Gen Z not following the typical path to retirement

Only 20% of Gen Z are actively saving for retirement and just one in five say they will retire in the traditional sense, according to Surya Kolluri, head of the TIAA Institute.

The institute's report, From Gap Years to Golden Years: A look at Gen Z’s current thinking about retirement, finds many members of Gen Z are not following the traditional path to retirement. The leading reason Gen Z (ages 18-24) lacks retirement savings is because they don’t know where to begin (35%), according to the study. As a result, only 20% are saving for retirement.

Why Gen Z is not saving

This represents a significant change from Gen Z's parents and grandparents, and the generations who came before them, said Kolluri.

Gen Z values financial freedom, explained Kolluri. They want the freedom to switch careers, travel, and take breaks from work. Their focus on living in the moment and creating meaningful experiences reflects their need for flexibility, both at work and in their personal lives.

Meanwhile, things like student loan debt and high living costs make it hard to think about long-term financial goals like purchasing a home or saving for retirement.

“Over the next five years, we are likely to witness the beginning of one of the largest transfers of intergenerational wealth,” said Kolluri.

“This shift will place younger generations, particularly Millennials and Gen Z, at the forefront of reshaping the economy," she said, adding, "The delta between what younger generations have access to and where they think their retirement income will come from could have serious long-term consequences. It is critically important that younger generations save for retirement as soon as they can. We are all living longer, which means we all must think about how we can maximize our income during our working years, and how we replace our income in retirement.”

“Gen Z do not see their professional lives stopping at age 62, and they do not think they will work for the same company for their entire career,” said Kolluri, in explaining Gen Z’s choice of a different path to retirement. “Gen Z’s life goals include learning new skills, exploring the world, and having multiple careers with distinct breaks from work vs the traditional retirement. They are demanding more choice in how they think about retirement.”

Helping Gen Z save for retirement

And what steps can advisors take to work with members of Gen Z to save for retirement on their own terms? “At TIAA, we want to raise awareness about America’s growing retirement gaps and to start a conversation about how we close them over the longer term,” added Kolluri. “This starts by everyone asking themselves, 'Am I on track to retire?' By asking that question, we are bringing awareness to the issue.”

Kolluri said that advisors should help younger investors understand the power of compound interest. “Save a little bit, consistently,” he said. “Putting aside a dollar today will be worth more than one dollar tomorrow and is absolutely preparing yourself for your financial future. Whether it is $1 a day or a quarter, just get going and get started because that power of compounding and that behavior over time can really mean the difference when you think about your wealth.”

Also, Kolluri said, advisors should encourage younger investors to review their benefits package at work and talk with their retirement provider about ways to maximize savings through company matches and adding guaranteed lifetime income. “Our research shows that 41% of young adults aged 24-35 are not contributing to their employer-sponsored retirement plans. If their company offers a match, that’s free money!” he said.

Finally, Kolluri said, “we are encouraging younger generations to improve their financial literacy because knowledge is power. Gen Z has more access to financial knowledge and tools than ever before, and yet, a third of those in this generation who are not saving say it is because they do not know where to start. Financial literacy and knowing what financial services and retirement savings plans are for you will improve your long-term financial health. “

It also goes back to enacting policies and systems that make it easy for younger generations to save, Kolluri added. “We can design plans that make it easy, with auto-enrollment and auto-escalation features. And with the decline in pensions, we can redesign retirement plans so they include an in-plan annuity that can guarantee a paycheck for life. Retirement is not the end of the road. It is a new beginning, an open highway, and it needs to be well mapped out.”

The report was developed in partnership with UTA’s NextGen Practice (formerly JUV Consulting).

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.