can be a strong incentive to get young people to start thinking longer-term. According to the TransAmerica Institute for Retirement Studies, most workers in the U.S. who have access to an employer-sponsored retirement plan are using it, including 79% of Gen Z.
But what about those who don’t have a penny invested in their future?
Steven Carroll, private wealth advisor with Northwestern Mutual’s Sozo Private Wealth, said that while they may have cause for concern, there’s no need to panic. In fact, because of their age, he said Gen Z is now in a great position to start establishing the habits that will set the foundation for a solid financial future.
“I’m a pretty big believer that from day one, if you can set yourself up where you’re saving 20% of your income, that’s a really good habit to keep, whether you’re making $50K a year or $2 million,” Carroll said. “If you can start saving any percentage early on, that’s going to be really helpful.” Here’s how to kickstart the process.
Get the Ball Rolling
Carroll compares building good financial habits to the way you might approach changing your diet for better nutrition. “If you’ve done a bad job with your diet and nutrition for a long time, it’s not like, ‘Oh my gosh, I don’t want to eat, or how do I lose 80 pounds tomorrow.’ It’s just that you need to get started. And I think that’s true for investing.”
Many in Gen Z are faced with student loan debt and other competing financial priorities, and that can make it hard to allocate significant funds toward building future wealth. But Carroll points out that no matter what point you’re at in life, there will always be competing priorities, whether it’s saving to buy a home or sending a kid to college.
The important thing is that you save something, even just a little, because forming the habit is what’s key.
“If you just start chipping away and say you’re going to put 10% of your income towards retirement, because you weren’t saving anything, well, now you’re saving 10%, and that’s different. And if that wasn’t that crazy, maybe next year you’ll bump it up to 13%. So if you can just get the ball rolling down the hill, it gets a lot easier,” he added.
Younger savers in particular have the opportunity to maximize the benefits of compound interest — when the interest you earn generates additional interest by driving up your principal savings. “If you’re 27 years old and you start investing tomorrow, you probably have 25 to 35 years and a lot of money to compound, and so every year earlier that you get started is a really big deal, long-term,” Carroll said.
Think Beyond 401(k)
Carroll advises people to not just think of future wealth in terms of what’s in their 401(k) or a Roth IRA. While these types of accounts have long-term tax advantages, he said it’s important to “thoughtfully construct your balance sheet” and consider also having funds that you can more easily access if needed.
“With a 401(k), I don’t have access to that until 59 and a half, and life does come up, so having money in more liquid accounts in addition to some of those retirement plans can be a really big deal. Whether it’s to buy a home or to weather a storm, like getting laid off or whatever that looks like, it’s good to have solid liquidity,” Carroll said.
Mapping out your long-term strategy can help determine what you want your balance sheet to look like at different life stages down the road. In GOBankingRate’s survey, about 20% of Gen Z respondents believed they could retire comfortably on $500,000 or less. Another 32% thought they’d need between $500,000 and $1 million for a comfortable retirement.
Whether or not that’s true will depend heavily on a number of factors, including Social Security, your expected standard of living, the cost of living where you live, at what age you retire, and how many years your retirement dollars will need to stretch.
To assess what’s actually realistic, create a plan, and construct a balance sheet with those specific goals in mind, Carroll recommends talking to a certified financial planner.
“It really is so lifestyle contingent,” he said. “It’s never too early to build out a financial plan and a model that shows hey, if I wanted my lifestyle to stay relatively the same, what is that number? Do I need it to be taxable or in post-tax money? What does that all look like?”
Have judgment-free conversations
Getting on the right path toward security and wealth in the future, especially when starting from zero, often starts with having money conversations with someone you can speak with openly, Carroll said.
“People are funny about money. It’s easy to have a lot of pride around it, so finding somebody who you can actually be authentic with and say, ‘Hey, I don’t actually know what I’m supposed to know,’ or ‘what’s the big deal about investing? I don’t really understand,'” he said.
“Maybe you can find that with a financial planner or advisor that you’re working with, or maybe it’s a mentor or a parent. But that’s our hope with our clients — that this is a judgment-free conversation.”
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