Gen Z Redefines Retirement Plans

Many people are told to keep on saving money for decades so that they may enjoy life after working. According to CNBC, Lillian Zhang embarked on retirement planning right after college.

At 20, she opened her first retirement account, a Roth IRA, inspired by insights from online personal finance content. She diligently maxed out contributions for two years using savings and earnings from internships. After securing a job post-college, she shifted focus to maximizing her 401(k) contributions.

Now 24, Zhang boasts six-figure savings spread across three retirement funds. Recently, she added a Simplified Employee Pension (SEP) IRA for her content creation side hustle. She represents a growing cohort of Gen Z retirement enthusiasts.

Today’s young professionals prioritize securing their future more than ever: the average Gen Z individual starts saving for retirement at 22, compared to millennials at 27, Gen Xers at 31, and baby boomers at 37, according to a January survey by Northwestern Mutual.

What’s driving this proactive financial behavior?

Anxiety plays a significant role. Many worry about stagnant wages amid rising living costs, says Paloma Thombley, chief human resources officer at Handshake, a job platform for students and recent graduates.

Americans estimate they need $1.46 million for a comfortable retirement, a 53% increase from 2020, according to Northwestern Mutual.

Gen Z sees millennials struggle with financial milestones like student debt and homeownership. Additionally, many observe older family members facing financial challenges. A December survey by Handshake reveals over half of current college undergraduates either support or expect to support their parents or grandparents financially, with students of color disproportionately burdened.

Meanwhile, Zhang, echoing her peers, needs more confidence in the future of Social Security. Projections suggest Social Security’s trust funds will be depleted by 2035, potentially necessitating benefit cuts without legislative action.

“If the government won’t safeguard your retirement, personal responsibility is key,” Zhang said. “Relying solely on Social Security for income in retirement seems risky.”

With government assistance uncertain, young individuals turn to employers for support.

Retirement benefits rank high among the priorities of the Class of 2024 when considering job offers, with 65% expressing unwillingness to accept an offer lacking an employer-sponsored 401(k), according to Handshake.

Employers play a pivotal role in fueling Gen Z’s retirement savings. A recent Vanguard report reveals individuals aged 18 to 24 are 32% more likely to invest in workplace retirement plans compared to older counterparts at the same age, thanks to enhanced automatic enrollment and improved plan information accessibility.

Genesis Hinckley, a 27-year-old business analyst at Google, exemplified this trend. Hinckley received comprehensive benefits four years into her role, including guidance from a financial advisor. This support enabled her to make informed decisions about her retirement contributions, including taking advantage of a 50% employer match. Though initially unsure, Hinckley adopted a trial-and-error approach, recognizing that experience is the best teacher.

“Gen Z is less apprehensive about investment,” Hinckley said. “We’re willing to navigate and learn along the way.”

Having accrued financial understanding over time, Hinckley now directs 18% of her income to a Roth 401(k), and 5% to a traditional 401(k). She maximizes her contributions annually, resulting in approximately $138,000.

Beyond anxiety, many Gen Z people view aggressive retirement savings as a means of seizing control in an uncertain future devoid of reliable support systems.

Social media fosters a sense of community and knowledge-sharing. Peers on platforms like YouTube and TikTok supplement traditional education, offering insights into tax-efficient investment strategies, compound interest, and the significance of early savings.

Saving for retirement is perceived as an annual objective rather than a distant aspiration. Zhang, for instance, learned in her personal finance class about the advantages of early Roth IRA contributions, prompting swift action before her earnings escalated.

“Young professionals today have unparalleled access to financial guidance and are keen to seize opportunities to secure their future,” Thombley said.

Much like their approach to careers, Gen Z individuals are redefining retirement, envisioning a trajectory distinct from that of their parents.

“People anticipate a career journey different from their parents’,” Thombley said. “Each person envisions their end-of-career scenario, and Gen Zers contemplate this from day one, marking a notable shift.”

As for Zhang, retirement remains a work in progress, yet she feels confident in her ability to pursue her dreams with financial security. For her, it’s about striking a balance between aggressive saving now for future flexibility and retaining the freedom to pursue passions without financial constraints.

Hinckley shares a similar outlook, emphasizing that retirement planning doesn’t necessitate sacrificing present enjoyment. She envisions her retirement as a departure from traditional notions of wealth accumulation, prioritizing time and personal fulfillment over monetary gain.

“It’s about reclaiming time, not just chasing wealth,” Hinckley said. “I don’t want to postpone my passions until I’m 70.”

Noumaan Faiz, (he/him) is a journalist and entertainer from Corona, CA who covers culture and entertainment.

Edited by Nykeya Woods