What's retirement got to do with me?

If you’re a twenty-something who’s tired of hearing older adults tell you that “now is the time to invest,” or that “it’s important to start building wealth as a young adult,” you’re certainly not alone. For a long time, I found it absolutely mystifying that I should start thinking about something like saving for retirement when I’m still paying off my student loan debt—and that’s not to mention paying for rent, utilities, groceries, and (god forbid) actually putting some money into my savings. And that seems to be a consensus among many young adults: a Georgetown University study found that of the young adults who have outstanding student loans and consumer debt, nearly half are opting for debt repayment over retirement savings. It makes sense to prioritize today’s necessities? over tomorrow’s uncertainties, but just perhaps those older adults in your life may actually have a point. But why, and importantly, where to start? Well, let’s talk about it.?

1. What’s retirement got to do with me??

Here’s the crucial piece of it all that I certainly failed to realize until I came face to face with it: we are living longer than we ever have. Where adults used to reasonably expect to spend about 10-12 years in retirement, we can now expect to live around 20 years (or more) in retirement. That’s a massive jump—and while the prospect of more time to live life outside of the confines of an office sounds wonderful, it also comes with a large dollar sign. For many, financing a comfortable and secure retirement requires working longer: 19% of Americans 65 and older were still working in 2023, which is almost a twofold increase from the late 1980s. And, according to a Gallup survey, the average retirement age in 2023 was 62 years old—up from 59 in the early 2000s.?

That’s not to say working longer is entirely driven by necessity, as many older adults are driven to continue work out of interest and passion for what they’ve devoted their career to doing. And as more and more older adults remain active and engaged, it’s a promising indicator that our idea of what constitutes “old age” is changing. But in many other cases, it is indeed necessity at the helm. A Credit Karma survey last year found that over a quarter of people 59 and older had no retirement savings. And it’s not for lack of planning: part of the problem is that access to a retirement account varies greatly by industry and whether or not you’re a high earner. Defined-benefit plans— AKA traditional pensions, which provide a specified payment amount in retirement and allows employees to contribute and invest in funds and other securities over time—are now extremely rare, unless you work in the public sector, and only about half of workers have access to any type of retirement plan offered through their private employer.

It’s not easy to save but if you do, starting early can have an enormously positive impact on your retirement. Simply put, through the wonders of compounding, a dollar saved now is worth a lot more than a dollar saved later in your life. Imagine compound interest like this: if you invest $100, and it earns 5% interest each year, you'll have $105 at the end of the first year. At the end of the second year, you'll have $110.25. Not only did you earn $5 on the initial $100 deposit, you also earned $0.25 on the $5 of interest. While 25 cents may not sound like much at first, it adds up over time. Even if you never add another dime to that account, in 25 years you'll have almost $340. And with larger sums, you can imagine the value by the time you reach 65 or beyond.? Here is example of what happens if you start saving early versus later in life, at $200/month and assuming an 8% average return:

• If you started investing at 25: you will have $878,570 accumulated
• If you started investing at 35: you will have $375,073 accumulated?
• If you started investing at 45: you will have $148,236 accumulated

2. So then we’re just going to work forever??

Some of my peers have told me that they wonder if it’s really even worth continuing to put money in their 401(k) if they’re never going to be able to retire. And that sentiment is shared by many young folks who are taking a hard look at the economic outlook and their financial realities: according to a Prosperity Index Study by Intuit, about 66% of Gen Zers say they’re not sure they’ll ever have enough money to be able to retire. While it’s a fair fear to have (and one that I’ve certainly shared), we’re only damning ourselves to that reality when we accept such an idea as fact. If you are someone who loves what you do, and know that this is something you’ll want to keep at for as long as you’re able—wonderful! But if you’re someone who’d rather take off when it’s time, you can set yourself up for that reality. In both cases, it will still require you taking a hard look at your finances as soon as you’re able—ideally now.?

That’s not to say it’s going to be easy: saving money, especially now, is hard. Gen Zers are in an entirely different financial landscape than that of our parents, in large part driven by that pesky inflation and student loan debt. A 2021 study conducted by the Center for Retirement Research at Boston College found that 28- to 38-year-olds had built up less wealth than previous generations had by the same age, largely because of higher student loan debt. Meanwhile, the Deloitte Global 2022 Gen Z & Millennial Survey (which looks at more than 23,000 millennials and Gen Zers internationally) found that nearly half of them were living paycheck to paycheck, and the cost of living was also rated as one of their top concerns.?

