Retirement advice for Generation Z from experts

According to a new report from Bankrate, more than 30% of Gen Z have not saved for retirement in the last two years. And across generations, savers feel like they haven’t met their retirement goals, with 30% of Gen Z, 46% of Millennials, 65% of Gen X, and 71% of Baby Boomers reporting falling behind on their retirement savings .

“There are many reasons Gen Z workers may not be saving for retirement,” said Colleen Carcone, director, wealth planning strategies at TIAA. “The past few years have been somewhat turbulent for the labor market. In 2020, the pandemic has shut down businesses around the world, putting many out of work, and while unemployment rates have returned to pre-pandemic levels, many are struggling to save. Younger workers have been hit harder than the general population and this lack of income may have led to a lack of savings.”

Key challenges in saving for retirement

Generation Z faces unique challenges when it comes to saving for retirement, due in part to current economic conditions and their position as the youngest working generation. While there are myriad reasons why some workers have “taken a break” from saving for retirement, some of the key obstacles are:

1. Less time at work: The oldest members of Gen Z are in their mid-twenties, with three to four years of work experience at best. Those who use an employer-sponsored plan as a savings vehicle haven’t had much time on their side to build significant savings. They also tend to earn less as many of them have just started their careers. According to a study by GoBankingRates, the typical annual salary for Gen Z workers in 2021 was $32,500.
2. Competing financial commitments: Gen Zers face a number of more immediate financial tasks that often take precedence over distant milestones like retirement. “There are other needs competing for their hard-earned dollars,” says Carcone. “Whether it’s paying rent or a mortgage, caring for a child, or tackling student loan debt, retirement planning is often at the bottom of the list. And many think, “I’m not retiring in 30, 40, or even 50 years, there’s still plenty of time to start saving,” but that thought process can have a significant impact on their overall savings.”
3. Rising inflation rate: According to the October Consumer Price Index (CPI), the index for all items increased by 7.7% over the last 12 months (before seasonal adjustment). Higher costs of living and essential necessities have taken a toll on the wallets of many, including younger workers.

How Gen Zers can save more for retirement

Pausing your retirement savings can be a risky move. It could mean giving up free money from employer or IRA matches, significantly altering the quality of your life in your later years, and extending your retirement life. For Gen Zers looking to get their savings on track and position themselves for the future, experts say there are a few ways you can get back in the driver’s seat.

1. Don’t leave your employer on the table. Many employers that offer an employer-sponsored retirement plan, such as a 403(b) or 401(k) plan, offer something in return to savers who pay a certain amount into their retirement account (typically 3% to 5% of your income). “If you make $55,000 a year and save 3% of that salary, your companies could hit that 3%. That’s $1,650 from you and another $1,650 from them. If you don’t save that full 3%, you’re leaving cash on the table,” says Carcone.
2. Consider a Roth IRA. A Roth IRA is a type of account that allows consumers to save for retirement tax-deferred. With a Roth account, you’re investing dollars that you’ve already taxed, and all qualifying distributions are income tax-free. “For those who are younger in their careers, this offers a longer period before those funds are used for retirement and a much longer period for that tax-free growth,” says Carcone.
3. Eliminate high debt balances. Many Gen Zers are saddled with student loan debt, which could make it more tempting to delay or postpone saving for retirement altogether. According to an analysis by the Department of Education, cumulative federal student-loan debt is $1.6 trillion and growing for more than 45 million borrowers. According to the Fed, Gen Zers have an average of $20,900 in student debt — that’s 13% more than Millennials. And 7.7% of Gen Zers have balances over $50,000. Focus on implementing a debt repayment strategy that will help you pay off your loans and work toward saving more for your future self over time. The more you deposit, the more you can set aside for your golden years.

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Saving enough to support yourself after checking out of work is no easy task. However, the key to saving enough to comfortably feed yourself is to start early and make saving for retirement a constant priority. As your income changes, reevaluate how much you’re putting aside and make adjustments to increase or decrease that amount, depending on what feels manageable. However, the goal is to be consistent over time and look for ways to grow those savings through strategic investments, savings vehicles, and matches.