The Truth About Retirement: 6 Facts and Trends Gen Z Needs To Prepare for Already

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As the youngest working generation, Gen Z is entering a workforce with three older cohorts, all facing rapidly evolving technology and global economic uncertainty. With the oldest members of Gen Z now out of college and well into the beginning of their careers, retirement planning might be the furthest thing from their minds.

It shouldn’t be. Retirement will likely look a lot different when Gen Zers reach their golden years, and it’s never too early to start thinking about proactively managing your finances. Keep reading for a more in-depth look at key facts and trends Gen Zers need to prepare for as they map out their workforce exit strategies.

Start Saving Now

The main concepts behind retirement planning won’t change in one important way: It’s still a long-term goal that requires early planning and active preparation. If you’re a Gen Z worker, time is on your side. Starting to save in your 20s and 30s — which is right around the corner for the oldest Gen Z workers — can mean substantial gains over time. You’ll need to focus on saving now for a secure retirement later.

Regularly contributing to one of the many high-yield savings accounts now available, primarily from fintech companies and online banking alternatives, is one good option. Take advantage of compound interest by rolling over your earnings every year, and always make sure your savings account is earning more than the rate of inflation. Otherwise, you’re losing money.

Even small, regular contributions to a 401(k) or IRA can mean you won’t have to worry about making ends meet after your last day on the job.

Social Insecurity: How Benefits Will Be Different for Gen Z

Social Security benefits are currently being paid out to the baby boomer generation, one of the largest in American history. Though millennials have surpassed the boomer generation as the largest, the smaller size of the working Gen X population means Social Security has been operating at a deficit — $41.4 billion last year alone.

Social Security is funded by the earnings of those still working, so the system faces serious financial uncertainties. Gen Z is smaller than its older millennial cohort, which means the Social Security system will be under even more strain when millennials reach retirement age.

It might seem like hyperbole to suggest that Gen Z won’t be able to count on Social Security, but it could happen. You should plan your retirement savings with the assumption that you’ll be faced with reduced benefits — or none at all.

Rising Temperatures and Rising Prices

Though not close to an all-time high, inflation has been trending higher than the long-term average. The uncertain geopolitical landscape, ongoing supply chain issues and the rising costs of coping with climate change all play a part in this important economic benchmark.

That’s bad news for Gen Z, because inflation erodes the purchasing power of money. What seems like a substantial amount of savings today will be worth less in the future. One way to offset this uncertainty is with a diversified investment portfolio. Your best bets will likely be a mix of dividend-paying stocks, bonds and other low-risk assets that can serve as a more effective buffer against inflation in your retirement savings.

Urban Living Is a Pricey Necessity

Everyone needs a place to live, and lifestyle and housing choices can significantly impact your retirement savings. While some millennials and older members of Gen Z are adopting or seriously considering something like a homesteading lifestyle, most well-paying jobs are in urban areas with higher costs of living. This presents challenges alongside the opportunities.

Urban living can offer access to higher-paying jobs and many amenities, but higher price tags on everything from food to fuel can significantly strain your ability to save.

Unless more companies adopt remote working policies, pursuing a well-paying career may tie you to urban areas or nearby suburbs. Homeownership is one way to deal with the increased cost of living in cities, but housing prices continue to rise, leaving many members of Gen Z with the feeling that they’ll never be able to afford a mortgage.

There’s no clear solution to this problem other than looking into the trends of urban homesteading to offset some of your food costs and relentlessly lobbying your employer to let you work from a place where you can thrive instead of merely surviving. It is, and will remain, a difficult balance to find.

The Hidden Dangers of the Side Hustle

Gen Z is more likely to participate in the gig economy or freelance work than older generations. However, freedom and flexibility come at a cost. Unlike those working a standard nine-to-five job, gig workers are faced with greater personal responsibility for retirement savings, and most gig workers have little enough left over as it is to deduct for things like retirement savings.

Though some gig workers are able to make something approaching a decent living, many say the long hours, uncertainty and reliance on tips — which are unpredictable at best — make these alternate ways of earning income unreliable and untenable in the long term.

Traditional employer-sponsored retirement plans aren’t available for most gig work jobs, so understanding and using alternative options like solo 401(k)s and IRAs should be an important part of your current financial planning.

Getting Old Is Expensive

One of the most significant expenses in retirement will continue to be healthcare. Medical costs are projected to continue rising, and while Medicare will pay for some expenses, it may not cover everything. Just as with Social Security, the Medicare system faces long-term funding issues, with some analysts predicting a complete depletion of funding by 2036, if nothing is done to address the issue.

Gen Z should anticipate these problems and look into solutions like health savings accounts, which offer tax advantages and could come in handy — or be a necessity — for Gen Z retirees.

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