So if you’re not thinking about retirement, and/or don’t want to think about retirement, I get it. But we all have to, and it will serve you better in the long run if you start thinking about it now—even if just in small doses.?

3. This is kinda bleak… Can you actually tell me what I’m supposed to do??

Fortunately, we are the digital generation. There are many easily accessible resources on the Internet for Gen Z to learn more about saving for retirement, or saving in general, which I’ll link at the end of this issue. But let’s lay it out in simple terms:?

1. 401(k). If you work for a company that sponsors a retirement plan such as a 401(k) or 403(b), start by checking if you’re eligible and if a company match is available. If you do have access to an account, start contributing as soon as you can and always at least pay yourself what the company matches. The great thing about 401(k) plans is that contributions are made with pre-tax dollars—meaning, the money goes into your retirement account before it gets taxed. This means that it not only grows much faster, but also that every dollar you save will reduce your current taxable income and you'll owe less in income taxes for the year. Yes, it’s a win-win. Learn more about 401(k) plans here.?
2. Withdrawing from your retirement funds. New legislation in the retirement landscape is taking effect—and poses to be hugely influential on the way we save and withdraw from our retirement savings. Up until now, the idea of putting aside money for retirement has been daunting for those who were concerned about their ability to access those funds in emergency situations. In many cases, that has led to the hugely consequential effect of not saving for retirement at all. But starting this year, new legislation will allow workers to withdraw up to $1,000 annually, penalty free, from retirement savings plans for emergencies—thereby reducing the disincentive to save for retirement. Learn more about withdrawing from retirement funds here.?
3. Help for freelancers. Under this aforementioned new retirement legislation, low and middle income workers (in many cases, this means young workers) will be provided with a government match for their retirement savings. Historically, freelancers, contractors, and others in non-traditional work settings have gone without the massive benefit of employer-sponsored retirement plans—but now, the federal government will deposit a 50% match on up to $2,000 of a worker’s contribution to a workplace or individual retirement account. Although it won’t take effect until 2027, this is poised to provide necessary relief for many thousands of people across the country who are without an employer plan. Learn more about this new government match here.?
4. Roth IRA. Anyone eligible can contribute to an employer's 401(k), but Roth IRAs (or Individual Retirement Accounts) have income limits—making it a suitable choice for early-career adults. When you open and contribute to a Roth IRA, you set aside after-tax dollars, which can then grow tax-free for decades. Another bonus: contributions in a Roth account can also be withdrawn at any time (at least 5 years after opening it) without taxes or penalties, making them useful for other goals, or even for emergencies. Learn more about Roth IRAs here.?

1. Invest! My brother always likes to tout how he was able to pay off his student loan debt within 5 years thanks to savvy investing. Well, good for him, but investing can be a huge asset to building early career wealth for other purposes. Your 20s is the time for you to take the most risk as an investor, such as focusing your portfolio on stocks, but be sure to invest in a diverse portfolio of different companies. The best part about investing is that you really don’t need much to get started—even purchasing a single share can be a major source of growth over a large amount of time. Learn more about investing here.

There are a myriad of other ways to start securing your financial future, but we’ll leave it at that for now. And, if nothing here is resonating with you, it can be helpful to seek out a financial advisor, or financial education on your own terms—much of which can be freely accessed online. Just check out this page from the Consumer Financial Protection Bureau, which breaks it all down by topic. Or these free personal finance courses. Or this guide to financial literacy in your 20s. Fortunately, the list goes on.?

The long and short of it:?

1. We’re living longer—and that means we’re working longer, and spending more years in retirement.?
2. Even if it seems daunting, distant, or even impossible, retirement can be accessible and achievable with proper planning. It may not be easy, but we can get it done.
3. 401(k) plans, Roth IRAs, and investment are among some of the most important things you can do for yourself now. But there are many other ways to secure financial stability and set yourself up for retirement. Check out the resources above, or this one here, to learn more.?