6 Things That Could Keep Gen Z From Retiring Early
Written by
Madeline Duley
Edited by
Levi Leidy
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“That’s a problem for later me” is a phrase commonly uttered by Generation Z. With the current job market challenges and the weight of substantial student loans, young Americans are clinging to their daily coffees and TikTok shop indulgences to provide the serotonin boost they need to get through the day.
While Gen Z is still decades away from retirement, their financial habits have the power to impact their retirement savings in the future. Despite Gen Z’s current focus on short-term goals such as travel and the newest gadgets over saving and investing, now is a better time than any for young Americans to develop a more balanced approach toward finances.
Here’s a look at different ways young Americans may be depriving their future selves of adequate retirement savings. After all, financial literacy is key to breaking the cycle and ensuring a long and prolific retirement.
Economic Struggles
Gen Z is facing some strong economic headwinds other generations didn’t experience. From stagnant wages and increasing costs all around, the macroeconomic climate is out of their financial control, but directly impacting their ability to save.
“Higher levels of inflation and interest rates will likely negatively impact Gen Z’s ability to save early for retirement,” said Jonathan Thomas, CFP and private wealth advisor with LVW Advisors. “With insufficient savings and a need to finance these larger purchases, more of their monthly payments will be applied to interest, leaving less for savings.”
Technological Advancements
Continued technological advancements also pose a risk to young Americans’ retirement savings.
“Technology and AI are more of a threat to this generation than any other in the past,” Thomas said. “With many jobs being replaced by technology and automation, Gen Z workers have to stand out and perform meaningful, irreplaceable work to succeed in today’s world.”
Risky Investments
The rise in digital technologies has granted Gen Z unprecedented access to risky investments. With young Americans growing up in the digital age, the appeal of making money from a few finger taps on their phones is stronger than ever. However, risky investments offer risky rewards.
“One bad financial habit is confusing speculating with investing,” Thomas said. “Legalized sports gambling could negatively affect this generation, which has grown up with the idea that it’s possible to get rich from gambling. Furthermore, day trading speculative stocks or cryptocurrencies isn’t a great long-term investment, in my view. Every dollar that goes towards these types of endeavors is one less dollar that can compound over decades in the stock market.”
Overspending on Nonessentials
While daily indulgences, such as buying your daily coffee, aren’t going to make a major deficit to your retirement savings, getting in the habit of spending a good chunk of your paycheck — or all of it — on nonessentials can hinder Gen Z’s ability to save for retirement.
“Gen Z tends to value experiences and ‘living their best life’ now, which could lead to overspending on nonessentials, from travel to frequent restaurant meals to subscription services,” said Joseph Catanzaro, a financial advisor at Oak & Stone Capital Advisors.
“And with smartphones and social media, there are endless temptations to consume. It’s so easy to make impulse purchases these days.”
Unaffordable Housing
Gen Z may not be house-hunting yet, but when the time comes, this generation may not be able to afford it. Housing affordability and shifts in the housing market are significant headwinds facing Gen Z and their ability to save for retirement.
“A fixed mortgage payment is the foundation that allowed prior generations to effectively save,” said Clint McCalla, CFP and senior client advisor at Meira. “Baby boomers, for example, were able to shift more to savings over time due to fixed housing expenses as their incomes increased through career progression. Housing policy will need to change for this to be the case again.”
While previous generations may have been able to enter the housing market, owning, selling and downsizing to fund their retirement, Gen Z might not share that privilege. Rising costs could exclude housing investments for Gen Zers, potentially leaving them in the cyclic cycle of renting, offering them no return on their investment later.
Information Competency
Thanks to TikTok and Instagram, Gen Z is bombarded with advice — some good and some questionable. While the surplus of information at young Americans’ fingertips can be an incredible asset, it can also hold this generation back from attaining financial security.
“Access to information and technology is far ahead of where it was even 10 years ago, so it is very simple to find answers or explanations,” McCalla said. “The flip side of having so much information at your fingertips is the issue of competency. Receiving advice from someone on social media who doesn’t know your specific situation is a good example of how that can go wrong.”
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