Suze Orman: How Gen Z Can Start Securing Their Retirements
Written by
Nicole Spector
Edited by
Molly Sullivan
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There’s (hopefully) not a single financial professional out there who doesn’t strongly recommend that you start saving for retirement as early as possible. Unfortunately, many folks don’t realize just how expensive a comfortable retirement is and are shocked to find out they’re terribly behind at, say, 55.
What does Gen Z, who has the privilege of youth, need to do in order to secure a comfortable retirement? What actions can they take now and in the coming years?
Financial guru Suze Orman recently helped answer this question in her blog post, “How to Start Building for Retirement When You’re Young.” Let’s dig into Orman’s one-of-a-kind wisdom.
Stash 15% of Your Income in a Retirement Plan
Orman has one major tip for people in their twenties, and that’s to “nail one key number: 15%,” she wrote.
Orman is talking about your income. She believes that people in their twenties should be putting 15% of their incomes in a retirement account. Starting ASAP.
You can put that 15% savings toward retirement in a few ways, including, Orman said, “through a workplace retirement plan, or their own Individual Retirement Account (IRA). In both instances, encourage them to use a Roth, not a Traditional account. Most 401(k)s now offer a Roth option, and I am confident that someone in their early 20s meets the income limits for contributing to a Roth IRA.”
Why 15%?
Orman didn’t land on the 15% savings target out of the blue. This retirement-saving method has been proven to work again and again.
“The 15% savings rate is based on a lot of smart people doing a lot of mind-numbing number-crunching that factors in how investments grow over time, how much of our work-years income we need to live comfortably in retirement, and how much other income sources, such as Social Security will provide,” Orman wrote.
‘Dive In Cold’
Don’t waste time thinking about how you can fully commit to saving 15% of your income. You can finetune the details as you go. What matters most is that you don’t put off this critical money move.
“Now comes the question of how to pull it off,” Orman wrote. “My advice is that they just dive in cold. That is, commit to automatically saving 15% of their income ASAP. The faster this becomes a habit, the easier it is to pull off.”
Banish Lifestyle Creep
All of us in a capitalist society are prone to experiencing lifestyle creep. We start making a little more money, and so we start spending a little more money. Or maybe a lot more money. We buy the luxury car we know isn’t necessarily the best financial decision. We take a mortgage out on a house located in the pricier part of town. We cook less. We crave the finer things we’ve worked so hard to get.
“We’re all susceptible to lifestyle creep: as income increases it’s all too common to just spend more, rather than save more,” Orman wrote. “By anchoring your financial life early to a goal of saving 15% of your income for retirement, you are defending against lifestyle creep. That 15% saving commitment becomes your automated priority that comes before spending.”
Saving Is an Act of Financial Self-Care, Not a Punishment
You may have to make sacrifices in order to consistently save 15% of your income. Maybe it means brunch once a month instead of once a week. Maybe it means not taking that spring break trip to Puerto Vallarta after all.
Making such sacrifices can be a downer. You may start to feel saving for a comfortable retirement is a type of punishment. This sort of thinking isn’t going to help you; look at things a different way. You’re doing something really powerful and very smart.
“I hope you can help 20-somethings in your life see the potential for it to be liberating and empowering,” Orman said. “It’s a choice that in itself (saving for retirement) and in its spillover effect (causing more intentional spending choices today) will deliver financial security. How can you not want that?”
Orman makes a great point. Make the efforts needed now, so that you won’t regret not doing so later in life.
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