9 Ways Gen Z Can Plan for Retirement Without Social Security
Written by
Jordan Rosenfeld
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
The oldest members of Generation Z may be well established in the workforce, but that doesn’t mean they’re thinking about retirement yet. Even if they are, retirement might look very different for them than it does for their elders.
For one, the fate of Social Security hangs in the balance, with experts suggesting everything from a reduction in expected benefits to a complete bankruptcy of the Social Security system by or before their ultimate retirement dates.
If Gen Zers have to retire without Social Security, they’ll need to put more careful retirement plans in place. The good news is that they have a long time to save for that day. Here, experts explain how Gen Z can plan for retirement without relying on Social Security.
Take Advantage of Time
What Gen Zers have on their side is time, according to Julian B. Morris, CFP and principal atConcierge Wealth Management. “Likely, Gen Zers have 25 or more years until retirement,” he said.
Thomas Brock, chartered financial analyst and certified public accountant at Consumernotice.org, doubled down on this. “The most important thing a young worker can do is to start saving and investing as early and for as long as possible. Doing so will unleash the power of compound interest and enable them to greatly accelerate their wealth accumulation potential for decades.”
Invest in a Variety of Accounts
Gen Zers should try to spread their retirement contributions over accounts that have different tax treatments, Morris said. This includes choosing a mix of pre-tax accounts such as 401(k), Roth 401(k) and after-tax accounts like Roth IRA and non-retirement accounts.
“The Roth IRA, if eligible, can be a hugely powerful tool due to the tax free nature of withdrawals and ability to use principal tax free before retirement age, if needed,” he said.
Maximize Contributions
While any amount counts toward your retirement goals, Morris urged Gen Zers to contribute at least 10% of total income to these types of accounts, with a goal of 15% to really set yourself on a path to a successful retirement.
Even if you don’t plan on staying a long time at a company, he suggested, “Contribute enough to take advantage of the company match and if you don’t have a company match, contribute anyway.”
Purchase Mutual Funds or ETFs
When contributing to non-retirement accounts, do your best to purchase mutual funds with a tax-efficient mandate or passive ETFs, Morris urged. “Taxes add up, so you want to make sure you are positioning your portfolio to pay as little in taxes over the time that account is growing.”
He suggested that a financial advisor may be a valuable guide in helping select the right investments here or to help take advantage of tax loss harvesting.
Stick to a Prudent Budget
It’s easy to spend what you earn when you’re younger, but Brock urged frugal habits early on, such as setting a budget and sticking to it.
“To accumulate an adequate amount of money for retirement, you need to do more than think positively. You need to diligently maintain a lean budget, avoid problematic, high-rate debt and save as much money as possible. This means living within your means and limiting want-based spending,” he said.
Cultivate Additional Income Streams
The great thing about being young is that you often have more energy, stamina and creative thinking to do work more than you’ll be able to later on. Brock suggested Gen Zers harness this energy to augment their earnings.
“If promotions and substantial pay hikes are unlikely in your line of work, you may want to launch a side hustle. Perhaps, you could leverage your professional experience to establish a consulting business. Alternatively, you could join the gig economy to bring in some extra money on nights and weekends. Maybe you could even monetize a hobby.”
Establish and Maintain a Liquidity Reserve
A successful retirement may depend on investing as early and for as long as possible, but another successful tool is maintaining an emergency liquidity reserve of between six and 12 months of income.
Brock said, “Such a reserve needs to be a permanent part of your financial plan, and it should be stored within a high-yield savings account or a money market mutual fund. Right now, the most competitive instruments in this space are yielding over 5.00%.”
Invest for Growth
Because of the long time horizon, Gen Zers can take more risks in their investments, at least in their earlier years.
Brock said, “Generally, the most effective approach for a young person investing for retirement is to favor growth-oriented assets, such as stocks and real estate. Debt investments, which include certificates of deposit, bonds and banks loans, can make sense in some situations, but tilting heavily towards growth is usually optimal.”
That said, even Gen Zers need to stay risk-aware. “A low-cost way to do so is to invest in index funds, exchange-traded funds (ETFs) and real estate investment trusts (REITS), rather than individual securities and real estate properties,” Brock added.
Work With a Financial Professional
Gen Zers who don’t feel like they have the financial literacy to begin their retirement investing journey alone should reach out to a financial advisor.
These financial steps are even more important for Gen Z, which Morris said has “the added complexity of trying to save in a nebulous future while also balancing trying to live for now, have experiences, save for a first home, start families and all of the expenses associated with those life events.”
Preparing for a future in which they don’t rely on Social Security may be the savviest financial step any Gen Zer can take.
More From GOBankingRates
