Financial advisors have a message for Gen Z workers: Start saving for retirement now. Here’s how to begin

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Gen Z might be the youngest generation in the workforce, but that doesn’t mean it’s too early for them to be thinking about retirement. However, it’s not on many of their minds.

New Census Bureau data show that Gen Z was the least likely generation to contribute to a retirement account in 2020. In fact, only 7.7% of Gen Zers owned a retirement account, compared to almost half of millennials, 56.1% of Gen X and 58.1% of baby boomers.?

Although Gen Z’s golden years are decades away, that’s not the only reason why many aren’t planning for retirement.?

Redfin data shows that present-day inflation has left the average Gen Z worker with less than 2% of their income after housing and other expenses. Meanwhile, the average millennial worker has about 26% of their income left after paying off expenses, largely because the typical income for millennials is more than double what it is for Gen Z, Redfin notes.?

And while Gen Z workers still have a long time before they reach retirement age, financial advisors recommend they start stocking away savings early to set them up for a financially sound future.?

Getting started

Since Gen Zers are early in their careers, and therefore earning less, financial advisor Bruce Ward suggests they begin by allocating a certain percentage of their paycheck toward a retirement account and plan to increase their contribution amount each year.?

When starting out, Briana Smith, who is a certified financial planner, says it’s important for young professionals to take advantage of their employer’s 401(k) match program, if they have one.?

“If they can't contribute the match amount, to maximize those ‘free’ dollars, they need to start with 1%. Something is better than nothing,” she says.

Juggling more than one financial goal

For Gen Zers who are pursuing multiple financial goals at once, personal finance expert David Wilson recommends they put money aside in an emergency fund, start paying off non-mortgage debt and contribute to a tax-advantaged retirement account, such as a Roth 401(k).

It’s important for recent graduates and other career starters to “balance paying off student loans and building up a cash reserve for their first house or getting married or having kids not too far down the road,” adds John Dyer, who is a financial advisor.

One way to make progress toward several goals? “Treat saving and investing like a bill,” says Northwestern Mutual’s Michael Norum. “Wifi, groceries, gas, rent, etc. get paid each month because they are automatically taken out of our bank account. Treat investing the same way.”

Knowledge is power

While investing in one’s future can feel overwhelming, wealth strategist Joyce Blue encourages Gen Zers to arm themselves with knowledge. “Speaking to a financial professional that can teach them the time value of money is a must,” she says. “This is a basic concept that should have been taught in schools and it wasn't.”

Blake Rose, owner of Pinnacle Strategies Insurance and Financial Services, advises early-career professionals to consider working with a financial advisor “because if they’re focusing on their own career, they either won’t have the time or expertise to successfully manage their own investments,” he says.?

Check out this post for more advice from financial advisors on how to plan for retirement, and see what money experts recently shared around National 401(k) Day last week.

??If you’re Gen Z, how have you started to think about retirement? Join the conversation below.?

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Getting a pulse on Gen Z

• Young shoppers dislike convenience? by Melissa Cantor: Convenience is for boomers? Though some e-commerce experts have long believed that multi-brand websites can offer a better experience by virtue of consolidating purchases, new data reveals that younger shoppers enjoy buying things via a brand’s own website. Seventy-eight percent and 74% of generations Y and Z, respectively, prefer direct purchases, compared to just 69% of Gen Xers and 60% of baby boomers. There are commonalities that transcend age, however: People of all generations expect to cut down on online shopping by roughly 30% in the coming year in the face of inflation. Here’s what people are saying.
• School gives out investment accounts by Harriet Sinclair: The University of Kentucky is aiming to teach its students how to manage their money by offering them free investment accounts. University president Eli Capilouto described the move as "experiential learning on steroids." As part of the program, offered in partnership with Fidelity, the school will also deposit "rewards" in the accounts of students who exhibit positive behaviors like visiting the gym or career counselor. Around $1 million is to be deposited into students' accounts in the first year, with the program expected to be rolled out to all UK attendees by fall 2023. Here’s what people are saying.