Optimism is a quality often attributed to younger generations. But when it comes to retirement, Generation Z (people aged around 25 and younger) doesn't exactly have a rosy view of their retirement.personal finance.
McKinsey's research shows that nearly 25% of Gen Zers don't expect to retire, and their reasons are quite practical. Many believe that the high cost of living and debt will keep them working well into their retirement years.
A major reason why Gen Z may have a bleak economic outlook is sky-high expectationsinflationhas made it harder for all Americans to afford basic necessities. According to the Bureau of Labor Statistics, the average person is spending money now$6,081 in monthly expenses, which is an increase of over $500 from 2021 and a whopping $1,822 from 2013.
Part of the pessimism that Generation Z has about retirement is causing them to save a significant portion of their income. And this in turn improves their retirement prospects.
Why Generation Z is in better financial shape than they think
A survey of Gen Z conducted by the Transamerica Center for Retirement Studies recently found that 67% of them are already saving for retirement. That's an impressive number of Gen Zers putting their money away, and the amount they save is just as remarkable.
Of those with a retirement account, Gen Zers save an average of 20% of their income.That's higher than the 15% recommended by Fidelity.
The average annual salary for Gen Z is $38,325, so that means some of them are saving $7,665 annually. Based on some of this data, we can now estimate what the hypothetical retirement of a generation of Zer might look like.
For simplicity's sake, let's assume a 25-year-old Gen Zer maintains the same salary and continues to spend about $638 per month ($7,665 divided by 12) toward retirement.brokerage accountin the next 40 years. Assuming the average annual return is 8%, our hypothetical retiree at age 65 would have saved $1.98 million.
Of course, this is just an example, and it's likely that the average income of our hypothetical Gen Zers will increase over time. Since social security only approx40% of your income for early retirementIf we have almost $2 million saved by age 65, that would go a long way toward creating a good retirement.
How to get started with a pension plan
No matter your age, you need to have a plan if you want to make progress toward your financial goals. Here are just a few tips to get you started.
- Use an investment calculator:Looking at what your monthly savings could be in retirement is a great motivator. US. The Securities and Exchange Commission has an easy-to-useinvesteringscalculatorit's a great retirement planning tool so you can see how your monthly contributions build wealth over time.
- Contribution to your employee's pension plan:If your employer offers a pension plan, it is usually a good idea to sign up for it. Many employers will link your contributions to this401(k)-planup to a certain percentage, and deposit money into your retirement account for free.
- Debt repayment:Have a lotcredit card debtor other high-interest debt can help get you on the path to your retirement goals. There are some excellent onesdebt payoff appsyou can use to help you tackle your debt and then refocus your finances on retirement.
If you need extra help with your retirement planning, you can always hire a professional to help you or even use arobo-advisorhelp plan your retirement strategy. Or talk to a Gen Zer. Chances are they have some good ideas.
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